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Not All the 'Easy' Oil is Gone Mr. President

Posted By David Kreutzer, Ph.D. On May 27, 2010 @ 7:52 pm In Energy | Comments Disabled

At the press conference accompanying the political hara-kiri by his director of the Minerals and Management Service, President Obama changed topics and said, “Now let me make one broader point, though, about energy. The fact that oil companies now have to go a mile underwater and then drill another three miles below that in order to hit oil tells us something about the direction of the oil industry. Extraction is more expensive, and it is going to be inherently more risky. … The easily accessible oil has already been sucked up out of the ground.”

Not all of it. He also could have noted that billions of barrels of “easily accessible” oil have been turned into “impossible to access” oil by federal regulations and moratoria that block any access. There is still a lot of non-deep sea oil available off the coast of California that can be accessed from onshore. And, don’t forget, there are the 10 billion barrels in ANWR. All of this oil has been placed completely off limits by federal regulations.

As for the rest, of course we pumped the easy-to-extract oil first. It would be silly if the oil companies drilled in deep water first, then drilled in shallow water, and then drilled on shore. The president could have said “the easily accessible oil” comment ten minutes after the first barrel of oil came to the surface in Titusville, Pennsylvania 160 years ago. The comment wouldn’t have been much more insightful then than it is now.

There has been a constant drum beat for decades claiming that we are about to run out of petroleum (and coal before that) based on the logic that you get the low-hanging fruit first. Farmers don’t quit the harvest after getting the first and lowest apple, and fortunately oil companies decided that it might be worthwhile going deeper than the 70-foot depth of “Colonel” Drake’s first well.

The technology for getting the harder-to-reach oil deposits has been improving as fast or faster than our extraction of the easy-to-get stuff-the net, long-run impact is that fueling our cars [1] takes a smaller fraction of our income now than 50 years ago [2].

This may not last. If it doesn’t, real oil prices will have a long-term rise, all the other sources will become more attractive and entrepreneurs/inventors will get rich coming up with superior (cost-effective) alternatives … pretty much the result the president claims his energy policies will do.

The problem is his set of subsidies, regulations, and energy taxes would forsake affordable fuels while they are still abundant and have bureaucrats and lobbyists pick replacements that may never become practical.

Of course one of the President’s proposed solutions is wind power. So maybe we should look at what that industry is doing.

The wind-power companies are building taller and taller windmills and putting them further out in the sea. What does this tell us about wind-that we are running out of it?

Maybe we are at the start of the market switch away from petroleum, maybe we are in the middle of it, or maybe it hasn’t really started in earnest. In any event, subsidizing $400/kWh solar power (the venue for another of the presidents recent photo ops) to replace $78/kWh coal power doesn’t do anything to change the economics of petroleum [3].

Windmills and solar cells make electricity. Less than two percent of our petroleum consumptions goes toward producing electricity. So, if you are worried about oil spills, solar and wind don’t help. If you are worried about getting oil from OPEC (note, however, that Canada is our number one foreign supplier) solar and wind don’t help. In fact, forcing consumers to use the much more expensive wind and solar generated electricity will only slow any changeover to electric vehicles.

Without a doubt, we need to figure out what happened at the BP well site. We need to evaluate all the costs of the spill and make sure we aren’t moving ahead of the technology as we drill deeper. But the deep wells aren’t a sign if imminent exhaustion of petroleum and they are even less an argument for the higher electricity prices we will see if we force a switch to unreliable solar and wind power.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/05/27/not-all-the-easy-oil-is-gone-mr-president/

URLs in this post:

[1] long-run impact is that fueling our cars: http://www.cato.org/images/pubs/pub6440.jpg

[2] than 50 years ago: http://www.cato.org/pub_display.php?pub_id=6440

[3] In any event, subsidizing $400/kWh solar power (the venue for another of the presidents recent photo ops) to replace $78/kWh coal power doesn’t do anything to change the economics of petroleum: http://www.heritage.org/Research/Reports/2010/05/A-Renewable-Electricity-Standard-What-It-Will-Really-Cost-Americans

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