The Basic Facts:

• The government leases less than 2.2 percent of federal offshore areas[i] and less than 6 percent of federal onshore lands for oil and natural gas production.[ii]

[**Update** The following bullet cites data from the Energy Information Administration (EIA). EIA subsequently discovered that the data they used for determining oil and natural gas production numbers on federal lands were incorrect and they are working to fix the problem. The Department of Interior, which regulates energy production on federal lands, is working with EIA to develop a system that more adequately reflects production clearly, and we will update the oil and natural gas production charts when the federal government completes its coordination and updates its information.]

• Oil and natural gas production on federal lands has fallen by over 40 percent since 2000.[iii]
• Since 2000, oil production on private and state lands has risen by 11 percent and natural gas production has risen by 40 percent.[iv]
• President Obama has leased less than half of the offshore acres than President Clinton leased.

The source for the amount of oil and natural gas produced on federal land is the Energy Information Administration’s (part of the Department of Energy) Annual Energy Review, which analyzes historical energy trends.

The data from the Annual Energy Review is clear: the increase in U.S. oil and natural gas production is because of production on private and state lands in places like North Dakota. Almost all of North Dakota’s Bakken formation is on private lands, and as a result, production has dramatically increased. Over the past 10 years, North Dakota oil production has increased by over 250 percent, while federal oil and natural gas production has fallen over 40 percent.

President Obama cannot honestly claim credit for the increase in oil and natural gas production over the past few years. This misconstrues the facts and it is an inaccurate portrayal of his administration’s record on energy issues. After all, his administration did not hold a single offshore lease sale in fiscal year 2011, while the Bush administration planned to hold five.  Those sales were rejected when the administration decided not to pursue a new 2010–2015 OCS lease plan reflecting the expiration of the presidential and congressional moratoriums on leasing in 2008.  Also, President Obama’s Bureau of Land Management is setting records for the least amount of leases on average per year. President Clinton sold over twice the number of leases per year than President Obama.

Though President Obama has sworn to veto any legislation mandating action on Keystone XL, the House-passed legislation does call attention to a central energy security issue.   The pipeline in question would bring as much as to 830,000 barrels of oil per day from Canada—a reliable ally—to be refined, and likely used, here in the United States.  Additionally, the Keystone pipeline’s expansion would create about 20,000 construction jobs alone and would lead to more job creation in the U.S. refining sector after the project is completed.

Nonetheless, there has been much vocal opposition to the Keystone XL pipeline from anti-oil activists who assume—incorrectly—that blocking the project will mean that Canada’s oil sands won’t be produced and consumed.  On the contrary, countries like China, which has invested more than $15 billion in Canadian oil sands projects over the past 18 months alone, are eager to broker deals that ensure future access to these vast oil resources.  Ultimately, Canada may have no other choice but to seek other markets for the 1.6 million barrels produced by oil sands per day.

The premier of Alberta, where the oil sands are principally located, said the following:  “Our success is dependent on exports and the prosperity they bring, but U.S. demand is declining,” said Premier Alison Redford.  “Asia’s star is rising and it will dominate the 21st Century. We can guarantee national prosperity for a long time to come by supplying them with the energy that they need.”

The implications of this missed opportunity will be most felt by US consumers, as the U.S. continues to spend $700 million per day on oil from overseas suppliers at today’s price of almost $100 per barrel.  The ticker below displays a running total of how much money has been spent by the U.S. on non-Canadian foreign oil since the November 10 decision to delay the Keystone XL project:

A recent WSJ article reports on the new trend:

Big Oil is redrawing the energy map.

For decades, its main stomping grounds were in the developing world—exotic locales like the Persian Gulf and the desert sands of North Africa, the Niger Delta and the Caspian Sea. But in recent years, that geographical focus has undergone a radical change. Western energy giants are increasingly hunting for supplies in rich, developed countries—a shift that could have profound implications for the industry, global politics and consumers.

Driving the change is the boom in unconventionals—the tough kinds of hydrocarbons like shale gas and oil sands that were once considered too difficult and expensive to extract and are now being exploited on an unprecedented scale from Australia to Canada.

At this point, some readers may hang their heads in disappointment. “Aww, too bad,” they might think. “It looks like Australia and Canada are doing well for themselves, but the U.S. is still in a crisis.”

Yet hold on. The WSJ article continues:

The U.S. is at the forefront of the unconventionals revolution. By 2020, shale sources will make up about a third of total U.S. oil and gas production, according to PFC Energy, a Washington-based consultancy. By that time, the U.S. will be the top global oil and gas producer, surpassing Russia and Saudi Arabia, PFC predicts. [Bold added.]

This prediction might shock some readers, who have bought into the myth that the U.S. is an energy-starved country. Yet right now the U.S. is the third-largest oil producer in the world, behind Russia and Saudi Arabia. The reason we still import so much oil is that the U.S. is (by far) the largest consumer of oil. This isn’t a reason to fret, incidentally; it reflects our high standard of living, and the fact that Americans are much more dispersed geographically than, say, the Europeans.

IER’s new report on the fossil fuel inventory of North America shows that the new technological advances in unconventional extraction will soon make this continent the breadbasket to the world of energy supplies. Here are just some highlights of the new report:

• The government’s own reports show that the United States’ combined recoverable oil, natural gas, and coal endowment is the largest on Earth.

• The amount of oil that is technically recoverable in the United States is more than 1.4 trillion barrels. Total recoverable oil in North America exceeds 1.7 trillion barrels. (That is more than the world has used since the first oil well was drilled over 150 years ago in Titusville, Pennsylvania.) To put this in context, Saudi Arabia has about 260 billion barrels of oil in proved reserves. For comparative purposes, the technically recoverable oil in North America could fuel the present needs in the United States (seven billion barrels per year) for around 250 years.

• The government estimates that the United States has 272.5 trillion cubic feet of proved reserves of natural gas. The total amount of natural gas that is recoverable in North America is approximately 4.2 quadrillion (4,244 trillion) cubic feet, enough (at current rates of consumption) to last the United States for over 175 years.

• North American recoverable coal could provide enough electricity for the United States for about 500 years at current levels of consumption.

This energy abundance is hardly the image most Americans have been presented in their schooling and through watching the mainstream media. Instead they have been taught the “fact” that the United States is an energy hog, gobbling up dwindling resources and pushing the planet to the edge of catastrophe.

The new inventory report shows just how wrong this common view is. Looking just at the United States but especially if we include our neighbors to the north and south, there are literally centuries’ worth of fossil fuel resources right here at home.

Conclusion

There is nothing wrong with importing oil or other goods from foreign countries. Economically, it is most efficient for countries to specialize in their “comparative advantage” and trade with each other to maximize per capita living standards of all people.

Yet many alarmists are claiming that the U.S. government must intervene in energy markets in order to wean Americans from their alleged “addiction” to fossil fuels. The new inventory report shows just how foolish and unnecessary this government intervention is. There is plenty of accessible energy even within this continent, if only the government would get out of the way and let private businesses do their jobs.

Fossil fuel consumption subsidies measure what developing countries spend to provide below-cost fuel to their citizens.  That is, these countries artificially lower energy prices to their citizens, paying the difference from their government resources.[iii] Such welfare transfers are akin to the U.S.’s Low Income Home Energy Assistance Program (LIHEAP)[iv], and are differentiable from subsidies in the name of commercializing uneconomic energy sources such as on-grid wind or solar. The United States and other developed countries offer support to energy production in the form of tax credits or loan guarantees, which are not included in IEA’s fossil fuel consumption subsidy calculations since they are directed towards production rather than consumption of the fuel.

IEA’s estimate for global renewable subsidies (biofuels and renewable electricity) in 2010 was $66 billion, 10 percent higher than in 2009, with $44 billion subsidizing the cost of renewable-based electricity and $22 billion subsidizing biofuels. In contrast to fossil fuel consumption subsidies, renewable fuel subsidies often take the form of tax credits for investment or production, or premiums over market prices to cover the higher production costs compared to traditional fuels.

Fossil Fuel Consumption Subsidies by Country

Iran leads the world in fossil fuel consumption subsidies providing over $80 billion from its government resources in 2010 to lower the cost of fossil fuels to end-users in its country.[v] Of the $80.84 billion in fossil fuel consumption subsidies, over 50 percent covers oil, 32 percent funds natural gas, and the remainder (18 percent) goes towards electricity. Saudi Arabia is the second largest country subsidizing end-use fossil fuel prices, providing 70 percent of its over $43 billion in fossil fuel consumption subsidies to oil and 30 percent to electricity. Russia comes in third with over $39 billion in fossil fuel consumption subsidies, with natural gas getting 43 percent and electricity 57 percent of the total.  India and China rank fourth and fifth, respectively, both funding over $20 billion in fossil fuel consumption subsidies. Over 70 percent of India’s fossil fuel consumption subsidies of $22.29 billion in 2010 fund lower oil prices in India. China is one of the few countries that subsidize coal consumption. Of its $21.32 billion in fossil fuel consumption subsidies in 2010, electricity receives the most (54 percent), then oil (36 percent), and coal at 9 percent.

Uzbekistan leads the world in the amount of its GDP that it subsidies; its $11.9 billion in fossil fuel consumption subsidies represents almost one-third of its economy. Iran’s subsidies for natural gas, oil and electricity represent 22.6 percent of its economy while Turkmenistan’s abundant natural gas supplies are subsidized to the level of 19.3 percent of its economy. China has the largest coal subsidies among the 5 countries that subsidize coal, but China’s fossil fuel consumption subsidies represent only 0.4 percent of its GDP.

On a per-person basis, fossil fuel consumption subsidies are highest for Kuwait at $2,798.6 per person, the United Arab Emirates at $2,489.6, and Saudi Arabia at $1,586.6.[vi]

Many of the countries providing fossil fuel consumption subsidies own state energy companies, including countries that comprise the Organization of Petroleum Exporting Countries, including Iran, Saudi Arabia, and Venezuela. Net exporting countries see these subsidies as an opportunity cost. For net exporting countries of oil and gas, fossil fuel consumption subsidies totaled $331 billion in 2010, compared to $78 billion for net importing countries.  Since 2007, about 80 percent of fossil fuel consumption subsidies have been in net oil and gas exporting countries.

Fossil fuel consumption subsidies are often used to alleviate energy poverty, but are an inefficient means for doing so, creating market distortions that result in wasteful energy consumption.  In 2010, only 8 percent of the $409 billion spent was distributed to the 20 percent of the poorest population, demonstrating inefficiencies in assisting the poor.

Renewable Energy Subsidies

Renewable energy subsidies cover biofuel production and renewable electricity generation. They are production type subsidies in contrast to fossil fuel consumption subsidies and are generally tax credits, grants or premiums on the electric generation they produce to pay for their cost compared to traditional electric generating sources.[vii]

The European Union and the United States were responsible for almost 80 percent of the $66 billion in renewable energy subsidies in 2010, with the European Union spending $35 billion, almost twice the amount spent by the United States. According to the IEA, production mandates for biofuels in the United States are expected to raise those subsidies to $70 billion in 2035.

Subsidies for global electricity-based renewable energy totaled $44 billion in 2010, 12 percent higher than in 2009. Non-hydro renewable capacity increased by 22 percent, with wind and solar representing 90 percent of that increase. Wind subsidies were the highest at $18 billion, receiving on average $53 per megawatt hour of electricity generation. Solar photovoltaic technology received 28 percent of the renewable energy electricity-based subsidies, receiving $425 per megawatt hour of electricity output, accounting for only 4 percent of subsidized renewable generation.

Subsidies to biofuels totaled $22 billion in 2010, 6 percent higher than in 2009. According to the IEA, the cumulative cost of biofuels between 2011 and 2035 is expected to total $1.4 trillion to meet mandates for blending and other biofuel targets and to cover tax credits to the industry. Except in Brazil, biofuels are not cost competitive with oil-based conventional fuels and subsidies are required to meet legislative targets.

Conclusion

Many Americans are confused by the large amount of global fossil fuel consumption subsidies that the IEA calculates, not realizing that these subsidies have nothing to do with tax policy, research and development or loan guarantees, where most U.S. programs are directed. In fact, most liberalized countries do not offer fossil fuel consumption subsidies that artificially lower the end-use price of the fuel. Such subsidies are common and even pervasive, however, in the developing world, particularly in economies with state-owned energy companies.

The IEA has been advocating for years that fossil fuel consumption subsidies should be eliminated since they encourage wasteful consumption.  According to the IEA, if fossil fuel consumption subsidies were completely phased out by 2020, 4.4 million barrels of oil per day would be saved in 2035, global primary energy demand would be reduced by nearly 5 percent, and carbon dioxide emissions would be reduced by 5.8 percent.[viii]

While eliminating fossil fuel consumption subsidies would help reduce wasteful consumption of fossil fuels, it would need to be accomplished gradually so citizens of those countries that subsidize fossil fuel consumption can more easily make the necessary adjustments. Peru, for example, was able to zero out these subsidies. In 2008, Peru provided $.62 billion in fossil fuel consumption subsidies to oil, natural gas and electricity, but zeroed them out by 2009.[ix] Iran is trying to reduce fossil fuel consumption subsidies. In December 2010, the country started a 5-year program to bring fossil fuel consumption subsidies for oil, natural gas, and electricity in line with international market prices.[x]

These welfare transfers can be differentiated from subsidies in the name of commercializing or sustaining uneconomic energy sources such as on-grid wind or solar, which the United States and other industrialized countries have been heavily subsidizing. These forms of energy subsidies that help promote production of uneconomic energy sources can be abolished without detrimental affects to the U.S. economy or its citizens, and in fact would increase economic efficiency since by their very nature, they are more expensive than competing forms of energy.

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/

In 2010, renewable energy (hydroelectric, geothermal, wood, wind, solar, biomass, and biofuels) represented 8 percent of total U.S. consumption. Fossil fuels dominated consumption with an 83 percent share. The remaining 9 percent was supplied by nuclear power.

Hydroelectric power was the dominant renewable source followed by wood and biofuels. Biofuels, primarily ethanol, increased production by 18 percent spurred by the mandates in the Energy Independence and Security Act of 2007. Wind power increased output by 28 percent spurred by subsidies, including a 30 percent rebate on investment from the federal government. New electric power capacity increased nearly 14 gigawatts and was comprised primarily of natural gas, coal, and wind generating units.

Renewable Energy as Share of Total Primary Energy Consumption, 2010

Energy prices were mixed in 2010 as some fuel prices rose while others stabilized or fell. Electricity prices held flat, coal prices increased 6.2 percent and oil prices increased 28 percent. Residential natural gas prices fell by 8.7 percent as the United States continued to produce increasingly large volumes of shale gas from the Marcellus, Barnett and other shale gas formations.

While the basic patterns of energy use continued in 2010: dominance of fossil fuels, slow growth in renewable energy’s contribution and generally increasing prices, the more interesting data in the report was in the details. The 2010 energy environment was marked by a number of disasters highlighted by the oil spill in the Gulf of Mexico that led to reversing trends in oil production. While offshore oil production had been growing in most of 2009 and the first half of 2010 relative to the prior year’s monthly output, that trend was halted by the drilling moratorium imposed by the Obama Administration and the subsequent de facto moratorium that continued to hold off permitting new drilling leases.[v] Oil companies are still trying to regain the momentum they had in the offshore Gulf of Mexico before the Macondo well accident.

Also affecting energy production were fewer leases let on federal lands onshore[vi]. The Annual Energy Review reports fossil energy production on lands owned by the federal government including military, Outer Continental Shelf, and public lands. Production of all fossil fuels–coal, oil, and natural gas–on federal lands tumbled in fiscal 2010.[vii] Coal production on federal lands declined by 2.9 percent, oil production’s decline was ten-fold higher at 29 percent, and natural gas production’s decline was even larger at 36 percent.[viii]

This is in sharp contrast to production occuring on non-federal lands. Taking oil production in North Dakota as an example, in 2010, production increased by 42 percent. Since 2005, oil production in North Dakota has been growing at a phenomenal rate of 26 percent a year.

Conclusion

Energy production and consumption increased in 2010 for most fuels, but the story of what could be is really in the details. Production of fossil fuels on federal lands tumbled due to government actions taken that limited production, which is in sharp contrast to the increasing production on lands not owned by the federal government. It would be interesting to see just how much domestic production we could produce if only the federal government would allow it.

As a long-time foe of the Keystone XL project (and just about anything else that involves the production or consumption of fossil energy), we appreciate Congressman Waxman’s tenacity.  But with this recent move, we are beginning to question his lucidity.  The Congressman, intentionally or not, has managed to conflate the notion of a generic interest in a project with the very specific interest that is evidenced by investing in, or buying products from, or selling products to a project.

A little clarity is in order.  Koch Industries is not invested in the Keystone XL pipeline project.  It is not a buyer from, a seller to, or a shipper associated with the project.  In fact, Koch already receives Canadian oil for one of their refineries and therefore enjoys a secure supply of Canadian oil, as opposed to oil from OPEC.  And it is OPEC and other countries like Brazil, not Koch Industries (and certainly not the environment), which stand to benefit if our neighbor to the north is denied additional access to U.S. markets.

Specifically, the Koch subsidiary, Flint Hills, indicated (in a three page filing consisting of an application form and two sentences found here) that it has a generic (rather than a specific or fiduciary) interest in the Keystone project. Their application was to reserve a spot to testify before National Energy Board of Canada.  But the application is self-explanatory:  “At this time, Flint Hills does not anticipate taking an active role in this hearing. However, Flint Hills reserves the right to appear at the public hearing and to address the issues set out in the hearing order as well as any issues that may arise in the course of the proceeding. This includes the right to participate in the oral hearing through cross examination of other parties, introduction of evidence and presentation of argument.”  In other words, “in the event that your public hearings disclose some information which we do not foresee which may affect our businesses, we ask to be given the right to present information.” This is hardly page-one stuff, not even for the New York Times.

Using Congressman Waxman’s logic for a moment, it is worth further exploring what his interest, specific or generic, in blocking the pipeline is.  Is it because of his interest in the success of Keystone foe Center for American Progress (CAP), a George Soros-funded group headed by John Podesta, former head of transition for the Obama Administration?  CAP was where Van Jones green jobs Czar went after leaving the White House.  Ditto for Energy and Climate Czar Carol Browner and many others, including Mr. Podesta and some of the characters involved in the Solyndra loan scandal.  Congressman Waxman is very aware of the revolving door between the White House and CAP because his former Chief of Staff is the Assistant to the President and Special Advisor at the White House.

These interests may also explain why, when Congressman Waxman and soul mate Rep. Ed Markey, were pushing their “cap and tax” bill supported by the White House, CAP was one of their biggest cheerleaders.

If Mr. Waxman wants an investigation about financial interests in the Keystone XL pipeline, we wonder if he would mind expanding his investigation to determine who would benefit financially from the Keystone XL pipeline not being built?  Or the 20,000 construction jobs not created?  Could it be Brazil, whose oil company has been getting a lot of help from Washington?

Congressman Waxman, setting aside his proclivity for nonsensical policies, is no idiot.  Surely he knows the difference between a specific and generic interest.  With his latest attack on Koch Industries, the gentleman from Beverly Hills deserves an A for attempting to obfuscate this difference, but an F for his command of the subject matter.

Even in these difficult economic times, North Dakota has low unemployment and above average GDP per capita. One of the biggest reasons for this is the oil boom occurring in the state. In 2006, North Dakota ranked ninth among the states in oil production, but by 2010 it had shot up to fourth. [i] By the second half of next year it might pass California and become the third largest oil producer. [ii] With the economy sputtering, we should look to North Dakota’s example to understand why they have weathered these economic storms so well.

North Dakota’s Oil Production

North Dakota is rich in shale oil, which is produced by combining a well stimulation method known as hydraulic fracturing or “fracking” with horizontal drilling. This process pumps water, sand, and small amounts of chemicals into the rock to fracture it and the horizontal drilling ensures that a large area of hydrocarbon-bearing shale is exposed in order to produce the oil.

Source: http://www.eia.gov/energy_in_brief/images/charts/hydraulic_fracturing_large.jpg

In 2006, North Dakota ranked ninth among the states in oil production, but it is now the fourth largest oil producer. The phenomenal increase in the state’s oil production is due to hydraulic fracturing and horizontal drilling technologies that allow the production of oil profitably at about $50 per barrel at its Bakken and Three Forks shale formations. North Dakota currently has 5,951 producing wells with plans for 1,500 to 2,000 new wells over the next year.[iii] The state produced 113 million barrels of oil in 2010 and is expected to surpass that amount by 20 percent this year. Forecasters are predicting that the state could reach over 250 million barrels of production by 2015. According to state and industry officials, 99 percent of the wells drilled in North Dakota’s shale formations hit oil and 9 out of 10 are profitable. North Dakota sweet crude has been selling at $79 per barrel recently, $4 higher than last year.

In 2010, North Dakota’s real gross domestic product (GDP) per capita was $46,336, over 9 percent higher than the U.S. average.[iv] Its unemployment rate was the lowest in the nation at 3.5 percent compared to a 9.1 percent U.S. unemployment rate.[v] The shale oil boom has brought employment and economic growth to North Dakota, where its GDP has increased by 33 percent from 2006 levels.[vi]

Oil Prices in the United States by Region

The Energy Information Administration provides oil price statistics by 5 Petroleum Administration for Defense Districts (PADDs): the Northeast, Midwest, Gulf Coast, Rocky Mountain, and West Coast. (See chart below.) The oil prices are provided as the average refiner acquisition cost of crude oil (RAC) in each region. The regions that are coastal have higher average RAC costs than those more central to the United States due to a higher portion of imported crude oil from overseas due to both the higher world market oil prices and to the transportation cost of getting the crude to U. S. ports. The East Coast RAC, for instance, was over 15 percent higher in July 2011 than that of the Midwest PADD where North Dakota is located. (See table below.) In March 2011, it was 25 percent higher.[vii]

Refiner Acquisition Cost of Oil for July 2011 ($ per barrel)

Source: Energy Information Administration, http://www.eia.gov/dnav/pet/pet_pri_rac2_a_EPC0_PCT_dpbbl_m.htm

Projected Heating Oil Prices

The Energy Information Administration (EIA) recently released its Winter Fuels Outlook, projecting that heating oil prices will reach a record this winter, averaging $3.71 per gallon.[viii] The Outlook expects households heating primarily with oil to spend an average of about $193 (8 percent) more this winter than last winter as a result of a 10-percent increase in prices and a 1-percent decrease in consumption due to slightly milder weather. About 6 percent of U.S. households depend on heating oil for winter fuel but about 80 percent of those households are in the Northeast where RAC prices tend to be the highest in the country. EIA projects residential heating oil prices this winter season to be 33 cents per gallon more than last winter, and the highest average winter heating oil price on record.[ix]

The Path the United States Should Take

What should the United States do to decrease future heating oil prices and emulate the economic and employment success of North Dakota? Obviously, oil imports from overseas add to the cost of energy in this country as the RAC costs above indicate. But, oil imports could be eliminated eventually just by taking steps to increase domestic production of oil off our coasts and on public lands in the lower 48 states and in Alaska, develop our shale oil resources, and increase the capability to import oil from Canada. Those oil development strategies have been continually blocked by the Obama Administration in preference to increasing renewable energy and continuing our dependence on oil overseas. Because most renewable energy pertains to the electric generation sector and because less than 1 percent of our generation is produced by petroleum, renewable policies do little to reduce our oil demand. That’s because most oil is used in the transportation sector where few alternatives are economic or desired by the American public. As a result, the United States will be dependent on oil for many, many decades to come. Traditionally, oil demand has been reduced by economic recessions and its growth has occurred during periods of economic recovery.

The United States has a wealth of oil resources though the Obama Administration likes to only tout the proven oil reserves of this country, which are about 2 percent of world reserves. But, proven reserves are always growing and world oil reserves are the highest they have ever been: 1.47 trillion barrels. Reserves grow because of continuing exploration and development, new technological development, and higher oil prices that make previously uneconomic sources of oil economic to develop. For instance, if North Dakota had not continued to drill, it would not have increased its reserve level that has grown over 150 percent between 2006 and 2009. The state’s oil reserves now total over 1 billion barrels. That increase has occurred even though we continue to use the state’s oil. Further, if the state’s oil companies had not turned to hydraulic fracturing, a relatively new drilling technology, they would not have been able to exploit North Dakota’s Bakken shale oil resources. And, of course, oil prices had to reach more than $50 per barrel to make oil production there economic. But that figure is a lot less than the current cost of oil imports from overseas.

This same oil development strategy can work in waters off our Atlantic, Pacific, and Gulf Coasts; in the Arctic; on federal lands in Alaska such as the Naval Petroleum Reserve and the Arctic National Wildlife Refuge; on federal lands in the lower 48 states that are not national parks; and on federal lands that hold the world’s largest oil shale resources of almost 1 trillion technically recoverable barrels, just under the estimate of total proven oil reserves in the world. With such a wealth of national oil resources, the United States should be able to eventually wean itself off of overseas oil provided it makes these American resources available to development.

A recent study has estimated that opening most of these resources to development, continuing the oil tax policies currently in place to encourage the investment needed to drill, and allowing a doubling of Canadian oil imports through construction of the Keystone pipeline would result in enough new oil production to displace the majority of overseas oil imports in 15 years.[x] It would also create 1 million new jobs over the next 7 years and 1.4 million by 2030 and generate more than $800 billion in new cumulative government revenues by 2030 without increasing taxes and government spending. The Unites States is currently encouraging and helping foreign countries such as Brazil to increase its oil exploration and production.[xi] Why not do it at home?

Conclusion

We are facing higher oil prices that have become sustained this year and record heating oil prices for this winter. But, the United States has a wealth of oil resources that can be developed to increase domestic oil production, create jobs, and increase government revenues to eventually wean us off overseas oil if only the U.S. government would provide those resources to development. Historically, U.S. industries have found the least cost solution for meeting American energy needs and our economy has grown to levels that no other country has matched to date. The U.S. government should look to North Dakota’s accomplishments and emulate them through encouraging oil exploration and development in this country rather than fostering it in other countries.

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

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

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

[iv] Bureau of Economic Analysis, http://www.bea.gov/iTable/iTable.cfm?reqid=70&step=1&isuri=1&acrdn=1

[v] Bureau of labor Statistics, http://data.bls.gov/timeseries/LNS14000000 and 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#1400

[vi] Bureau of Economic Analysis, http://www.bea.gov/iTable/iTable.cfm?reqid=70&step=1&isuri=1&acrdn=1

[vii] Energy Information Administration, http://www.eia.gov/dnav/pet/pet_pri_rac2_a_EPC0_PCT_dpbbl_m.htm

[viii] Energy Information Administration, Winter Fuels Outlook, October 12, 2011, http://www.eia.gov/emeu/steo/pub/contents.html

[ix] EIA notes that that price is lower than the price during the summer of 2008 when oil and petroleum prices reached their peak.

[x] Wood Mackenzie energy consulting, U.S. Supply Forecast and Potential Jobs and Economic Impacts (2012-2030), September 7, 2011, http://www.api.org/Newsroom/upload/API-US_Supply_Economic_Forecast.pdf

[xi] Institute for Energy Research, http://www.instituteforenergyresearch.org/2011/09/13/new-oil-finds-around-the-globe-will-the-u-s-capitalize-on-its-oil-resources/

The Solyndra loan program and the NAT GAS Act are both based on the idea that private investors are not making good enough decisions, and therefore the federal government needs to speed things up—either through direct subsidies or through tax subsidies. The proponents of these programs argue that subsidizing solar panels or natural gas truck, bus, and car conversions will stimulate the economy and create jobs. Sadly, the NAT GAS Act will create the same incentives that gave us Solyndra’s demise.

The Solyndra saga began when the Obama administration gave the company a $535 million loan through the Federal Financing Bank (a part of the Treasury Department). The White House argued that the loan would create jobs. As Vice President Biden said, “By investing in the infrastructure and technology of the future, we are not only creating jobs today, but laying the foundation for long-term growth in the 21st-century economy.”

The Department of Energy (DOE) has tried to justify the Solyndra loan by claiming that even though it was risky, they were trying to “leverage private sector capital.” As DOE spokesman stated, “What this program is intended to do is leverage private sector capital towards innovative clean energy technology that can help American manufacturing remain competitive, but might not otherwise receive project financing on the open market.”

The problem is that the government does a very bad job at creating jobs through these kinds of programs. According to the administration, the entire green energy loan guarantee program has only created 3,545 new jobs after spending about half of the $38.6 billion in loan guarantees. That works out to about $5 million per job.

Solyndra should be a cautionary tale about policymakers thinking they can create jobs by providing special help to politically-connected companies. These plans, however, are doomed because policymakers and bureaucrats do a poor job of picking winners and losers because it’s not their money. The Obama administration—or someone in the White House—obviously thought that Solyndra was a winner, but the company has turned out to be a terrible loser.

Despite Solyndra’s demise, some policymakers are supporting the same type of policies in other incarnations, such as the NAT GAS Act. The NAT GAS Act’s premise is surprisingly similar to the DOE loan guarantee program that gave money to Solyndra. Before the loan guarantee program, there were solar companies in the U.S. trying to figure out how to make electricity from the sun at economic rates. Today, before the NAT GAS Act has been made into law, there are companies converting trucks, cars, and buses to run on natural gas without the NAT GAS Act’s large tax subsidies.

The DOE’s loan guarantee program did not create a new solar industry. Instead, solar companies such as Solyndra have rapidly expanded—fueled by taxpayers’ dollars—even though it was uneconomic. Their uneconomic expansion led to Solyndra’s downfall; their product could only be sold for what it cost to make in the real market. We don’t know if the expansion of companies converting vehicles to run on natural gas will result in a meltdown as great as Solyndra, but we do know that the NAT GAS Act will lead to billions in uneconomic spending.

We know that the NAT GAS Act will lead to uneconomic spending because cost-effective technology does not need subsidies. Apple does not need subsidies to make money selling iPads. Microsoft doesn’t need subsidies to sell Windows, even though there are literally free operating systems. And the American TV company Vizio didn’t need subsidies to compete against Asian electronic giants like Sony, and Samsung. Companies that sell a cost-effective product or technology do not need special help from the U.S. taxpayer.

The NAT GAS Act is attractive to some because natural gas can replace some imported oil. This overlooks the obvious point that if we are concerned about importing oil, why not open up more than 2.5 percent[1] of offshore lands for oil and natural gas production and why not open up more than 6 percent of onshore lands?[2] The United States has large reserves of oil, so why not use them if we are concerned about importing oil?

Additionally, the companies advocating tax subsidies for natural gas vehicles argue that natural gas is a much more economic fuel than diesel or gasoline, and somehow that justifies a multi-billion dollar government subsidy program.  If it is cheaper, won’t people buy them?  Many times in the energy debate, if a long explanation about all the intended benefits of a particular proposed government policy or handout is needed, it’s a fair bet those doing all the fast talking are trying to outsmart over 300 million Americans making individual decisions based upon what they see makes the most sense….and they do it with their own money.  Because they decide in the free market—with their own money and without coercion—the winning technologies are those that win the trust of the consumer, rather than the favor of the politician.

The NAT GAS Act is based on the same flawed assumptions that undergird the loan guarantee program that gave us Solyndra. Instead of trying to outsmart private investors and consumers by convincing politicians, it would be far better if policymakers allow Americans to choose for themselves what to invest in and what sources of energy make the most sense. After all, if we’ve forgotten what the Founders intended for our nation, shouldn’t Solyndra remind us?

P.S. For a greater explication of the NAT GAS Act, see economist David Kreutzer’s testimony from the Ways and Means Committee hearing.

The NPC Study

The NPC is an advisory group of industy, academic, government and other officials that are tasked by the Secretary of Energy to provide advice on oil and natural gas issues. In 2009, DOE Sectretary Steven Chu requested the NPC to evaluate oil and natural gas resources based on the following four concepts: economic prosperity, environmental sustainability, energy security, and prudent development.

Some of the report highlights are:

Oil

• The United States is the world’s third largest oil producer, after Russia and Saudi Arabia. And, Goldman Sachs indicated that it expects the United States to take the top spot as the largest oil producer by 2017.[ii]
• Together the United States and Canada produce 4 percent more oil than Russia, the world’s largest oil producer.

• Sources of oil in the United States include 1.) tight oil such as in the Bakken and Eagle Ford formations, 2.) oil offshore in the Gulf of Mexico and off the Atlantic and Pacific Coasts, 3.) oil in the Arctic, and  4.) shale oil deposits in Colorado, Utah, and Wyoming. Development of these resources will require assistance from the federal government through their inclusion in the 2012-2017 leasing program. Their development will also require sustained investment, advanced technology, and new pipelines and other infrastructure.
• The Trans Alaskan Pipeline System will be threatened by decommissioning unless new oil resources are developed in the Arctic to keep the pipeline’s volumes from reaching below minimum operating levels.
•  Two scenarios were evaluated: constrained (limited) and unconstrained (high potential). The constrained scenario assumed limited resource access, constrained technology development, and greater regulatory barriers compared to the unconstrained scenario that assumed more access and substantial advances in technology. (See graph below for results.)

• Oil from shale formations, such as Bakken shale in the northern United States and the Eagle Ford shale in Texas, listed as tight oil in the graph above, could produce 2 million to 3 million barrels of oil per day by 2035.[iii]
• The United States and Canada combined could produce up to 22.5 million barrels of oil per day, which is today’s demand level. With demand growth, some oil imports from overseas would be needed.

• Americans will need natural gas and oil for a major portion of its energy requirements for the foreseeable future even if the United States uses energy more efficiently, diversifies its energy mix, and moves towards lower carbon fuels.

Natural Gas

• The United States is the world’s largest producer of natural gas.
• Together the United States and Canada produce 25 percent of the world’s natural gas supply.

• Hydraulic fracturing and horizontal drilling have brought about the reassessment of the natural gas resource base with substantially higher levels than just a few years ago.[iv]
• The natural gas resource base could supply more than 100 years of demand at today’s consumption levels and more than 5 decades at greatly expanded levels.
• Technological success in the United States with shale gas development has opened opportunities worldwide in China, Poland, the Ukraine, South Africa, and elsewhere.
• Natural gas can be part of the solution to lower emissions of greenhouse gases since it is less carbon intensive than coal for electric generation.

The NPC recommends:

• Classifying natural gas as a “clean fuel” for purposes of clean energy standards.
• Development of environmental footprints and full fuel cycle impacts in comparing different energy sources and technologies.
• The creation of industry-led, regional “councils of excellence” to make sure the best practices for safe natural gas development are being shared among all companies.
• Development of government regulations that balance prescriptive and performance-based regulations
• Maintaining tailored royalty relief programs that encourage early development and production.
• Allowing longer lease times for “frontier” areas, such as the ultra-deep water and Arctic where planning and operations are significantly more challenging.

Conclusion

The United States is currently the world’s largest producer of natural gas and the world’s third largest producer of oil. If the vast oil resources in the United States were allowed to be developed with appropriate incentives for development, the United States could be the world’s largest oil producer. With additional oil supplies from Canada, the United States could almost become independent of overseas oil. Given that the United States will need oil and natural gas for the foreseeable future, why not allow the industry to make this forecast a reality?