You gotta love this line: "peak oil is a moving target,” Mr. Hatlen said. “Oil is always a function of price and technology.”
In fact, the world oil shortage is political, not geological.
The case for drilling—and more energy production
Jon Basil Utley | August 14, 2008
The media constantly repeat the claim that it would take a decade to get the Arctic National Wildlife Refuge (ANWR) into oil production and about as long for offshore continental oil to start flowing. Most accounts promote the views of extreme environmentalists to make the issue appear so hopeless that we must instead "change our way of life" rather than tap into proven oil reserves. In July, CNN repeatedly reported that offshore drilling would take "seven to 10 years" to get into production. Yet Brazil's Petrobras expects its new finds in extraordinarily deep waters to already be producing 100,000 barrels per day in just two years. What is wrong with American oil companies that they would take so long?
In fact, the world oil shortage is political, not geological. In the U.S., the government prohibits drilling offshore. In Nigeria, civil strife has shut down major production. In Libya and Iran, Washington effectively blockaded and isolated the nations for years to inhibit new production. In Iraq, of course, the U.S. destroyed much of the infrastructure since the first Gulf war in 1991 and then blockaded reconstruction. In nations such as Russia and Mexico nationalism and corruption curtail increased production.
Outside of developed Western countries, the single largest reason for oil "shortages" is government incompetence and ownership of the subsoil rights so that landowners don't benefit from oil discoveries. In Patagonia, Argentina (a nation with abundant oil), I was told how it was common for landowners to try to hide any evidence of oil seepages from underground, lest the government oil company come in and ruin their lands with no benefit to themselves. Private mineral rights ownership is the reason some 90 percent of all oil wells drilled have been in the U.S. Scientific advances and innovative engineers keep coming up with ways to both discover new fields and keep old ones in production almost indefinitely.
ANWR could become the fastest way to generate hundreds of billions of dollars of new oil. But laws need to be changed to fast track the leasing (there are 11 litigation choke points) and to create special courts to expedite environmental issues, as recently proposed by Rep. Michele Bachman (R-Minn.). Under current laws, it could indeed take 10 years to produce oil, compared to two or three years for the actual drilling and pumping. Additionally, leasing is done slowly, thanks to laws written when oil was plentiful. Such laws were designed to gain maximum upfront money for the government, not for speed. For example, BP recently paid $1.2 billion for a new offshore lease, some 400 miles East of Canada's Alaska's Prudhoe Bay. The cost and distance gives some idea of industry expectations as to the extent of oil reserves.
In Anchorage last month, Marilyn Crockett, executive director of the Alaska Oil & Gas Association, explained to me the following time frame for ANWR drilling: Expect 12 months or more for an Environmental Impact Statement after Congress approves drilling. And this is working fast. It would likely take much longer. Expect 12 months to 18 months for the Department of Interior to draw up and bid out the lease-sale process. Plan on two years for oil companies to do test drilling and analysis. Drilling and transport of heavy equipment can only be done in the winter months when the permafrost ground is solidly frozen, from December through April. Concurrently with oil drilling, a 75-mile pipeline spur needs be built to connect to the main Alyeska Pipeline from Prudhoe Bay to the Southern shipping port.
However, this time frame does not allow for environmental lawsuits "every step of the way," as Crockett warned. The rest of the 10-year time frame is to allow for lawsuits trying to prevent or harass production in one way or another. For example, a single judge in California's 9th circuit has failed to issue a decision on a Shell Oil project that already had $200 million of investment before it was ordered to stop. It will produce 30,000 barrels per day, about $1 billion per year of oil.
There has already been a test well drilled in ANWR and the oil drilling could be done from a concentrated small area, about the size of Dulles Airport. Compare this to the total size of ANWR, which is roughly equivalent to the size of South Carolina. Its reserves are estimated at 10 billion barrels by the U.S. Geological Survey, compared to 32 billion nationwide, almost a 33 percent increase. At full production, ANWR would add a million barrels per day to U.S. production. At $100 per barrel, this would equal over $36 billion per year that would not need to be spent on foreign oil. It would also create some 700,000 well-paying jobs, according to a Wharton Econometrics study [pdf].
Some accurate pictures are finally beginning to circulate. Previously, ANWR was typically portrayed as if it was like the Rockies, with happy goats jumping around. But the land is actually flat and desolate for most of the year, feeding birds and caribou in the summertime. I have personally seen such land with its untold numbers of shallow, frigid little lakes on the Arctic Circle in Northern Russia. It reminded me of what the first French explorer called such lands in Canada's northern extremes: "The Land God Gave to Cain." I was in Alaska hiking last July; the quantity and variety of animal life is astounding. Grizzly bears roam within the city limits of Anchorage and moose die of starvation every winter all over the state. Nearly a million caribou (reindeer) roam. The whole western half of the state is without roads. Hundreds of streams are filled with salmon. I saw a bowhead whale breaching and little sea otters (once nearly extinct) in Seward Harbour during one afternoon boat trip out into the bay. Drilling, in other words, will not spoil the richness and abundance of Alaska's wildlife.
Here are some other interesting facts about Alaskan oil:
• Drilling is permitted in the Beaufort Sea on Alaska's north coast. On the west coast, it is not allowed under the general prohibition against offshore drilling.
• Wells at Prudhoe Bay and nearby ANWR, if allowed, are very shallow, mostly 1,000 feet to 2,000 feet deep, which allows for fast drilling.
• New technology now also allows long distance slant and horizontal drilling from a single drill site. BP is now planning such an eight-mile drill.
• The Beaufort Sea off shore is very shallow and production is done from man-made islands. A single platform allows for many slant wells.
• The Bering Sea between Alaska and Siberia is only some 2,000 feet to 3,000 feet deep.
• Estimates of recoverable oil are based on a $40 barrel price—they should be much higher with oil at $100-plus per barrel. The higher price justifies more costly drilling and secondary recovery engineering.
• Alyeska Pipeline once pumped 2.1 million barrels of oil per day, It's now at 700,000 and declining 7 percent annually. Roughly 400,000 of these barrels come from many new, smaller fields discovered after Prudhoe Bay started production.
• The Alaska National Petroleum Reserve, a very large area west of Prudhoe Bay, may also have large new oil reserves. However, most of the area has not yet been leased by the Federal government's very slow plan, nor explored, nor litigated.
The amounts of natural gas are just as astounding as the quantities of oil. The U.S. Geological Survey estimated years ago that there were 150 trillion cubic feet of conventional gas, 590 trillion cubic feet of gas hydrates (an as-yet-unexploited form of methane trapped in water molecules underground). The U.S. Geological Survey estimated that to be "twice the amount of carbon to be found in all known fossil fuels on Earth." Also, there is an uncalculated amount of drillable coal-bed methane in an estimated 13.7 billion tons of indicated coal resources.
The state government of Alaska is now proposing a new pipeline to transport already discovered gas through Canada to connect with pipelines reaching the American Midwest and the east. It will cost around $30 billion, be underground, and transport quantities equal to some 6 percent to 8 percent of all current U.S. consumption.
Meanwhile, Washington has become paralyzed by dysfunctional government. France and China can build nuclear electric plants in just years; in the U.S. it takes a decade. Brazil will bring offshore oil online in 24 months, while for U.S. companies it takes 10 years. New refineries are virtually illegal to build. New electricity-generating plants using coal are now unable to obtain financing because of environment constraints.
This is destroying the value of the dollar and wrecking our balance of trade, making oil prohibitively expensive, and sending hundreds of billions of dollars to foreign lands—many of whom are no friends of America. No wonder 80 percent of Americans think their nation is on the wrong track. Washington needs to declare a national emergency program to produce energy. The reasons we don't are political, not technical. Indeed, new natural gas discoveries have knocked U.S. prices down by about 30 percent.
Jon Basil Utley is associate publisher of The American Conservative and a former foreign correspondent for Knight Ridder newspapers. He has decades of experience in the oil business, including as the owner and operator of a small oil drilling partnership.