11 April 2010
The Cost of Oil
It is a lovely morning in Virginia, and at the moment, you cannot hear the sound of drilling. That is going to change.
Oil is holding steady at what OPEC thinks is the “prefect price.” That is around $85 bucks a barrel at the moment, high enough to sustain the lunatics who control the majority of the reserves, and not too dear to kill the western democracies that count on it.
I have been reading up on oil and gas, for several perfectly good reasons. I am torn this morning about describing the disaster that decapitated the Polish government at Smolensk, and talking about the dry matter oil and gas leases.
I am going to have to set the stage this way, before launching off to talk about Russian adventurism fueled by the price of oil.
I heard a guy named John Lowe on NPR talking about the laws governing offshore production on the continental shelf, and who was likely to benefit from it.
That was part of the Administration’s disingenuous effort to placate the people who want to “drill, baby, drill” while simultaneously keeping the environmentalists happy.
It is not possible, of course. It is a compromise that gives a small victory to both sides. If you look under the rocks and sediment, you find that what has been done is not what it seems. The ban on exploiting the oil and gas on the continental shelf expired under the Bush administration, and would have permitted explorations on the North Shore of Alaska, the West Coast and all along the eastern seaboard.
Mr. Obama's proposal comes with significant limits. Energy companies would not be able to drill on West Coast or in Northeast waters, but would be able to explore off the Atlantic Coast from Delaware to Florida and 125 miles beyond Florida's shore in the eastern Gulf of Mexico. The Virginia coast tracts are estimated to hold 130 million barrels of oil, which is about equal to the amount the U.S. imports over two weeks from all foreign suppliers.
Two weeks. When it is gone, it is gone.
Professor Lowe has a nice chapter on exploitation, and the right of the government to prevent the hasty removal of product for profit in a manner that will cause the reserve to lose pressure and be lost forever. Balancing the right of the various owners is fascinating.
I am a believer in Peak Oil, which is the thesis that we are right at the moment when we have got most of the easy stuff out of the ground, and from here out it is going to get more expensive to get at, and the day of declining production at any price is almost at hand.
So is Professor Lowe, who is the George W. Hutchinson Professor of Energy Law at Southern Methodist University. The chair he holds is named for the famous English physicist from Southampton University, who back in 1962 announced gravely that:
“An energy crisis is imminent. We have to find substitutes for fossil fuels if we are to keep healthy, sustain the world's ecology and simply go on having the energy we want. Yet, especially in Britain, we have frittered away the last decades in frivolous political dogma while we neglected research on the uses of renewable energy in which we used to be leaders.”
If you see any coincidences, ya’ll go on and do it. We have been remarkably clever about improving our technical ability to extract oil, but absent a major game-changer (like speculation that there is unlimited natural gas at extreme depths in the earth’s crust) we are out of Schlitz within our children’s lifetimes.
Mr. Lowe is a level-headed fellow, and not an alarmist. Peak Oil might be happening now, but production will continue for another fifty years, and as the amount available diminishes, it will only get more precious.
That is why the law is important, and why it has developed the way it has. We will be talking about that in some ruminations this week. The notion of how you manage, exploit and profit from an ephemeral liquid that pays little attention to the surface world is one that will affect every one of us.
He thinks that the to the extent that Mr. T. Boone Pickens says we need it while we have it and we have got to figure out what is going to come next. Sucking it out of the shoreline is a limited and finite step in the march to the end.
That isn’t tomorrow, though you can put it on the calendar with the end of Social Security and a dozen other ticking time-bombs that we are ignoring.
Tomorrow we will talk about what happened in the Katyn Forest. Twice, now, and it is connected to the price of oil.
Copyright 2010 Vic Socotra
www.vicsocotra.com
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