The United States Oil Endowment

The United States is the world’s third largest oil producer and the shale oil revolution will continue to change the energy landscape. Oil from the Bakken Shale Oil formation in North Dakota, for example, has made that state prosperous in both jobs and economics.

People are flocking there for work due to the state’s 3.5 percent unemployment rate[2], the lowest in the country, and its economic growth of 7.1 percent.[3] Those figures compare to a 9.0 percent unemployment rate[4] for the entire United States and a 3.0 percent national gross domestic product growth rate.[5] North Dakota is now the fourth largest oil producing state in the nation, behind Texas, Alaska, and California,[6] and slated to overtake California next year.[7]

According to Harold Hamm, the Oklahoma-based founder and CEO of Continental Resources, the 14th-largest oil company in America, there are 18,000 unfilled jobs in North Dakota that pay $60,000 to $80,000 per year. The North Dakota economy is expanding so fast that the state has a housing shortage. And because it has a budget surplus, it is considering ending income and property taxes.[8]

The U.S. Geological Survey in 2008 estimated that the Bakken Shale Formation of the Williston Basin Province in Montana and North Dakota could contain as much as 4.3 billion barrels of recoverable crude, 25 times as much as their previous estimate made in 1995.[9] Due to the Bakken oil field, proved reserves in North Dakota almost doubled from 573 million barrels in 2008 to 1,046 million barrels in 2009, according to the Energy Information Administration.[10]

South Dakota may soon follow in North Dakota’s footsteps. The Tyler Formation extends from the western part of North Dakota into northwest South Dakota. According to North Dakota State geologist Ed Murphy, the formation may hold up to one-third the volume of oil estimated in the Bakken, the largest continuous oil accumulation that the U.S. Geological Survey had ever assessed.[11]

A Texas field, known as the Eagle Ford, is one of about 20 onshore oil fields that could together increase the nation’s oil output by 25 percent within a decade. The Eagle Ford field is producing more than 100,000 barrels a day and could reach 420,000 by 2015, according to Bentek Energy. In Dimmit County, Texas, the unemployment rate has fallen to half, and sales tax receipts are up 70 percent.

Ohio is looking to produce oil from the Utica shale oil formation, which spans 8 states and Canada, with the richest deposits in eastern Ohio.[13] It is expected that 204,000 jobs would be created by 2015. The industry is expected to add $22 billion into the economy and $12 billion in related employee wages.[14] The oil would benefit east coast refiners and oil consumers. Refiners in the east coast frequently have to purchase oil based on Brent crude prices, which can cost as much as $24 a barrel more than West Texas Intermediate. [15]Colorado is reassessing the oil in the 90 million-year-old oil bed called the Niobrara, which is estimated to contain two billion barrels that were previously considered too costly to produce. The Niobrara runs into Colorado from southeast Wyoming and Nebraska.[12] These shale oil fields could create more than two million new jobs and that tens of billions of dollars in new tax receipts in Texas, Oklahoma, Colorado, California, Ohio, Michigan and Kansas. According to IHS CERA, an energy research firm, shale and other “tight rock” fields are currently producing about half a million barrels of oil a day but could produce up to three million barrels a day by 2020. In 2011 alone, oil companies are investing an estimated $25 billion to drill 5,000 new oil wells in tight rock fields.[16]

The United States also has vast oil resources offshore in the Gulf of Mexico, along the Atlantic and Pacific coasts, in the Arctic National Wildlife Refuge (ANWR), in the National Petroleum Reserve in Alaska (NPR-A), and in the waters of the Arctic. The Bureau of Ocean Energy Management, Regulation, and Enforcement estimates that the Outer Continental Shelf, which encompasses 1.76 billion acres of submerged, taxpayer-owned lands, contains 86 billion barrels of technically recoverable oil.[17] ANWR alone is estimated by the U.S. geological Survey to have 10.4 billion barrels of technically recoverable oil, and the NPR-A is estimated to have 10.6 billion barrels.[18]

The U.S. Geological Survey’s (USGS) mean estimate of the amount of oil in areas north of the Arctic Circle in 33 geological provinces is 90 billion barrels.[19] Alaska’s outer continental shelf is estimated to contain 25 billion barrels of oil, approximately equivalent to the reserves of Angola, a member of the OPEC.[20]

Shell has plans to drill for oil in the Beaufort Sea off Alaska’s northern coast and has already invested more than $3 billion in exploration and paid $2.2 billion for leases off the northwest coast of Alaska in the Chukchi Sea. The Interior Department estimates that the Beaufort Sea could hold as much as 7 billion barrels of oil and the Chukchi Sea could hold as much as 12 billion barrels of oil.[21] Shell originally planned to begin drilling in 2010, but its efforts were suspended after the Gulf of Mexico oil spill in April when the government put a moratorium on all offshore drilling and then again in 2011 because the Environmental Protection Agency revoked a permit it had previously granted. Moving the equipment and making other necessary preparations is expected to cost more than $100 million for a season (105 days) of energy exploration.[22]

Canada’s Oil Endowment

Canada ranks third in proved oil reserves behind only Saudi Arabia and Venezuela.[23] It has 175 billion barrels of proved reserves, consisting mostly of oil sands. Oil sands consist of very heavy oil mixed with clay and sand that requires separation of the impurities before capturing the oil. The process requires more energy than conventional oil production and therefore results in slightly higher carbon dioxide emissions. According to Daniel Yergin, the carbon dioxide emissions of oil sands production are only 5 to 15 percent higher than those resulting from the average barrel of oil consumed in the United States when the entire life cycle, well-to-wheel, is taken into consideration.[24]

Due in large part to oil sands production, Canada has recovered all the jobs it lost in the 2009 recession. Alberta’s oil and gas industry supports more than 271,000 direct jobs and hundreds of thousands of indirect jobs in sectors such as construction, manufacturing, and financial services. The province has an unemployment rate of 5.6 percent compared to Canada’s national rate of 7.3 percent and the 9 percent unemployment rate for the United States.[25]

The latest controversy surrounding Canada’s oil sands is the Keystone XL pipeline proposal to move oil from Alberta to Texas. The U.S. State Department has been considering the permit to cross the border from Canada for more than three years. The pipeline is designed to move 700,000 barrels a day to refineries in Texas by 2013 at a cost of $7 billion.[26] Opponents to the pipeline argue that oil sands are more corrosive than conventional crude and pose unique dangers to aquifers along the pipeline route.[27] The pipeline, which would run 1,700 miles, would add just one percent to the oil pipeline network in this country.[28] The Keystone XL pipeline will provide $20 billion in investment with the construction phase requiring 13,000 direct hires, and indirect new jobs could total 118,000 in the United States.[29]

Whether the United States allows the pipeline to be built or not, the United States will be importing Canadian crude and getting it here by barge, rail, or truck as it does now. Canada is our largest provider of imported oil and over half of it currently consists of oil sands. This share will be increasing in the future. Further, the oil that we do not import from Canada will certainly go to other buyers, such as China.

China is already investing in Canadian oil sands. In the past 18 months, it has invested $15 billion in Alberta alone.[30] The investment will help firms increase production and expand operations at existing projects. Currently, there is no way to get the crude to Asian markets, but a 731-mile pipeline, the Northern Gateway, has been proposed to carry as much as 525,000 barrels per day from Alberta to Kitmat, British Columbia, where it would then be transported by tanker to Asian markets. China has agreed to help finance the pipeline, which is estimated to cost $5.5 billion. The project is currently tied up in disputes with the environmental community.[31]

Brazil’s Oil Endowment

Brazil has about 15 billion barrels of proved oil reserves in its sub-salt offshore fields. They lie in a 2 kilometer deep salt layer under the seabed that is estimated to hold up to 50 billion barrels of oil.[32]  These ultra-deep deposits are drilled at up to three times the normal pressure for offshore oil. Estimates have production as much as 5 million barrels a day by 2020.[33] The sub-salt’s share of total domestic oil production in Brazil is expected to increase from 2 percent in 2011 to 40.5 percent in 2020.[34]  New breakthroughs in technology made possible the identification and development of these resources.

Argentina’s Oil Endowment

Another find in South American unconventional oil is in the Neuquen Province of Argentina where 927 million barrels of shale oil were recently discovered. YPF, Argentina’s largest oil and gas firm, has been exploring for shale oil since 2007. The field will roughly double the company’s reserves and helps put Argentina in third place behind the United States and China in terms of having the world’s third-largest probable reserves of shale oil, according to the Energy Information Administration.[35] The discovery is part of YPF’s five-year oil and gas exploration program in Argentina. It expects to invest about $2.9 billion in exploration and production during 2011, the most it has invested in at least 20 years. The company has outlined another 502-square-kilometer area that could contain additional oil and gas resources.[36]

Conclusion

In the 1970s, reports provided to President Carter concluded that our domestic oil resources would be exhausted by the end of the century. At that time, global proven reserves were about 600 billion barrels. Since then, we have consumed over 700 billion barrels of oil globally and proved oil reserves worldwide now exceed 1.4 trillion barrels.

Estimates of oil resources are generated by geologists based on limited physical data, expectations about prices, and existing technology. But expectations and technology change and improve over time. The estimates of the Bakken are one good example. After all, the 2008 USGS estimate of recoverable oil was 25 times larger than the estimate a mere 13 years earlier.

In oil fields, only 35 to 40 percent of oil in place is initially produced. As oil prices increase and as technology changes over time, there are increased incentives to invest in production and technology to squeeze more oil from existing fields. Advances in technology enable companies to increase recovery from existing fields and to produce oil from unconventional sources that were uneconomic at lower prices. As long as the price of alternatives is higher than the price of producing the marginal barrel, it makes economic sense to produce more and to invest in technologies for finding and producing oil.[37]

And so it is with North American and South American oil. The newer finds in Canada, the United States, Brazil, and Argentina are now economic due to technological breakthroughs in drilling and the sustained higher price of crude that make unconventional sources of crude economic. These new finds can make the United States nearly independent of crude oil from the Middle East in the future. To do that, the United States must set policies conducive to their production and consumption in this country.

[1] The Washington Post, Oil’s new world order, October 28, 2011, http://www.washingtonpost.com/opinions/daniel-yergin-for-the-future-of-oil-look-to-the-americas-not-the-middle-east/2011/10/18/gIQAxdDw7L_story.html

[2] Bureau of Labor Statistics, http://data.bls.gov/search/query/results?cx=013738036195919377644%3A6ih0hfrgl50&cof=FORID%3A10%3BNB%3A1&ie=ISO-8859-1&q=state+unemployment+rate&term.x=0&term.y=0&filter=0&sa=Search#1860

[3] Bureau of Economic Analysis, http://www.bea.gov/newsreleases/regional/gdp_state/gsp_newsrelease.htm

[4] Bureau of Labor Statistics, http://www.bls.gov/cps/

[5] Bureau of Economic Analysis, http://www.bea.gov/national/index.htm#gdp

[6] Energy Information Administration, http://www.eia.gov/state/state-energy-rankings.cfm?keyid=28&orderid=1

[7] Business Week, ND likely to pass Calif. As oil producer this year, October 14, 2011, http://www.businessweek.com/ap/financialnews/D9QCBMBO1.htm

[8] Wall Street Journal, How North Dakota Became Saudi Arabia, October 1, 2011, http://online.wsj.com/article/SB10001424052970204226204576602524023932438.html?mod=WSJ_Opinion_LEADTop

[9] Geology, Assessment of Undiscovered Oil Resources in the Devonian-Mississippian Bakken Shale Formation, Williston Basin Province, Montana and North Dakota, 2008, http://geology.com/usgs/bakken-formation-oil.shtml , U.S. Geological Survey, 3 to 4.3 Billion Barrels of Technically Recoverable Oil Assessed in North Dakota and Montana’s Bakken Formation-25 Times More Than 1995 Estimate-, April 10, 2008, http://www.usgs.gov/newsroom/article.asp?ID=1911 .

[10] Energy Information Administration, http://www.eia.gov/dnav/pet/pet_crd_pres_dcu_SND_a.htm

[11] Business Week, North Dakota’s booming oil patch swelling south, October 19, 2011, http://www.businessweek.com/ap/financialnews/D9QFL9MG2.htm

[12] New York Times, Drilling in Fast-Growing Areas Ushers in New Era of Tension, October 24, 2011, http://www.nytimes.com/2011/10/25/us/oil-drilling-in-new-areas-ushers-in-era-of-tension.html?_r=1&partner=rss&emc=rss

[13] The Wall Street Journal, Utica Shale Energizes Deal Frenzy in Ohio, September 27, 2011, http://online.wsj.com/article/SB10001424052970204010604576592783750697202.html

[14] Youngstown News, Fracking could create 200K Ohio jobs, September 21, 2011, http://www.vindy.com/news/2011/sep/21/study-fracking-could-create-200k-ohio-jo/

[15] Wall Street Journal, Producers, Refiners Sniff Opportunity in Rust Belt Oil Shale, August 16, 2011, http://online.wsj.com/article/SB10001424053111903392904576512671360899338.html

[16] The New York Times, Shale Boom in Texas Could Increase U.S. Oil Output, May 27, 2011, http://www.nytimes.com/2011/05/28/business/energy-environment/28shale.html?pagewanted=2&_r=2&nl=todaysheadlines&emc=tha2

[17] Institute for Energy Research, http://www.instituteforenergyresearch.org/gas/us-energy-facts/

[18] Institute for Energy Research, http://www.instituteforenergyresearch.org/2008/07/10/alaskas-northern-coastal-plain-npr-a-prudhoe-bay-and-anwr/

[19] U.S. Geological Survey, http://pubs.usgs.gov/fs/2008/3049/fs2008-3049.pdf

[20] New York Times, http://www.nytimes.com/2011/02/04/business/global/04shell.html

[21] U.S. Department of the Interior, The Next Five-Year OCS Oil and Gas Leasing Program (2012-2017), http://www.doi.gov/whatwedo/energy/ocs/QA_2012-2-17.cfm

[22] New York Times, http://www.nytimes.com/2011/02/04/business/global/04shell.html

[23] Energy Information Administration, International Energy Outlook 2011, Table 5, http://www.eia.gov/forecasts/ieo/table5.cfm

[24] The Washington Post, Oil’s new world order, October 28, 2011, http://www.washingtonpost.com/opinions/daniel-yergin-for-the-future-of-oil-look-to-the-americas-not-the-middle-east/2011/10/18/gIQAxdDw7L_story.html

[25] The Wall Street Journal, Canada’s Oil Sands Are a Job Gusher, September 12, 2011, http://professional.wsj.com/article/SB10001424053111904836104576560933917369412.html?mg=reno-secaucus-wsj

[26] Business Week, Enbridge’s Oil Sands Project is Years Early, Says IHS CERA, October 6, 2011, http://www.businessweek.com/news/2011-10-06/enbridge-s-oil-sands-project-is-years-early-says-ihs-cera.html

[27] The New York Times, A White-Hot future for oil and Gas, October 10, 2011, http://www.nytimes.com/2011/10/11/business/energy-environment/a-white-hot-future-for-oil-and-gas.html?pagewanted=3&_r=1

[28] The Washington Post, Oil’s new world order, October 28, 2011, http://www.washingtonpost.com/opinions/daniel-yergin-for-the-future-of-oil-look-to-the-americas-not-the-middle-east/2011/10/18/gIQAxdDw7L_story.html

[29] The Wall Street Journal, Canada’s Oil Sands Are a Job Gusher, September 12, 2011, http://professional.wsj.com/article/SB10001424053111904836104576560933917369412.html?mg=reno-secaucus-wsj

[30] China invests billions in Canada oil sands, September 19, 2011, http://www.chron.com/business/article/China-invests-billions-in-Canada-oil-sands-2176114.php

[31] China Invests in Canadian Oil Sands, September 19, 2011, http://www.chron.com/business/article/China-invests-billions-in-Canada-oil-sands-2176114.php

[32] Petrobas chief bullish on Brazil oil output, August 1, 2011, http://www.ft.com/intl/cms/s/0/0db3473c-bc59-11e0-acb6-00144feabdc0.html#axzz1XOgKrBf1

[33] The Washington Post, Oil’s new world order, October 28, 2011, http://www.washingtonpost.com/opinions/daniel-yergin-for-the-future-of-oil-look-to-the-americas-not-the-middle-east/2011/10/18/gIQAxdDw7L_story.html

[34] Petrobas chief bullish on Brazil oil output, August 1, 2011, http://www.ft.com/intl/cms/s/0/0db3473c-bc59-11e0-acb6-00144feabdc0.html#axzz1XOgKrBf1

[35] Business Week, Respol Gains Most in 13 Months After Argentine Unit Oil Find, November 8, 2011, http://www.businessweek.com/news/2011-11-08/repsol-gains-most-in-13-months-after-argentine-unit-oil-find.html

[36] Wall Street Journal, YPF Finds 927 million barrels of Shale Oil in Argentina, November 7, 2011, http://online.wsj.com/article/BT-CO-20111107-712759.html

[37] Fuel Fix, Flawed Forecasts Can’t Trump Innovation and Technology, October 11, 2011, http://fuelfix.com/blog/2011/10/11/flawed-forecasts-cant-trump-innovation-and-technology/

Oil Flirting With Previous Highs

As the chart below shows, oil prices are on their way to surpassing the previous peak set back in the summer of 2008:

No one knows the future, and the trend may of course reverse itself, particularly if the global economy should fall back into recession. Yet most analysts predict that oil prices will continue to rise (as they typically do) into the summer months, possibly surpassing the record levels of $145 a barrel (for a futures contract) set in July 2008.

The Significance of Spare Oil Capacity

Industry analysts often use the metric of spare oil capacity as an important factor in price movements. The following chart from EIA shows the surplus crude oil production capacity of OPEC nations, which is effectively the spare capacity of the entire world (since other major producers are operating nearly at full capacity):

The fit is not perfect—there are obviously other influences at work—but the chart of spare capacity mirrors the first chart of oil prices. After the dot-com recession began in the early 2000s, oil prices dropped and spare capacity increased. Then by 2003 the economy had picked up steam, leading to rising oil demand, falling spare capacity, and higher oil prices. From 2005 – 2007, spare capacity increased somewhat, and oil prices oscillated in a narrow band. But then in 2008, spare capacity began dropping again, which occurred as prices skyrocketed. As the global economy went into severe recession in late 2008, prices crashed and spare capacity shot way up again. Now, the trends are going the other way, with prices rising and spare capacity falling.

An important qualification to the EIA graph of spare production capacity is that it is calibrated in absolute physical amounts—millions of barrels of oil per day—when the economically relevant figure is spare capacity relative to world consumption.

For example, the EIA’s estimated spare capacity for 2010 is slightly higher than the figure for the year 2001. On the face of it, this might suggest that oil prices (adjusted for price inflation) should have been lower in 2010 than they were in 2001.

However, we need to account for the fact that world oil demand grew strongly over the past decade. In 2001, world oil production was 77.7 million barrels per day. By 2010, average daily oil production had grown to 86.3 million barrels per day.[1] Thus a safety margin of a particular number of barrels per day in spare capacity would be less reassuring in 2010 versus 2001.

The Danger of Disruption

With the world as a whole operating on a fairly tight margin, market prices are pushed upward to reflect the dangers of imminent supply disruptions. For example, many analysts attribute some of the recent price hikes in oil to the disturbances in the Middle East.

In the abstract, Libya’s 1.7 million barrels per day of output might seem too small to induce large swings in world oil prices. But Libya’s output represents more than a third of the world’s total spare capacity. Even more sobering is the fact that Iran’s daily output of more than 4 million barrels per day translates to more than 90 percent of the world’s spare capacity.

In short, the world oil market can handle one major disruption in supply from the volatile Middle Eastern producers (Iran, Iraq, Libya, etc.), but only one. Beyond that, the world would be physically incapable of producing enough barrels of oil to satisfy the current levels of consumption. In such a scenario, the market price of oil would have to rise very sharply in order to ration the available barrels among potential buyers.

Because the production and consumption margin are so thin, the market price has already risen as the situation unfolds in the Middle East. Although people decry “the speculators” for making gasoline more expensive, this is exactly what we want markets to do. The higher price brings forth supplies from other sources, and it leads to lower current consumption allowing for the build-up of inventories.

What Policies Can Help?

If the problem is that world oil production is having a hard time keeping up with growing demand, then one obvious solution is to remove government constraints on further development of oil resources. There are many billions of barrels of oil that could be extracted from regions controlled by the U.S. federal government, if only it would give producers the green light.

What of policies designed to limit consumption? Should the government impose taxes on gasoline, or give subsidies to non-petroleum fuels, in an effort to reduce the world demand for oil?

From an economic perspective, the answer is no—this would be a cure worse than the disease. Market prices automatically ration the available quantity of oil to the people who want to use it. The purpose of opening up ANWR and the Outer Continental Shelf to development is that doing so would make petroleum fuels more affordable for consumers.

In contrast, the government doesn’t help consumers by artificially making gasoline use even more expensive (through tax hikes), or by taking funds from where private investors would put them, and instead channeling them into unprofitable “green” energy lines. After all, Americans always have the “option” of not using gasoline and other petroleum-based products, if they become too expensive. The government doesn’t do them any favors by forcing them to restrict their use.

Conclusion

The inexorable rise in the world demand for oil, coupled with the political upheavals in the Middle East, underscore the narrow margin of spare production capacity. If policymakers want to ease this situation—and thereby take pressure off of oil prices—they should remove legal and regulatory obstacles to further oil production.

[1] Oil production data are available (after adjusting the settings) at this interactive EIA table.

We have already discussed President Obama’s support for Brazilian offshore drilling, even while his Interior Secretary continues to drag his feet on granting permits for domestic development off American shores.

Source: U.S. Dept. of Energy

Other examples of this split-personality syndrome are those calling to draw down the Strategic Petroleum Reserve (SPR). Proponents of this plan argue that the increased availability of oil would lower gasoline prices and help beleaguered Americans. Yet many of these same people do not support drawing down the petroleum “reserves” sitting in the ground in ANWR or on the Outer Continental Shelf.

This strategy baffles us, because the SPR is a smaller stockpile than the other deposits that are currently off-limits to development. Furthermore, economic theory suggests that ending the permitorium might reduce oil prices right now even more than drawing down the SPR.

Senator Jay Rockefeller: More Oil Helps Americans

In a recent USA Today op ed, Senator Jay Rockefeller gave a standard case for tapping into the SPR. Here are some excerpts in which Rockefeller makes the obvious connection between abundant energy and a healthy economy:

Gas prices are not just a short-term inconvenience — they are an unsustainable burden on our economy and a challenge to our efforts to bring this country out of the greatest economic recession since the Great Depression. Rapidly rising gas prices caused by threats to the global oil supply hurt business and industry.

To reduce the very real burden on Americans and address any further oil supply disruptions, I have asked President Obama to consider releasing oil from the Strategic Petroleum Reserve.

We sympathize with Rockefeller’s explanation. High gasoline (and other energy) prices are a burden on Americans, and pose a drag on the economy which is already struggling. We simply point out that Rockefeller is unwittingly making a stronger argument for removing the federal impediments to the development of America’s oil reserves.

Comparing the SPR with Other “Reserves”

According to the official website, the Strategic Petroleum Reserve (as of late November) had a total of 726.5 million barrels of oil stockpiled for an emergency, with 434 million barrels of sour crude and the balance consisting of sweet crude. Although an impressive figure, the number pales in comparison to the estimated crude domestically available in areas currently off-limits to development.

For example, the “1002 Area” of the Arctic National Wildlife Refuge (ANWR) has a mean expected 10.4 billion barrels of technically recoverable oil, according to the government’s own survey. Once up and running, ANWR alone could yield one million barrels of oil per day in production, which would make it the single-largest producing field in North America.

If we turn our attention to the Outer Continental Shelf—of which 97 percent does not have leases for development—again the government’s own estimates claim there are 86 billion barrels of oil.

If policymakers think it makes sense to tap into the SPR, with its relatively tiny 726.5 million barrel stockpile, why not allow American companies tap into the other reserves under their jurisdiction? ANWR and the OCS combined have more than one hundred times the amount of oil stored in the SPR.

Lowering Prices Now or in the Future?

Back in 2008, I testified to Congress on the matter of rising oil prices (see part 1 and part 2). Naturally I made the case that if the government wanted to lower gasoline prices, it should eliminate its (then still official) moratorium on offshore drilling and other impediments to oil exploration on federal lands.

The main objection I received was that even if full approval were granted immediately, it might take years for new fields to reach maximum production levels. This supposedly meant that removing the official moratorium would do nothing to bring immediate price relief to motorists.

First, it’s important to point out that had my analysis been heeded back in July 2008, we would have had three years of progress under our belts before this summer’s potentially record gas prices hit. It’s not as if the American economy’s need for energy is a fleeting goal. If bringing extra oil deposits into development would help in a few years, then it makes sense to get the wheels in motion now. Nobody says that it’s pointless to send your kid to school, since the payoff is years in the future.

However, that’s not the end of the story. When then-President George W. Bush removed the executive moratorium—even though the Congressional version was still in effect—oil prices dropped more than $9 during his announcement.

This wasn’t magic; other analysts and I had been predicting that it would happen, if the federal government were to loosen its choke-hold on domestic development. A little economics will explain what happened:

The owner of a given oil field has an exhaustible resource at his disposal. He has to decide whether to extract more barrels for sale in the present, or if he should slow his production and leave more barrels in the ground for sale in the future. One of the primary influences in this calculation is the owner’s guess as to whether oil prices will be higher in the future, compared to the present. (I spell out the argument more fully here.)

Now suppose the owner learns some new information, telling him that there will be more oil production occurring in a few years. (For example, the president of the United States lifts the executive moratorium on offshore drilling, making it more likely that Congress will follow suit and that drilling will actually occur.) That means his previous estimate of the future price of oil was too high; oil in fact will be cheaper down the road, because of the new oil production.

Whatever his previous decision on how many barrels to produce this year, the new information will give the owner an incentive to bump up the number, because now the current spot price of oil is more attractive compared to his new (and lower) estimate of the future price of oil.

So we see that there’s no magic involved, no time machines bringing future oil into the present. Current oil producers with excess capacity—such as Saudi Arabia—can increase output immediately, and bring immediate price relief, if the U.S. government takes steps that will yield higher global oil output down the road. To repeat, this isn’t just theory; oil prices really did drop significantly in response to the lifting of both the executive and congressional moratoria in 2008.

Selling From the SPR Could Backfire

Ironically, the same logic shows that selling oil from the SPR might have much less impact than we might otherwise expect. As University of Rochester economist Steve Landsburg pointed out in his critique of Senator Rockefeller, we can’t look at U.S. policy in a vacuum.

If the government begins releasing oil from the SPR, it’s true that the extra barrels on the market would tend to push down the current price of oil. But that means other oil producers would now have an incentive to slow their current production, to hold more of their barrels off the market until the future, when prices will be relatively higher.

To be sure, selling oil from the SPR wouldn’t make oil prices go up, but Landsburg’s point is that they might not drop very much, because other producers could offset much of the impact.

Conclusion

If policymakers such as Senator Rockefeller want to bring relief to Americans through lower gasoline prices, we agree that increased oil supplies on the market are an obvious solution. However, compared to drawing down the SPR, there is a much more compelling case for allowing the development of domestic oil resources.

Secretary Geithner

We agree wholeheartedly. Of course, Geithner had in mind the other OPEC nations, whereas the “major producer of oil” we mean is the United States of America—the world’s third largest oil producer.

Geithner’s Admits That Boosting Oil Output Would Calm Fears

An AP story gives the full context of Geithner’s remarks

Seeking to ease global energy concerns, Treasury Secretary Timothy Geithner declared Tuesday he was confident major oil producers can counter any shortfall in supplies resulting from the crisis in Libya.

Oil prices have spiked higher recently as a result of the Libyan uprising and fears of unrest elsewhere in the region. They retreated somewhat on Tuesday as OPEC ministers discussed whether to ramp up production but remain near 30-month highs.

“It’s important to recognize that the major producers of oil and the major developed economies do have substantial reserves, resources available that they could mobilize if necessary to respond to any supply disruption,” Geithner said after talks with German Finance Minister Wolfgang Schaeuble in Berlin.

We at IER are glad to see that the Treasury Secretary understands the way to “ease global energy concerns” is to reassure the public that more oil is available. (Based on the actions of some of Mr. Geithner’s fellow cabinet secretaries, we were beginning to wonder.) That’s the message we’ve been broadcasting for quite some time now: the way to boost economic output, provide more affordable energy, and ease the government’s fiscal problem is to unshackle the producers of domestic energy.

Offsetting Libya’s Interruption

Of course we are being facetious in our discussion; when he said “major oil producers,” Geithner had in mind OPEC nations.

Although Americans have been trained not to think so, the United States is a major oil producer—the third-largest in the world, behind Russia and Saudi Arabia:

Source: Energy Information Administration

Incidentally, Libya isn’t even among the top-15 oil producers.  The reason it is of such concern to world markets is that (in 2009) it was the 12^th largest exporter of oil. These exports have now come to a virtual halt because international banks are declining dollar-denominated oil transactions with Libya, on account of U.S. sanctions.

It is ironic that Americans are fretting over the disruption in Libya’s oil exports—about 1.6 million barrels per day—when there are enormous untapped resources at home. The ANWR 1002 area alone could generate an estimated one million barrels per day in additional U.S. output.

Affordable Energy Means a Stronger Economy

In addition to reassuring the public that more oil would be forthcoming, Geithner also said that “even in the face of these uncertainties,” there are “encouraging signs of gradually strengthening recovery” in the world’s large economies. Whether or not his rosy assessment is correct, Geithner is right to note that uncertainties in energy availability are a drag on economic growth.

In a similar vein, on Monday Atlanta Fed president Dennis Lockhart said that rising oil prices might require “QE3,” in other words a third round of asset purchases to bolster the struggling recovery. According to a CNNMoney story:

Appearing at the National Association of Business Economics in Arlington, Va., Lockhart said that while he doesn’t think additional purchases are currently warranted, more stimulus could be needed if oil prices continue to climb.

“If [the rising price of oil] plays through to the broad economy in a way that portends a recession, I would take a position we would respond with more accommodation,” Lockhart said at the conference.

Though he doesn’t think current oil prices around $106 a barrel are a problem, he said the evidence is clear that oil spikes can bring about a recession.

“I think at the $120 range … it’s a manageable level,” he said. “Around $150 it becomes a much more serious concern.”

Critics of the Fed’s loose-money policies heaped scorn on Lockhart’s remarks, since the earlier rounds of “quantitative easing” are arguably a main driver of rising commodity prices. Furthermore, one can quibble with Lockhart’s dismissal of $106 crude oil as not “a problem,” but at least he recognizes that $150 oil would be a “much more serious concern.” At this point, we’ll take what we can get, because Secretary of the Interior Ken Salazar didn’t agree back when he was a senator from Colorado.

As House Speaker John Boehner recently recalled, back in 2008 Salazar got into a verbal joust on the Senate floor with then-Senate Minority Leader Mitch McConnell. In the face of soaring gasoline prices, McConnell had offered a measure that would open up offshore drilling in the event that prices broke $4.50 per gallon. Salazar objected, and McConnell kept raising the threshold, eventually reaching $10 per gallon. Still, Salazar said he would not support the further development of domestic oil and natural gas. Interesting readers can watch the video:

Conclusion

Despite himself, Treasury Secretary Geithner agrees with us that plentiful and affordable oil supplies are crucial for the health of the global economy. We just hope he can convince his fellow Secretary Ken Salazar.

The Arctic National Wildlife Refuge (ANWR), for example, could be producing oil but for U.S. government actions to prohibit drilling there. The U.S. government in its wisdom is also not allowing drilling in offshore areas of Alaska. Recently, Shell Oil was not able to garner the final of 35 permits to drill for oil in the Arctic Ocean off the coast of Alaska. At the same time that Shell was denied a drilling permit by the U.S. Government, Russia is making deals with oil companies to drill for oil off its coast in the Arctic Ocean.[iii]

Alaska’s Oil Resources

Prudhoe Bay and surrounding oil fields. The Prudhoe Bay oil field is located on state lands 400 miles north of Fairbanks, Alaska, and is the largest oil field in the United States.[iv] It was originally estimated to contain 25 billion barrels of oil. Production started in June, 1977 at the completion of TAPS. Production from Alaska’s North Slope peaked in 1998 at 2 million barrels per day, and has since fallen to less than a third of that amount. It is expected to decline further, falling below 0.3 million barrels per day by 2030, according to forecasts from the Energy information Administration.[v]

Arctic National Wildlife Refuge (ANWR). ANWR is a national wildlife refuge in northeastern Alaska consisting of 19.3 million acres on Alaska’s North Slope. It was first protected by the federal government in 1960 by president Dwight D. Eisenhower, but allowed oil and gas activities. Currently, ANWR requires Congressional approval to drill for oil.[vi] In 1980, 1.5 million acres of ANWR was designated as the “1002 area” and estimates of its natural resources were mandated. The U. S. Geological Survey conducted surface and seismic exploration and estimated that ANWR contains 10.4 billion barrels of oil and 8.6 trillion cubic feet of natural gas.[vii] Congressional approval was granted in 1995 to drill in the 1002 area, but vetoed by President Clinton as part of the 1995 budget controversy that led to a government shutdown.[viii] Opponents of exploration are concerned with the possible harm that finding and developing oil may have on natural wildlife, particularly on migration of caribou. The drilling experience in Prudhoe Bay, however, has shown it to have negligible impact. Based on the Alaska Fish and Game’s census, the Central Arctic Caribou Herd’s numbers in the Prudhoe Bay fields have increased from 5,000 in 1977 to 31,000 in 2002 to approximately 67,000 in 2009.[ix]

Senator Lisa Murkowski is introducing two different bills to allow oil production from the 1002 area of ANWR. One of the bills would require the government to lease 200,000 acres of the area for infrastructure including roads, pipelines, drilling equipment and other facilities within two years of the bill’s passage.  Revenues from oil production would be used for environmental mitigation, federal deficit reduction, renewable and alternative energy development, and for environmental programs. The second bill would allow oil and gas production from the coastal plain through directional drilling from facilities on state lands bordering ANWR.[x] Alaska’s Don Young, the sole representative for Alaska in the House of Representatives, has introduced a similar bill to allow drilling on ANWR’s 1002 area.

The National Petroleum Reserve-Alaska (NPR-A). The NPR-A is a 23 million acre area (about the size of the State of Indiana) in northern Alaska that contains an estimated 10.6 billion barrels of oil. In 1923, President Harding set aside this area to be used as an emergency oil source for the U.S. Navy.  In 1976, the administration of the reserve was transferred to the Bureau of Land Management in the Department of the Interior. While the BLM has held lease sales for oil production in the NPR-A, no oil is being produced there because of lawsuits filed by environmental organizations and the need for a permit from the U.S. Army Corps of Engineers to construct a pipeline. Because the oil deposits in the NPR-A are spread out over its 23 million acres, drilling for oil in ANWR where the oil resources are concentrated would be more economic and probably should be pursued first.[xi]

Offshore Alaska and Arctic Ocean areas. The U.S. Geological Survey (USGS) estimated the amount of oil and natural gas in areas north of the Arctic Circle in 33 geological provinces. The mean estimates of the oil and gas resources in those 33 provinces total 90 billion barrels of oil, 1,669 trillion cubic feet of natural gas, and 44 billion barrels of natural gas liquids, of which 84 percent is in offshore areas. [xii] Alaska’s outer continental shelf is estimated to contain 25 billion barrels of oil, approximately equivalent to the reserves of Angola, a member of the Organization of Petroleum Producers.[xiii] However, it is important to note that very few areas offshore Alaska have been explored, and therefore, the estimates could be smaller or much larger.

Shell had plans to drill for oil in the Beaufort Sea off Alaska’s northern coast, but the final air permit issued by the Environmental Protection Agency (EPA) was appealed to the Environmental Appeals Board by environmental groups and the board overruled the EPA, invalidating the permit.[xiv] The company has invested more than $3 billion in exploration off the coast of Alaska in the Beaufort Sea and paid $2.2 billion for leases off the northwest coast of Alaska in the Chukchi Sea. Shell was planning to begin drilling in 2010, but its efforts were suspended after the Gulf of Mexico oil spill in April when the government put a moratorium on offshore drilling. Its current problem with obtaining permits from EPA has made the company suspend its drilling program offshore Alaska until at least 2012 when it hopes to procure the necessary final permit. Moving the equipment and making other necessary preparations would cost more than $100 million for a season (105 days) of energy exploration.[xv] According to Alaska Senator Mark Begich, “Their foot dragging means the loss of another exploration season in Alaska, the loss of nearly 800 direct jobs and many more indirect jobs. That doesn’t count the millions of dollars in contracting that won’t happen either at a time when our economy needs the investment.”[xvi]

A new study has estimated the economic effects of producing the nearly 15 billion barrels of oil in the Beaufort and Chukchi Seas over a 50 year period to generate an average of 54,700 new jobs; 91,500 jobs at peak employment; $145 billion in payroll; and $193 billion in government revenue based on $65 a barrel of oil. Government revenues reach $263 billion when oil is priced at $100 a barrel, closer to today’s market price. The study also predicts that oil development in the Arctic would decrease our reliance on imported oil by 9 percentage points over a period of 35 years from its current level of 60 percent, increasing greatly our national security and moving closer to energy security.[xvii]

In the House of Representatives, Representative Don Young of Alaska added an amendment to the federal spending bill for 2011 that would prevent EPA’s Environmental Appeals Board from blocking air pollution permits needed for offshore drilling. The amendment states that no funds in the bill “may be used by the Environmental Appeals Board to consider, review, reject, remand, or otherwise invalidate any permit issued.”  Shell’s permit was remanded in a decision by the board last December. The vote was 243-185 in the House, but the Senate and the President must also agree, a task much harder to achieve.[xviii]

Meanwhile, Russia has signed a deal with BP to explore its Arctic waters, and other western companies are pursuing oil interests in Russia as well. BP’s joint venture with Rosneft, Russia’s state-owned oil company, covers exploration in three sections in the Kara Sea, an area north of central Russia. According to the U.S. Geological Survey, the Arctic holds one-fifth of the world’s undiscovered, recoverable oil and natural gas, with 43 of the 61 significant Arctic oil and gas fields located in Russia. The Russian side of the Arctic is rich in natural gas, while the North American side is richer in oil.[xix]

Russia is not alone in exploring for oil and gas in the Arctic. Norway is preparing to open new Arctic areas for drilling and Greenland has already begun exploratory drilling with a Scottish firm and other western countries are expected to take part in drilling off Greenland’s coast in the next few years.[xx]

The Trans-Alaska Pipeline System (TAPS)

TAPS has transported over 15 billion barrels of crude oil[xxi], but because it is now carrying oil at about a third of its capacity, increased risks of corrosion and leaks can be expected according to experts.[xxii] Some experts have estimated that flows down to 200 to 300 thousand barrels per day[xxiii], which the Energy Information Administration expects it to reach within 20 years, would be the minimum for viability.  But even levels below 600 thousand barrels per day would require modifications to make the pipeline economically viable to maintain oil production. And further modifications would be needed once flows reach 300 thousand barrels per day because it would result in a greater decrease in oil temperature, causing an increase in oil viscosity and wax problems that are expensive to correct. Obviously, the determination of when TAPS would no longer be viable is when the costs of maintaining and refurbishing it are no longer counter balanced by the economics of the oil it carries.[xxiv]

Conclusion

Countries around the world are investing in oil exploration in offshore and Arctic areas while the United States government has virtually shut down new oil exploration citing safety and environmental concerns that are making them withhold leases and permits. These issues are not stopping Russia, Norway, Greenland and other countries, who know that jobs and economic growth are based on their oil resources.

Alaska holds over 45 billion barrels of oil, over twice our current oil reserves[xxv], that are just waiting for approval to drill from the Department of Interior and/or the EPA. Those 45 billion barrels – worth a staggering $4.5 trillion at today’s prices — would provide over 6 years of oil for this country if it were all used at once to satisfy U.S. oil demand, but in reality it would be spread over many more years of productive use.   The $4.5 trillion would be spent at home, rather than abroad, helping adjust the balance of trade with the rest of the world. In fact, the underutilized capacity in TAPS is enormous, more than the oil produced in Texas. [xxvi] If TAPS were run at full capacity today, oil imports would be reduced by over $51 billion per year at $100 per barrel.

While our government is putting new requirements on oil exploration and effectively banning companies from producing new oil to transport to US consumers, the Trans-Alaska Pipeline System is in a critical situation where its viability is dependent on oil flow which is quickly dwindling from oil resources on Alaska’s North Slope. Because it takes 5 to10 years to get through the permit process and to start producing oil, action is needed now.  The longer the government waits to allow energy jobs and development to add supplies to the pipeline, the greater and longer the threats to American energy, economic and national security. 

For Sources, please download the following PDF: U.S. Government Shuts Out Increased Alaskan Oil Production

Washington, DC – Leading up to today’s (April 28, 2010) House Energy and Environment subcommittee hearing entitled “Clean Energy Polices That Reduce Our Dependence on Oil,” the panel’s staff issued a memorandum outlining the subject matter to be covered at the hearing. The non-partisan Institute for Energy Research (IER) issued the following “fact check” on this briefing memo.

E&C Claim: The U.S. contains only 2 percent of the world’s oil reserves.

FACT: The U.S. contains far more than 2 percent of the world’s oil reserves. Today, the U.S. has 2 percent of the world’s proven oil reserves. However, the U.S. has far more than only 2 percent of the world’s oil. This factually inaccurate talking point is often used by opponents of domestic energy production. While the proved conventional oil reserves of the U.S. in 2009 were 19.1 billion barrels, this number is misleading on several fronts. In short, “proved reserves” are indeed proven, we know they are there, and that they are economically recoverable.

For the better part of three decades, misguided U.S. government policies have kept hydrocarbons on 97 percent of offshore water and 94 percent of taxpayer-owned lands unleased. What is exactly beneath these taxpayer-owned waters and lands remains anyone’s guess. But to use the “2 percent” talking point to further an anti-oil agenda is simply disingenuous. For example, ANWR’s 10.4 billion barrels of estimated economically recoverable oil would raise U.S. reserves by over 50 percent.  And according to the non-partisan Congressional Research Service (CRS), “undiscovered technically recoverable oil in the United States is 145.5 billion barrels” (CRS report number R40872, page 2). The U.S. Energy Department also estimates that the U.S. has 1.38 trillion barrels of potentially recoverable shale oil (CRS report number R40872, page 10).

E&C Claim: The U.S. has increasingly relied on imports, which supplied 57 percent of U.S. oil demand in 2008.

FACT: It is true, that since 1994 the U.S. has imported more crude oil than it has produced. But this dependence is in large part due to policy decisions made over the course of nearly four decades – by both Republican and Democratic administrations and Congresses. While the U.S. is oil dependent, it should be noted that our two largest suppliers of crude oil, after the U.S., are also our closest North American neighbors: Canada and Mexico. In fact, in 2008 these strategic trading partners supplied the U.S. with 716 million and 434 million barrels of North American oil, respectively.

E&C Claim: Global oil demand is projected to grow 23 percent to 24 percent by 2030. To meet these projections, two-thirds of the world’s oil production in 2030 will have to come from fields that have not yet been developed or found – roughly the equivalent of locating and developing six new Saudi Arabia.

FACT: With much of the developing world entering the energy business, global energy consumption will undoubtedly increase. However, these numbers need to be examined in the appropriate context. In 1940, according to the Energy Department, the U.S. had proven oil reserves of 19 billion barrels. In 2008, our proven reserves stood at 19.1 billion barrels. So, did the U.S. only use 100 million barrels of domestic oil in nearly seventy years? Of course not. Through the never-ending advancement in technologies, we discovered more oil, and continue to do so today. Since 1971, global oil reserves have grown by more than a factor of 2.5, while global oil demand has grown by a factor of 1.7. Factor in oil shale, and the overall dynamics shift considerably. In fact, according to the Energy Department’s Office of Naval Petroleum and Oil Shale, approximately 1.38 trillion barrels of shale oil are potentially recoverable in the U.S. (CRS report number R40872, page 10). Which, by the way, is 5.2 times the amount of Saudi Arabia’s proven reserves.

E&C Claim: On March 27, 2007, an unfounded rumor of an attack on a U.S. warship by Iran sent oil prices climbing $5 (to 68.91/barrel) in about 7 minutes.

FACT: According to the Wall Street Journal, on March 26, 2007, crude oil traded on the NYMEX at $68.22 per barrel. However, on March 27, oil increased to $68.70 a barrel and then fell to $68.50 on March 28. There is no doubt intraday trading can be volatile, including short-term price shocks due to erroneous reports. But as the data shows, these short-term intraday shocks are quickly corrected by market forces. On the other hand, government policy can have an immediate impact on the price of crude oil. We witnessed this on July 14, 2008 and September 23, 2008, when President Bush lifted the executive ban on offshore exploration, and the Democratic-controlled Congress allowed its ban to expire. Prices dropped on the mere anticipation that additional oil reserves could come on-line at some point in the future.

E&C Claim: Greenhouse gas emissions from new motor vehicles endanger human health and welfare.

FACT: This is a claim often made by EPA officials and proponents of increasing the cost of transportation fuels. That said, according to the EPA’s own analysis, the new fuel economy mandate will cause global mean temperature to “be reduced by 0.006 to 0.015 °C by 2100” and “sea-level rise is projected to be reduced by approximately 0.06-0.14cm by 2100” (EPA’s final rule, page 355). To put that reduction in sea level rise in context, 0.14 cm is less than the width of 4 coarse human hairs. If carbon dioxide emissions from vehicles were as harmful as EPA claims, it stands to reason that their regulations would result in a detectable impact rather than something undetectable in the real world like 0.015 °C over the next 90 years.

FOR IMMEDIATE RELEASE:
April 28, 2010
CONTACT:
Patrick Creighton: 202.621.2947
Laura Henderson: 202.621.2951

FOR IMMEDIATE RELEASE
August 26, 2009
Contact:
Patrick Creighton, 202.870.0850
Laura Henderson, 202.380.5758

IER: 150th Anniversary of Drake’s Well Should Renew America’s Leadership to Access, Deliver Energy

After world-leading efforts a century and a half ago, U.S. energy priorities must be refocused on increasing supply, stabilizing costs

Washington, DC – One hundred and fifty years ago, “Colonel” Edwin Drake struck oil in Titusville, Pennsylvania, helping to set the nation – and the world – on a path toward economic growth, expansion and prosperity. Thomas J. Pyle, president of the Institute for Energy Research (IER), a free-market energy think-tank, issued the following statement:

“The year was 1859. The town was Titusville. In Pennsylvania’s rural northwestern Crawford County, the economics of the world as we knew it were completely realigned. Oil was found, paving the way for unprecedented economic growth, and helping to improve the quality of life for hundreds of millions across the globe. Without oil – arguably the most critical resource available to us – technological advancements in agricultural, medicine, manufacturing and transportation would not have been realized. From the time of the Roman Empire through the early 1800s, a human could expect to live not longer than 30 years. Thanks to advancements in technology and the affordable energy that helped make them possible, today – just 150 years later – we now live well into our 70s.

“Unfortunately, President Obama and members of Congress in both parties are now working to ration, tax, and slash our most affordable and reliable energy supplies at a time when they are needed most. This milestone in the world’s energy history should serve as a reminder to us all: energy has been, and will continue to be, the driver, protector and linchpin of America’s economic and strategic success. And if we desire to remain competitive in the global economy, and maintain our high quality of life, we must work to remove the government halting energy production – oil and gas offshore, along Alaska’s North Slope, in ANWR, shale in the intermountain-West, coal and Appalachia.

“In today’s interconnected global economy, the demand for oil has never been more competitive. Developing nations are understanding, and accessing, the benefits of affordable energy. And as a result of increased demand, supplies have tightened, and prices have risen accordingly. So as we mark this momentous anniversary, and pay thanks to the ingenuity of Col. Drake, we must also work to continue to safely expand our domestic energy resources, of every form.”

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FOR IMMEDIATE RELEASE
January 28, 2009
CONTACT:
Brian Kennedy (202) 346-8826
Chris Tucker (202) 346-8825

IER Economic Stimulus Plan Would Create Millions of New Jobs, Strengthen U.S. Energy Security

Institute Urges President Obama to Adopt Historic Change
in Energy Policy

Washington, DC – Institute for Energy Research (IER) today released an economic stimulus plan that would encourage private investment, foster job creation, and provide American consumers with access to vast, proven, affordable, and domestically available energy resources.  IER’s plan outlines a cost-effective way to open these enormous taxpayer-owned resources for responsible energy production that would create American jobs, stimulate the economy, and provide new energy supplies for the future, all at no cost to the taxpayer.

IER’s plan asks first that lawmakers do no harm and commit to:

• Defend jobs and investments against expensive, job-killing climate regulations;

• Halt EPA’s attempt to use the Clean Air Act to regulate carbon dioxide;

• Renounce plans to bankrupt coal companies;

• Denounce spending billions of taxpayer dollars on subsidies on products that could potentially double power costs;

And second, create historic change in federal energy policy by:

• Returning money spent on energy subsidies to taxpayers;

• Streamlining regulations to produce energy from American resources on American lands and coastal waters;

• Providing coastal states with 50 percent of revenue from offshore and onshore energy leasing;

• Supporting exploration and energy production in ANWR;

• Expediting construction of the Alaska natural gas pipeline;

• Allowing exploration and experimentation necessary to explore alternative energy sources, such as domestic oil shale and methane hydrates;

• Limiting frivolous lawsuits that thwart responsible energy development;

• Removing regulatory red-tape and repeal punitive laws that make it difficult  to build and expand refineries;

• Removing regulatory barriers to allow construction of the next generation of nuclear power plants; and

• Resolving issues surrounding the Yucca Mountain Repository for spent nuclear fuel.

More details on IER’s Economic Stimulus Plan can be found here:

• IER’s Bold Economic Stimulus Plan: A Roadmap to Improving the Economy and Creating Jobs, All at No Cost to the Taxpayer

• Green Jobs: Fact or Fiction?

• Job Mirage: Obama “Green Jobs” Plan Requires Expanding Government Payroll with 600K Bureaucrats

• Green Jobs: Robbing Peter to Subsidize Paul

• It Takes a Lot of Government Green to Create a Green Job

• “Stealth Stimulus” Shouldn’t Fly Under Congress’ Radar

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

#####

www.InstituteforEnergyResearch.org

Energy is the lifeblood of our economy.  As our competitors around the globe have shown us in recent years, job creation and economic growth begin with access to abundant, affordable energy supplies. 

Unfortunately, the Obama administration’s stimulus proposals are founded on the fundamentally flawed notion that we will achieve prosperity if we make coal, oil, and natural gas, which make up 85 percent [1] of the energy that fuels our economy, more expensive and less available.  Meanwhile, President Obama wishes to spend billions of taxpayer dollars on the most expensive and least efficient energy sources and force American consumers to pay more to purchase them.

Energy is, literally, “the capacity to do work.”  More energy means more work, more jobs, and more economic growth.  Less affordable energy means less work performed here at home.  Affordable energy creates jobs and stimulates investment in America.

IER supports government policies that encourage private investment, foster job creation, and provide American consumers access to the vast, proven, affordable energy supplies they own beneath the 2.3 billion acres of government lands not leased for responsible energy production.  These enormous taxpayer-owned resources, and the American jobs they would create, have been held hostage by a decades-long government policy of saying, “No, we can’t”.

Today, IER is offering a bold economic stimulus plan that will create jobs, strengthen our economy, enhance our national energy security, and make the U.S. more competitive in the world.  Best of all, it won’t cost taxpayers a dime.  In fact, it could generate hundreds of billions of dollars, along with jobs and new energy supplies for the future.

IER’s plan represents the most significant change in government energy policy in more than three decades.  We urge the Obama Administration to say, “Yes, we can” to our two-part plan, which begins by embracing the fundamental medical precept: First, Do No Harm:

• Vow to defend jobs and investments against expensive, job-killing climate regulations.  German Chancellor Angela Merkel recently stated that she would not allow EU climate regulations that “take decisions that would endanger jobs or investments in Germany.”  President Obama should follow suit and vow to defend American jobs against costly climate regulations.
• Halt EPA’s attempt to regulate carbon dioxide using the Clean Air Act. The Clean Air Act was designed to regulate regional air pollutants, not global concentrations of carbon dioxide.  President Obama needs to apply a cost-benefit analysis to EPA’s proposal to make 85 percent of the energy that fuels our economy more expensive and less available, cost Americans $7 trillion over the next 20 years, and accomplish little, if any, real reductions in global temperature.
• Renounce plans to bankrupt coal companies. As a presidential candidate, Obama said he would bankrupt coal-fired power plants with climate regulations. America currently gets 48 percent of our electricity from coal. Unlike wind and solar, coal is reliable, affordable, and proven. Wind and solar cannot power modern society’s always-on electricity needs.
• Join other policymakers in denouncing billions for “project[s] that depend on significant taxpayer subsidies while potentially doubling power costs” for American consumers and abandon all efforts to implement Federal Renewable Fuels Standards, Federal Renewable Portfolio Standards and Low Carbon Fuel Standards.

And second, say “Yes, we can” and pursue the following landmark changes in federal energy policy:

• End subsidies for all forms of energy and return the money to American taxpayers. The government should not be in the business of picking winners and losers in energy production.  Furthermore, according to the Congressional Budget Office (CBO), direct payments to individuals and cutting taxes have the fastest and most significant impacts on the economy.
• Continue our progress on the most significant change in energy policy in decades: Streamline regulations to produce energy from American resources on American lands and coastal waters.  ICF International recently released a study that shows developing America’s abundant but currently off-limits domestic energy supply would create 160,000 new jobs alone and generate $1.7 trillion for local, state, and federal tax revenue.
• Provide coastal states with 50 percent of revenue from offshore and onshore energy leasing.  Last year alone, the U.S. raised over $23 billion from energy leasing on federal lands.
• Support exploration and energy production in ANWR. According to the Energy Information Administration, ANWR “is the largest unexplored, potentially productive geological onshore basin in the United States.”  It contains a mean expected value of 10.4 billion barrels of oil. Opening ANWR would create hundreds of thousands of American jobs, generate billions of dollars in state and federal revenue, and enhance our energy security.
• Expedite job creation by waiving all regulations on federal lands for the expedited construction of the Alaska natural gas pipeline.  Congress did this in 1973 for the 800 mile-long Trans-Alaska Oil Pipeline, which was built in just three years and has since delivered 16 billion barrels of oil to American consumers. Russia, Iran, and Qatar control 60 percent of the world’s natural gas supplies. We should use our abundant supplies of natural gas, and not allow another OPEC-style cartel to limit our energy sources.
• Allow the exploration and experimentation necessary to produce affordable energy from America’s oil shale resources. The western United States is home to an estimated 800 billion barrels of recoverable oil equivalent in oil shale. This is about three times the amount of proven oil reserves in Saudi Arabia. This resource is untapped and needs research to develop economically.
• Permit the exploration and experimentation necessary to produce affordable energy from methane hydrates.  A 2007 study found that the U.S. has about 5,700 trillion cubic feet of methane hydrates—about 900 times the current annual gas consumption in the U.S. Like oil shale, this resource is untapped, and companies need to research ways to bring it to market.
• Limit frivolous lawsuits designed to thwart responsible development of American energy and the American jobs it creates. The following quote sums up this problem best.  In an interview with Dow Jones Newswires in January 2003, The Wilderness Society’s Peter Morton threatened:  “If you bid on a lease on public land, you can expect (environmental litigation).“
• Remove regulatory impediments and repeal punitive laws that make it increasingly difficult to build or expand refineries.  While existing refineries have gone to great lengths to expand their capacity to meet growing domestic demand, refinery expansions are becoming more and more difficult due in part to regulatory impediments, bureaucratic red tape and a barrage of punitive federal legislation in recent years.
• Resolve issues involving the Yucca Mountain Repository for spent nuclear fuel.  The Federal government has been studying Yucca Mountain as a fuel repository for the last 30 years.  Ratepayers have paid billions to the Nuclear Waste Fund—it’s time for the Federal government to move forward and provide a return on that investment.
• Remove regulatory barriers to building the next generation of nuclear power plants. The Federal government should not stand in the way of developing nuclear fuel reprocessing, pebble-bed reactors, or whatever forms of nuclear energy are economical.

[1] According to EIA, in 2007 39 percent of our energy came from petroleum, 22 percent from coal, 23 percent from natural gas, 8 percent from nuclear, 2.4 percent from hydroelectric, 2.1 percent from wood derived fuels, 1.0 percent from biofuel, 0.3 percent from geothermal, 0.3 percent from wind, and 0.1 percent from solar. The latest data from EIA is available here: http://www.eia.doe.gov/cneaf/alternate/page/renew_energy_consump/table1.html

FOR IMMEDIATE RELEASE
December 17, 2008
CONTACT:
Brian Kennedy (202) 346-8826
Chris Tucker (202) 346-8825

IER: Obama Interior Pick Will Have “Plenty to Say” on When, Whether American Economy Can Make Its Way Back

IER president urges Sec.-designate Salazar to leverage power of affordable energy to deliver jobs, revenue and energy Americans need

WASHINGTON – Institute for Energy Research president Thomas J. Pyle issued the following statement today after the president-elect formally announced his intention to nominate U.S. Senator Ken Salazar (D-Colo.) to serve as our nation’s 50th secretary of the Interior:

“As a cabinet officer soon to be charged with managing one of every five acres of land in the United States, along with nearly two billion acres of submerged land offshore, Senator Salazar will have a crucial role to play in strengthening our country’s energy security. He’ll also have plenty to say on whether access to affordable, reliable energy continues to be available to all Americans. We congratulate Senator Salazar on this important nomination, and look forward to working with him to ensure his office diligently works toward these goals.

“Senator Salazar’s legislative record suggests these twin national priorities of energy security and affordability may end up playing second fiddle to the desire to lock these resources away. As a Senator, Salazar has been a persistent critic of granting basic energy access to the people of this country who own it, whether that energy resides under Alaska’s North Slope, Colorado’s Roan Plateau, or in massive deepwater reserves far offshore. That will have to change if our economy has any hope of making a full and swift recovery.

“Never before in our nation’s history has the role of Interior Secretary been as central to the long-term health and well being of our country. It’s our hope that Senator Salazar comes to understand the gravity of this new role, better appreciate the benefits of expanding access to reliable energy sources, and fully consider the consequences we can expect for choosing not to.”

The facts on Sen. Salazar:

• Voted against the responsible development of at least 10.4 billion barrels of American oil on Alaska’s north slope, preventing what would’ve resulted in a 50 percent increase in U.S. proven reserves.
  (http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=109&session=1&vote=00288)

• Fought attempts by the federal government to expand production of clean-burning domestic natural gas on Colorado’s Roan Plateau, impeding the safe development of nine trillion cubic feet of natural gas – enough to heat and cool four million American homes for 20 years.
  (http://salazar.senate.gov/news/releases/080609roan.htm)

• Struck a backroom deal with Senate appropriators to prevent billions of barrels of oil shale energy from being produced, calling his effort a “victory for responsible oil shale development.”
  (http://salazar.senate.gov/news/releases/080313oilshale.htm)

• After failing to extend the shale ban into the new year, Salazar castigated the federal government for following the law and beginning the process of issuing leases.
  (http://salazar.senate.gov/news/releases/080904shale.htm)

• Proudly announced his support for a so-called energy bill that would’ve permanently locked away nearly 75 percent of America’s known offshore energy resources, increased utility rates for all Americans, and expanded the reach of the federal government in the day-to-day decisions of American energy consumers.
  (http://salazar.senate.gov/news/releases/080813enjnt.htm)

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

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