Why Some Republicans are Delusional About Oil and Energy Policy
Ed. note: This piece was first published on Robert Rapier”s R-Squared Energy Blog.
In a recent video blog about energy politics, I stated that in my opinion each of the major political parties in the U.S. only gets half of the energy picture. Democrats tend to demonize oil usage, with many believing that we can shift to renewables for our energy needs. To be clear, we can – but not in the way they imagine. They simply underestimate the role oil plays in our lives, and therefore overestimate the ease of a transition. As a result, they feel they have little use for oil companies, and so they are perpetually at war with the oil industry. Of course renewables certainly have a role, and must be the long-term answer. But a little realism about the pathway from here to there is in order.
But this column isn’t about the Democrats.
On the Republican side, the common view is that we are awash in oil and gas, if only the environmentalists would clear out and let the oil companies drill. This view was recently articulated by current Republican flavor-of-the-month Newt Gingrich during the CNN Republican Presidential Debate:
BLITZER: The argument, Speaker Gingrich – and I know you’ve studied this, and I want you to weigh in – on the sanctioning of the Iranian Central Bank, because if you do that, for all practical purposes, it cuts off Iranian oil exports, 4 million barrels a day.
The Europeans get a lot of that oil. They think their economy, if the price of gasoline skyrocketed, which it would, would be disastrous. That’s why the pressure is on the U.S. to not impose those sanctions. What say you?
GINGRICH: Well, I say you – the question you just asked is perfect, because the fact is we ought to have a massive all-sources energy program in the United States designed to, once again, create a surplus of energy here, so we could say to the Europeans pretty cheerfully, that all the various sources of oil we have in the United States, we could literally replace the Iranian oil.
Now that’s how we won World War II.
Later on, he stated:
GINGRICH: But let me make a deeper point. There’s a core thing that’s wrong with this whole city. You said earlier that it would take too long to open up American oil. We defeated Nazi Germany, fascist Italy, and Imperial Japan in three years and eight months because we thought we were serious.
If we were serious, we would open up enough oil fields in the next year that the price of oil worldwide would collapse. Now, that’s what we would do if we were a serious country. If we were serious…
That’s a fairly good summation of a common Republican position: The reason we aren’t energy independent is that we simply aren’t serious enough about it. We can have all the oil we want – live, drive, prosper – if we just get serious. Just to put this in perspective, as Arthur Berman points out at The Oil Drum, to achieve what Gingrich suggested would require that we find six new Prudhoe Bay-sized oil fields in the next year.
So while Democrats may undervalue our need for domestic oil, Republicans can be wildly delusional about the prospects for domestic oil production to supply our needs. In each case, there are elements of truth. No doubt we can produce more oil, and without a doubt there remains oil to be discovered. As I have pointed out before, both oil and natural gas production have been on the rise for the past couple of years. In fact, natural gas has set production records. So if prices are high enough, there are marginal sources that will contribute more to U.S. energy supplies. But replacing the 8 million barrels per day that we currently import is wildly unrealistic, and would require the U.S. to greatly exceed the 1970 oil production peak of nearly 10 million barrels of oil per day. (Current U.S. oil production is under 6 million barrels per day).
U.S. Oil Production Peaked in 1970 at Nearly 10 Million Barrels per Day
Misleading Study Obfuscates Recoverable Reserves
But where do some Republicans get these notions? From reports like this one: U.S. Experiencing the Beginning of a Long-term Energy Boom:
On December 6th, the Institute for Energy Research released a groundbreaking report claiming that the amount of oil that is technically recoverable in the U.S. is more than 1.4 trillion barrels, with the largest deposits located offshore, in portions of Alaska, and in shale deposits throughout the country. The report estimates that when combined with resources from Canada and Mexico, total recoverable oil in North America exceeds nearly 1.7 trillion barrels.
To put this into perspective, the largest producer in the world, Saudi Arabia, has about 260 billion barrels of oil in proved reserves. It’s suggested that the technically recoverable oil in North America could fuel the U.S. with seven billion barrels per year for almost 250 years.
So, what does this mean for our energy future? For starters, it could mean the end of our reliance on imported oil from unfriendly nations.
I find these sorts of reports highly misleading, for the following reason. It is true that the U.S. has tremendous oil resources. But it is also true that most of those resources are not economically recoverable. An analogy I have used in the past is the amount of gold in the oceans. There are trillions of dollars of gold in the oceans that is technically recoverable. But that gold is not – and in my opinion will never be – economically recoverable. So it would be misleading for me to argue that we can have all the gold we want if we just get serious about it.
In fact, I tracked down the report referenced above from the Institute for Energy Research: North American Energy Inventory. Then I tracked one of the references they used to come up with their estimate of more than a trillion barrels of “technically recoverable” oil in the United States. The source is a U.S. Department of Energy report: “Undeveloped Domestic Oil Resources.” What that report says is quite different than the implications that are being drawn. The following chart tells the tale:
So of the 1.3 trillion barrels of oil from this DOE report, most is not technically recoverable, and the only category that is known to be presently economically recoverable is that tiny sliver of 22 billion barrels that says “Proved Reserves.” This accounts for less than 2% of the 1.1 trillion barrels categorized as “Undeveloped Oil In-Place.”
A common problem here is the confusion between resources and reserves. Back to the analogy of gold in the oceans, the resource is 25 billion ounces of gold in the oceans. That is the estimated inventory of gold in the oceans. The reserve – which means the amount of that resource that is technically AND economically recoverable – is zero ounces of gold. This is because it may require 10 or 100 times the value of the gold to extract and purify it from the oceans.
The truth is that it will always take too much energy to produce some of those oil resources, placing some of them forever out of reach. But, the magical thinking from many Republicans here is that the oil is there if the political will is there for taking it. The danger in this kind of thinking is exactly the same as the danger in thinking we can smoothly transition to renewables: It diminishes the urgency of our energy predicament. After all, if people believe that renewables will save us, or that more drilling will save us – we are going to put off making the tough decisions that could really save us in the long run.
But the part of the equation that Republicans do get right is to the extent that we use oil, we should produce as much of that as possible domestically. The part the Democrats get right is that we need to reduce the amount of oil that we actually need by pursuing policies that encourage conservation and alternatives. If both parties could broadly work together on these two goals, we would have the makings of a solid energy policy.