Among the issues most commonly discussed are individuality, the rights of the individual, the limits of legitimate government, morality, history, economics, government policy, science, business, education, health care, energy, and man-made global warming evaluations. My posts are aimed at thinking, intelligent individuals, whose comments are very welcome.

19 March 2012

Obama: Oil is the Energy of the Past - Utterly Fallacious

In campaign speech after campaign speech, Obama has said that oil is the energy of the past.  This is another example of his dedication to making fallacious arguments.  Of course that statement is true, but fallacious has two meanings:  1) embodying a fallacy, and 2) tending to deceive or mislead; delusive.  Obama is a verbal magician apparently able to deceive about half of all Americans with his ability to make the misdirection argument.  The most momentary thought will allow anyone to recognize that our cars almost exclusively operate on gasoline or the occasional diesel, today.  Of course both are oil products. This makes oil the energy of today and some set of our tomorrows.

What is more, while Obama would like us to think electric cars will dominate tomorrow, any sane observer doubts they will dominate even in ten or twenty years.  Despite large tax credits and a certain political correctness in some crowds, electric vehicles are managing to sell only in the few hundreds a month.

Indeed, the as yet mythical 54.5 mpg cars that Obama likes to claim will reduce our oil consumption would not even be needed if electric cars are soon to replace gasoline-fueled cars.  If gasoline is going to be challenged, it is more likely the challenge will come from cars operating on natural gas, which has recently become very inexpensive thanks to the economic development of shale oil and gas deposits.  Yet, shale oil deposits will also give prolonged life to gasoline, so it is hardly the energy only of the past.

Another mainstay argument Obama is using in his campaign speeches is that the U.S. consumes 20% of the world's oil consumption, but has only 2% of its oil reserves.  This is another fallacious argument.  Once again, not because these numbers are wrong, but because they are meant to deceive.  Oil reserves is a shortening of proven oil reserves.  Oil in the ground is not a proven oil reserve until and unless the price of oil is high enough to allow its profitable removal using available technology.  As the price of oil goes up, the proven reserves tend to go up.  As technology improves, the proven reserves of oil increase.  In addition, an oil field has to be developed to a fair extent before there is an accurate enough assessment of how much oil there can be economically extracted with the available technology.  The development of an oil field is a very expensive enterprise, so it is generally done only as oil is needed.  In other words, it does not pay to prove a very large reserve of oil.

Why does Obama make this statement in all of his campaign speeches?  First, he is trying to minimize his guilt for the present rising oil and gasoline prices at this awkward time not long before he comes up for re-election.  He is making the argument that increasing America's reserves will do little to change the price of oil and gasoline because our reserves will still be small compared to our needs.  This excuses his many efforts to slow the approval of drilling permits offshore and on federal lands.  It excuses his discouraging risky drilling by increasing the royalties on oil extracted from federal lands and offshore from a level similar to that paid to private landowners to one 50% higher.  Contrary to the claims of many leftists, most of the federal lands are not National Parks and are classified as open to oil and gas drilling.  Drilling in the Gulf of Mexico in 2012 is expected to be 30% less than had been expected prior to the moratorium according to a recent commentary by Charles Krauthammer.  He also notes that leases in federal lands in the Rocky Mountains are down by 70% since Obama has been in office.

Less directly, the statement also tends to excuse his denying Americans more access to Canadian oil and easier access to the Bakken Formation oil of North Dakota, Montana, and South Dakota by his failure to approve the Keystone XL pipeline.  It tends to excuse his failure to lift the ethanol mandate that only makes our gasoline more expensive, as well as our food.

Second, he is trying to use the 2% reserves statement to imply that our oil is almost gone and that makes oil the energy of the past.  It justifies his so far fruitless efforts to develop electric cars as an alternative transportation mode.  It also justifies his draconian mandate that cars will have to have a 54.5 mpg gasoline efficiency, no matter what the increased cost of the cars may be and no matter how much their safety may be lessened.

Let us consider our past proven oil reserve situation.  The Energy Information Administration (EIA) gathers oil reserves data by surveying private companies.  Currently, these U.S. oil reserves are valued at 22 billion barrels of oil.  This is the same as the reserves reported in much of the 1940s.  Of course if the oil reserve were the oil in the ground in the U.S., we would have to subtract all the oil we had used from U.S. production since the 1940s and we could not possibly have the same amount of oil left now as we had then.  Obviously, there is much more oil in the ground than is given by the oil reserve figure.

According to a 2006 report from the EIA, even then we knew we had 400 billion barrels of oil that could be recovered using the then current technologies.  A Rand Corp. report found that there were an additional 800 billion barrels of oil shale in Wyoming and the surrounding states that could be extracted with current technology.  That area alone could produce three times the oil in the reserves of Saudi Arabia.  Altogether, the Green River Formation in Wyoming has an estimated 1.4 trillion barrels of oil shale according to the U.S. Geological Survey (USGS).  The EIA updated map on our oil and gas shale formations as of May 2011 is shown below:

According to a variety of government data, the Institute for Energy Research has found that the U.S. has at least 1.4 trillion barrels of technically recoverable oil.  This is about 200 years of our oil needs without any imports.  The actual amount of oil is much higher for several reasons.  First of all, almost every estimate of oil in an oil deposit area proves low.  Once the field is more developed, it is found that there is more oil than was known early on.  For instance, in 1995, the USGS thought there were 151 million barrels of recoverable oil in the Bakken Formation.  In 2008, it increased the estimate to 3 to 4.3 billion barrels of oil.  Current estimates run as high as 20 billion barrels of recoverable oil there with today's technology.  The formation is estimated to have a total of 500 billion barrels of oil, much of which may be recoverable in the future.  The earlier estimate of oil in the National Petroleum Reserve in Alaska was increased four-fold in 2002.  Estimates of undiscovered oil are another 2.3 trillion barrels of oil.  Basically, we are not on the verge of running out of oil.

What is more, with the U.S. development of the technology to extract oil from shale oil deposits, many new oil resources will be developed all around the world.  For instance, oil shale deposits are known in Poland and in Great Britain.  They will be discovered in many other places around the world.  We will be able to import oil for a long time from other parts of the world as well as develop our own very extensive sources of oil.  The reign of oil for our transportation needs need not be short.  Of course, it will be fine if it is displaced by some better technology that is economically justified, but we are hardly in the dire straits Obama misleadingly claims we are in.  The man is an evil magician directing our attention away from the critical and relevant facts.

Oddly enough, Obama may release oil from the Strategic Oil Reserve (SOR) once again as he did in June 2011 to convince voters that he is doing something about the high price of gasoline.  There was a drop-off in oil from Libya then.  He released 30 million barrels of oil from the Strategic Oil Reserve when the U.S. uses 20 million barrels of oil a day and the world was using 89 million barrels a day.  It is incongruous that he could claim this release of such a small amount of oil would make a difference, but our developing our huge deposits of oil generally in the U.S. will make little difference!  Actually, the release then of the oil from the Strategic Oil Reserve made no real difference in the price of oil or of gasoline.  Compared to developing oil fields with billions of barrels of oil in them, a release of 30 million barrels is a very puny action.  The market response to the last release of SOR oil was:


The effect on prices of this underwhelming 30 million barrels of oil was, well, underwhelming.  Fortunately, over the longer haul, we are very able to extract much larger amounts of oil from within the U.S. and around the world than is being extracted today.  This effort, if Obama would only allow it, will keep our oil price and gasoline price reasonable for quite some time.  But with his placing offshore and federal land areas off limits for drilling with his super-slow permitting process and his high royalties, his policies will long leave us vulnerable to radical price fluctuations.  Of course, he will falsely blame these on the natural scarcity of oil and the nefarious actions of speculators, as all good socialists do again and again.

Yet every investigation into the role of speculators shows them to have had no real negative or illegal effects.  Good studies show that they in fact tend to smooth out price fluctuations.  Their purpose is to anticipate changes in supply and demand and to try to see that they match one another.  Only those who do not understand the market and supply and demand are readily deceived by this socialist claim that speculators are evil.

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