Entries Tagged as 'oil'

Killing Keystone Won’t Reduce Oil Use

David Frum November 12th, 2011 at 8:38 am 208 Comments

In my column for the National Post I explain why ending the Keystone XL pipeline won’t reduce the amount of oil people consume:

The true locus of opposition to the pipeline is not Nebraska, but California, where big liberal environmentalist donors have seized on the pipeline as a talismanic cause. These California environmentalists do not want to redirect the pipeline. They want to stop it altogether, so as to leverage an end to further Canadian oilsands development.

What will curtailing oilsands accomplish for the environment? Nothing. This is a big planet full of oil, and if the United States does not buy its oil from Canada, it will buy its oil from somebody else.

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Choosing Our Energy Priorities

David Frum June 27th, 2011 at 9:28 am 20 Comments

Human Events offers a “Top 10″ list of reasons to think that President Obama favors expensive energy.

Here’s number eight:
8.  Stifles U.S. oil drilling, while subsidizing Brazil’s: The BP oil spill prompted the President to impose a drilling moratorium in the Gulf making deepwater drilling permits impossible to obtain.  So when oil companies moved their rigs to areas off the coast of Brazil where they were welcomed, Obama offered billions in US taxpayer money to aid the venture, creating new jobs in South America.  By refusing to allow U.S. energy sources to be developed, the President is ensuring increased reliance on expensive and volatile foreign oil.

I know this point about US oil vs. Brazilian oil has become a major right-of-center talking point.

But here’s the strange thing: if what you want is cheap oil, you want oil neither from Brazil nor from the Gulf of Mexico. The cheapest oil in the world comes from the Middle East: Saudi Arabia, Kuwait, and so on.

And as between Gulf of Mexico oil and Brazilian oil, Brazilian oil is the cheaper (but not cheap) alternative.

Human Events lambastes the Obama administration for delaying approval of a second pipeline to Canada’s oil sands. (That’s proof number nine.) But Canadian oil sands oil costs even more to produce than Brazil’s offshore oil.

The Human Events list nicely illustrates why US energy policy is such a mess. There are three different things we can want from energy policy, but we can achieve (at most) two at the same time.

We can have energy that is cheap: electricity from coal, oil from the Middle East. But cheap oil is not secure, and cheap electricity is not clean.

We can have energy that is secure: oil from North America and other politically reliable producers. But secure oil costs more than Middle Eastern oil.

Or we can energy that is clean: electricity from nuclear power or renewable sources; alternative sources of motor fuel. But those sources are not cheap. Electricity from solar sources costs between five and 10 times as much as coal-fired electricity.

So we have to make choices.

Choice-making begins with realistic understanding of the trade-offs. Green energy advocates want to conceal how very expensive their preferred policy will be. They talk about creating “green jobs” to distract attention from the impact of expensive energy on everybody else’s jobs.

But advocates of drilling in US coastal waters can be equally misleading, when they suggest we can lower prices by drilling more at home. The marginal cost of US oil greatly exceeds the marginal cost of Middle Eastern oil. We can enhance security by diversifying sources of supply, agreed. But there is only one world price, and that price is set in global markets in which the US will never again be the marginal supplier. Which means that the familiar formula “drill here, drill now” is not a formula to “pay less.”

It’s a good discipline for all of us to be explicit about rank-ordering our energy preferences. I’d say: security first, cleanliness second, cheapness third.

Which is why I favor intensifying US-Canada energy cooperation and shifting from coal-fired to nuclear-generated electricity. Carbon taxes would be a good mechanism to facilitate this shift.

Maybe you have a different rank ordering? Perhaps (as is implicitly the case for Human Events), cheapness first, security second, cleanliness third?

OK then. You’ll want to maximize imports of Middle Eastern oil, ignore nuclear power, and forget about the Gulf of Mexico.

Whatever your rank ordering, unless you think clearly about what you wish to achieve, you are very unlikely to achieve it.

Can the GOP Break Its Oil Addiction?

April 29th, 2011 at 11:44 pm 50 Comments

The problem with intellectual inconsistency is that it usually comes back to bite you. The House Republican leadership is getting a painful lesson in this regard because of their longstanding support for subsidizing the oil industry.

This largess—billions of dollars in special tax breaks and subsidies—has suddenly become a liability for a party that has made fiscal responsibility the centerpiece of its policy agenda.

The first sign of trouble came courtesy of a recent ABC news interview with House Speaker John Boehner (R-OH). Put on the spot, Boehner had trouble defending the oil subsidies saying “I don’t think the big oil companies need to have the oil depletion allowances…We need to control spending…And they ought to be paying their fair share.”

It was a good response for someone properly focused on getting spending under control. Unfortunately, the Speaker started backtracking from the statement as soon as he remembered that the President and other Democrats support ending these subsidies.

As Boehner was backtracking and Republicans were circling the wagons in defense of oil subsidies, Exxon and Shell reported huge quarterly profits that were up over 60 percent from the same period last year. Exxon reported $10.6 billion in profits for the quarter and Shell reported $8.78 billion.

In light of those profits, the GOP mantra that removing the subsidies and special breaks would result in a higher price at the pump sounds more like the utterings of a blackmail victim than it does lawmakers focused on sound public policy.

As Boehner and company were probably hoping the issue would go away, news surfaced that House Budget Committee Chairman Paul Ryan (R-WI) had expressed support for ending oil subsidies at a recent town hall meeting. When asked about oil industry tax breaks Ryan said:

We’re talking about reforming the safety net, the welfare system. We also want to get rid of corporate welfare. And corporate welfare goes to agribusiness companies, to energy companies, financial services companies. So we propose to repeal all of that.

It will be interesting to see if Republicans can be persuaded to go along with such a proposal—particularly in light of the campaign cash oil interests ply them with and the insistence by libertarian radicals like Grover Norquist that ending any tax break, regardless if it has outlived its original purpose, amounts to a tax increase.

For anyone who is truly in favor of the free market and fiscal responsibility, special corporate tax breaks and subsidies should not be the norm, nor should they be championed as the functional equivalent of lower across the board tax rates.

Special corporate subsidies and tax breaks, to the extent that they are used at all, should be temporary and targeted towards a very specific policy goal that is in the nation’s long-term interest—such as giving breaks to jumpstart renewable energy and new technologies, or encourage energy conservation.

If Republicans can garner the courage to make a clean break from their habit of subsidizing oil companies, they will not only strike a blow for intellectual consistency, but they will be helping our nation to break its oil addiction and give cleaner, more domestically available, alternative fuels a fair chance to compete in the market place.

If not, its special interest driven contortions will repel voters—just as they did in 2006.


Don’t Bank Our Future on Oil We May Not Have

April 5th, 2011 at 8:02 am 13 Comments

Over the weekend, salve I noticed that an op-ed in Investor’s Business Daily took me to task for citing “proven” oil reserves in my FrumForum post, The GOP’s Oil Drilling Pipe Dream.

The author, an economics professor at George Mason University (GMU) named Donald Boudreaux, makes the case that government estimates of “proven” or “proved” reserves are irrelevant because the estimates of “unproven” reserves are so much higher.

Different agencies and groups have slightly varying definitions of “proved” reserves, but the Central Intelligence Agency (CIA) sums it up nicely:

Proved reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with a high degree of confidence to be commercially recoverable from a given date forward, from known reservoirs and under current economic conditions.

Estimates of “unproven” reserves mostly refer to “undiscovered, technically recoverable oil.” In other words, oil that geologists estimate might be in the ground and recoverable using existing or reasonably foreseeable technology. Such estimates are intriguing, but too speculative to take to the bank. They do not take into account the quality of the oil that might be there or the economic profitability of production.

Such numbers can change as we learn more. For example, while the United States Geological Survey (USGS) has dramatically increased its mean estimate of undiscovered, technically recoverable oil in North Dakota and Montana’s Bakken Formation from 151 million barrels to 3.65 billion barrels, the same agency recently revised comparable estimates for the National Petroleum Reserve-Alaska (NPRA) downward from 10.6 billion barrels to 896 million barrels—roughly 10 percent of its 2002 estimate.

Considering that the U.S. currently consumes roughly 7 billion barrels of oil per year, the notion that we can bank our energy future on unproven reserve estimates represents little more than an imprudent roll of the dice.

Then, of course, there is economics. A significant fraction of undiscovered oil reserves, assuming that they really exist, are in remote locations and consist of heavy oil, both of which are not profitable to produce if prices are low. How high does the price of a barrel of oil need to be before this oil could be economically produced? Is it $100 per barrel? $150 per barrel? We are not talking about cheap or easy oil.

Cheap and easy oil, to the extent that it remains, is mostly located outside of the United States.

Anyone who claims that unproven reserves are the answer to high gas prices is either uninformed or trying to hoodwink the public.

Mr. Bourdreaux, echoing a common refrain of petro-peddlers like Sarah Palin and Congressman Joe Barton (R-TX), contends that government restrictions are the only thing preventing our nation from producing all of the oil we could ever need.

It is a claim driven far more by special interests and political agendas than by anything approximating reality.

Unproven reserves are just that, unproven.

While the amount of proven reserves will fluctuate based on the price of oil, new discoveries, and technological advancements, the current proven reserves estimates remain the most prudent guide for making decisions about our energy future—along with the knowledge that oil is a finite resource.

In addition to being more certain, proven reserve numbers exist for all of the major oil producing countries.  We can see how we compare with other nations and better assess our economic and strategic vulnerabilities. That is not the case for unproven reserves.

In making policy decisions, we must evaluate  the risks of perpetuating dependence on oil and exposing our economy and security to price spikes and supply uncertainties caused by events over which we have little control.

Mr. Bourdreaux teaches at GMU, whose team nickname is the Patriots. I think that true patriotism requires us to pin our country’s energy future on something more reliable than unproven reserves.


Hands Off Our Oil Reserves

March 6th, 2011 at 7:22 pm 13 Comments

Democrats in Congress are clamoring for President Obama to open the stopcocks at the Strategic Petroleum Reserve and let the crude splash into the market in order to drive down pump prices.  It’s a bad idea, for three reasons.

One, the reserve squirreled away in Gulf Coast salt caverns is intended for truly dire energy emergencies. Doing what the Democrats are asking would be like a family raiding its emergency savings account to cover an increase in gasoline prices.

Second, if oil were taken out of the reserve, the withdrawn amount would have to be replaced, probably at higher prices than we paid for stocking the oil in the first place. That’s a bad deal for taxpayers.

Third, taking oil from the reserve would give credence to the notion that there’s nothing wrong with being addicted to oil as long as the liquor cabinet is full when we belly up to the bar for our regular fix.

Since oil markets are prone to charging fear premiums whenever there’s tumult in oil exporting places, then the oil markets are trying to tell us something – conserve now and start thinking rationally about our energy future now, rather than waiting for the good-to-the-last-drop crowd on the Hill to at last wise up.

Breaking our oil addiction will take time, political will, and a balanced energy strategy based on facts, not on ideological hobbyhorses. That baggage should be checked at the door, including the Right’s drill-baby-drill sloganeering and the Left’s utopian fantasies.

Few in D.C. want to talk about it in rational terms these days, but a price on carbon should be the centerpiece of a strategy for weaning the U.S. off oil and giving alternative transportation fuels and drive systems a shot at breaking the petroleum monopoly.

Otherwise, our economy and security will be at the mercy of the next petro-potentate whose people start shooting at him.


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The Lockerbie Bomber Story Continues to Unravel

David Frum September 6th, 2009 at 9:31 am 9 Comments

Most of the doctors who examined convicted Lockerbie bomber Abdelbasset al-Megrahi concluded that he had some time to live, up to a year. Scottish Justice Minister Kenny McAskill opted instead to rely on a minority of doctors who estimated Megrahi’s life expectancy at less than three months. This mattered, because under Scottish law only those with less than 3 months to live qualify for compassionate release. Now Britain’s Daily Telegraph reports this:

Medical evidence that helped Megrahi, 57, to be released was paid for by the Libyan government, which encouraged three doctors to say he had only three months to live…

Megrahi is suffering from terminal prostate cancer. Two of the three doctors commissioned by the Libyans provided the required three-month estimates, while the third also indicated that the prisoner had a short time to live.

This contrasted with findings of doctors in June and July who had concluded that Megrahi had up to 10 months to live, which would have prevented his release.

Professor Karol Sikora, one of the examining doctors and the medical director of CancerPartnersUK in London, told The Sunday Telegraph: “The figure of three months was suggested as being helpful [by the Libyans].

“To start with I said it was impossible to do that [give a three-month life expectancy estimate] but, when I looked at it, it looked as though it could be done – you could actually say that.” He said that he and a second doctor, a Libyan, had legitimately then estimated Megrahi’s life expectancy as “about three months”. A third doctor would say only that he had a short time to live.

This weekend it was reported that Megrahi was moved out of an emergency care unit in Tripoli.

Far from an individual act of perhaps misguided compassion by one Scottish minister, the case increasingly looks like a deceitful connivance between the British, the Scots and the Libyans to cut short the imprisonment of a convicted mass murderer for commercial reasons.

The only consolation is that the British press has pressed for the truth and exposed their government’s true role. Meanwhile on this side of the Atlantic, an uncurious American press has accepted the Obama administration’s account at face value. Possibly that story is true. But given the level of lying in London and Edinburgh, it would be unrealistic to put much faith in Washington. What we need now are congressional hearings to discover:

  • When did the Obama administration first hear of London’s desire to see Megrahi released – not formally learn, but actually learn.
  • How did the administration respond? Did it protest? How forcefully?
  • Did the Obama administration have any role in the Libya-U.K. negotiations? Specifically – did the Obama administration agree to downplay its complaints (i.e. Obama’s ultra-mild description of the release as a “mistake”) in exchange for commercial considerations for U.S. firms or interests?
  • What consequences going forward will Britain’s attitude have for U.S.-U.K. relations and especially for U.S.-U.K. criminal justice cooperation?

There are many other questions to ask too as we seek to discover how the man who was convicted for killing 180 Americans was allowed to escape the full sentence for his crimes.

Pique Oil

September 3rd, 2009 at 1:54 pm 9 Comments

Ever since oil hit $147 a barrel last summer, analysts predicting “peak oil” – the point at which oil production begins sliding inexorably – have had a field day. Perhaps it’s true, but the earth doesn’t seem to want to cooperate, at least not yet.

BP yesterday announced the discovery of a “giant” oil field in the deep waters of the Gulf of Mexico, 250 miles south and east of Houston. BP’s partner in the venture is PetroBras, the state-owned Brazilian oil company that itself has made such huge strikes off the shores of Brazil that that country will likely become an oil exporter in a few years. While BP is coy about the exact size of the new field, I am privately told by sources that it could rival BP’s existing Thunder Horse field in the GoM, which is the second largest in the US, after Prudhoe Bay, Alaska. The technology involved in reaching this oil ought to boggle the mind: The platform sits nearly a mile above the ocean floor, while the oil and gas sit nearly seven more miles below that, under layers of rock and salt. The technology to go after these deposits, which are under enormous pressure at temperatures in the thousands of degrees, simply can’t be bought “off the shelf.” Energy companies file literally dozens, sometimes hundreds, of patents on each of these projects. The commitment of shareholder money, on something that is anything but a sure bet, is simply staggering.

I say “ought” to boggle the mind because no one seems much impressed with these amazing technological feats anymore. We used to be. The Trans-Continental Railroad, the Brooklyn Bridge, the Panama Canal, the Empire State Building, the Grand Coulee Dam, etc. (Woody Guthrie wrote a song about the latter.) Like so many things, the thrill seemed to drain away in the 1970s. The Trans-Alaska Pipeline, an engineering marvel, even today, was passed only when then-Vice President Spiro Agnew cast a tie-breaking vote in its favor on July 17, 1973. (The-freshman Sen. Joseph Biden of Delaware led the opposition to the pipeline, BTW.) Americans seem to take such things for granted today, which is sad.

The Tiber strike, of course, only underlines what this country is likely missing in the areas offshore where drilling has not been allowed for over three decades: the eastern GoM off Florida, the coast of California and ANWR. It also underlines the cluelessness of America’s bipartisan don’t drill/no nukes/wind-and-solar-will-save-us energy “policy” that benefits no one but the sheiks who run Saudi Aramco.


Megrahi’s Release: Another Shoe Drops

David Frum August 30th, 2009 at 10:00 am 7 Comments

A story in the Independent on Sunday suggests that while the Obama administration was opposed to the release of the convicted mass murderer, it made clear that it was open to compromise – such as house arrest in Scotland – rather than implacably opposed, period.

US officials had “very reluctantly” backed a proposal to move Abdelbaset Ali al-Megrahi from Greenock Prison into some kind of high-security accommodation elsewhere in Scotland, senior government sources on both sides of the Atlantic confirmed.

Meanwhile, the U.K. government’s story that the release was a solo adventure of crazed lefties in Edinburgh continues to unravel. The Times reports leaked ministerial letters showing that U.K. Justice Secretary Jack Straw wrote to his Scottish counterpart two years ago to urge Megrahi’s release on national interest grounds, i.e. to accelerate an oil deal with Libya.

The British government decided it was “in the overwhelming interests of the United Kingdom” to make Abdelbaset Ali Mohmed al-Megrahi, the Lockerbie bomber, eligible for return to Libya, leaked ministerial letters reveal.

Gordon Brown’s government made the decision after discussions between Libya and B.P. over a multi-million-pound oil exploration deal had hit difficulties. These were resolved soon afterwards.

The letters were sent two years ago by Jack Straw, the justice secretary, to Kenny MacAskill, his counterpart in Scotland, who has been widely criticised for taking the formal decision to permit Megrahi’s release.

The correspondence makes it plain that the key decision to include Megrahi in a deal with Libya to allow prisoners to return home was, in fact, taken in London for British national interests.

Most of the disgrace in this matter should fall on Britain. Still, the yielding attitude of the Obama administration seems to have contributed to persuading the U.K. and Scottish governments that they had wiggle room to proceed as they wished, without too many consequences to themselves. If so, they look to have been absolutely right about that. London and Edinburgh have sent home a man guilty of the murder of 180 Americans, with so far as anybody can tell, zero negative consequences to U.S.-U.K. relations and only a few faint murmurs of “mistake” from the president and “disappointment” from the Secretary of State.

I think it’s time to stop complaining that the president no longer uses the phrase “war on terror.” Truly: the war is over as far as the U.S. and U.K. governments are concerned. Why pretend otherwise?