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How the Oil Industry has Deceived the US with the Promise of Energy Independence
Started:May 9th, 2012 (09:18 PM) by kbit Views / Replies:535 / 0
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How the Oil Industry has Deceived the US with the Promise of Energy Independence

Old May 9th, 2012, 09:18 PM   #1 (permalink)
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How the Oil Industry has Deceived the US with the Promise of Energy Independence

Faced with increasing political obstacles to oil and natural gas exploration in many countries around the world, the oil industry is focusing again on the United States. The industry is using the deceitful promise of energy independence to cajole Americans and their policymakers into relaxing environmental regulations and opening protected public lands and restricted offshore areas to drilling.

The oil and gas industry would like you to believe that American energy independence is just around the corner. The question is, why do they want you to believe it now? After all, if energy independence were that easy to deliver, the industry would have done it a long time ago. Why has the industry chosen now, in particular, to begin a campaign of deceit to push the false promise of American energy independence?

First, a little background. Both the large international oil companies and the smaller independents are finding themselves increasingly locked out of those areas richest in hydrocarbons. State-owned firms now dominate the oil and gas industry worldwide and hold 80 percent of the world's oil reserves. And, these firms typically have exclusive rights to exploit oil in their own countries which are located in the world's most prolific oil regions such as the Persian Gulf.

Even in countries where the international oil companies and their smaller counterparts are still allowed to exploit oil and gas resources, these operators are finding that regulations are getting tougher, environmental accountability is rising, and taxes are increasing. In some cases, the fear of expropriation is preventing expansion of or participation in projects in many formerly docile countries. Michael Klare details some of this in his recent piece entitled "How the Big Energy Companies Plan to Turn the United States into a Third-World Petro-State."

And so, the industry is turning back to the United States where private development of resources is still possible and legally well-protected. Certainly new technologies such as hydraulic fracturing, often referred to as "fracking," are making previously unavailable oil and natural gas extractable.

While these technologies may boost production modestly for a time, they will not make the United States energy independent. I'll discuss why this is so below. But first let's ask this question: What is the logic behind the industry's campaign to spread the false promise of American energy independence?

The answer is actually quite simple. If the industry tells the public and policymakers the truth, then the industry's attempt to vastly expand its U.S. operations will almost certainly fail. The truth is that the industry is having a difficult time finding good prospects in the limited areas overseas that it can now explore. So, it wants to return its focus to the United States and drill protected public lands and currently closed offshore areas so it can fulfil its primary mission, namely, making money for its shareholders and managers.

But do Americans really want to risk more BP-style oil slicks in their coastal waters and the ruination of pristine wild areas so a few people in the oil industry can make more profit? After all, the companies are free to negotiate leases on private land, right? If there is still so much oil in the United States, what is keeping the industry from negotiating such leases? The answer is that the industry has been doing just that since 1859 when Col. Edwin Drake drilled the first oil well in Titusville, Pennsylvania. But the oil industry has pretty much gotten all the easy oil there is to get on private land in the United States. The remaining really big easy oil is on public land and in offshore areas controlled by the federal government.

In addition, new methods for bringing both oil and natural gas to the surface such as hydraulic fracturing currently enjoy environmental exemptions which the industry got written into federal law. The exemptions are little more than methods for transferring immense environmental costs onto the public through water, air and soil contamination as well as human and animal health effects--all in order to enhance industry profits.

But if these exemptions were portrayed as a necessary compromise to help the United States achieve energy independence, then the public might be convinced to accept them with little complaint. And so, the industry has found that the best way to distract the public from the industry's unsavoury motives is to insist that its new zest for drilling America's wilderness and offshore areas is all about helping the country achieve energy independence.

To what American does energy independence not sound like a good idea after two wars in the Middle East over oil? What American would not welcome the relief of being able to ignore threats from foreign leaders in petroleum exporting countries? The word "independence" itself is a cherished word from the beginning of the republic. Surely, the United States should strive to be independent in energy. In fact, some believe that drilling for domestic oil and gas is a patriotic duty!

Now, implied in the promise of energy independence is lower prices. America's politicians--the non-serious ones, at least--are happy to predict ridiculously low prices for gasoline once the American energy juggernaut gets cranked up. But, of course, this is all just a sham. The key fact the oil industry does NOT want the public to understand is this: No matter what happens, Americans will continue to pay the world price for oil and oil products including gasoline. Oil is a worldwide market, and oil products go to the highest bidder.

Even if America could produce enough oil to meets its needs, a plateau in world oil production and an on-going decline in global net exports--exports that are currently the subject of fierce competition among major importers such as the United States, India, China, Japan and much of Europe--will insure that demand remains strong and prices stay elevated. Just since 2005 global net exports have declined from about 45.5 million barrels per day (mbpd) to about 42.6 mbpd even as China and India are increasing their oil import needs. Texas petroleum geologist Jeffrey Brown who has been tracking this phenomenon has said that the trend remains intact and that available exports will continue to decline for the foreseeable future. Peak oil has already come to the export market.

Accordingly, the industry only very rarely claims publicly that increasing U.S. domestic oil production will lower prices appreciably. So as not to get caught in an obvious lie, the industry prefers to focus on how much production could grow if only public lands and offshore areas were open to exploration and drilling, implying, but not saying, that this will somehow bring prices down.

So, what is the actual energy picture in the United States if it's not what the oil and gas industry is telling us?

First, I want to dispense with the obvious. When the oil and gas industry speaks of energy independence for America, here is what it does NOT mean. The industry is certainly not referring to expanding renewable energy sources. Nor is the industry referring to the possibility that Americans could become vastly more efficient in their energy use and thus reduce their dependence on imported energy. The industry is emphatically not suggesting that Americans curtail their use of energy in any way, for example, by driving less and bicycling more. No, none of these possible paths to energy independence are on the minds of oil and gas executives.

Instead, ill-informed journalists regularly transmit industry claims that are designed to make us believe that American energy independence is at hand. We have the tired and erroneous claim that America now has a 100-year supply of natural gas at its current rate of consumption. Proven and probable reserves are likelier close to 22 years of consumption at the current rate, hardly a number that inspires confidence in the claim of energy independence. Reserves will almost certainly expand, but only when prices reach three or even four times what they are today as we seek to drill resources that are increasingly difficult to extract.

Keep in mind that with supposedly vast supplies of natural gas now beneath their feet, Americans imported 14 percent of their natural gas needs in 2011, almost all of it from Canada. For comparison, annual U.S. natural gas imports from 1990 through 2010 averaged 15 percent of total U.S. consumption. So much for energy independence.

Even if the 100-year claim were true, the industry wants us to hold two contradictory ideas in our heads. The first is, of course, the already debunked 100-year claim. The second is that we are going to vastly expand our use of natural gas: for more electricity generation (for cleaner air, of course!), for more natural gas-powered vehicles, and for more natural gas-based chemicals. The industry even wants us to believe that there will be enough left over to export to other countries. How the supposed 100-year supply--which is premised on the current rate of consumption--is going to last that long if the country continually grows that rate is simply glossed over. Add to that what any realistic analysis reveals, namely, that natural gas supplies will almost certainly turn out to be less than claimed, and it's easy to see why natural gas will never be the answer to American energy independence.

We also have the truly bizarre claim that oil from deep shale formations in places such as North Dakota is going to provide the United States with enough production to reduce its imports to zero. The U.S. Energy Information Administration (EIA), however, puts the total technically recoverable resources of oil from deep shale formations at 24 billion barrels. This says nothing, of course, about whether such oil will be economically recoverable. And besides, 24 billion barrels constitutes only about 288 days of world supply or about 3 years of U.S. consumption. The rate of production of this type of oil, properly called tight oil, is expected to reach 1.3 mbpd by 2030. And, total U.S. oil production is expected to reach 6.7 mbpd by 2020 and begin to decline thereafter. Since U.S. consumption is projected to remain around 15 mbpd through 2030, the country will continue to import oil and oil products during this entire period.

This tight oil from deep shale formations is often improperly called "shale oil" and thus confused with a misleadingly named substance called oil shale, which oddly enough contains neither oil nor shale. The term oil shale refers to organic marlstone impregnated with a waxy hydrocarbon called kerogen which must go through expensive energy- and water-intensive processes to be turned into what we call oil. While pilot projects have been attempted in the last 30 years among the vast oil shale deposits in Colorado, no commercial production of oil from oil shale has ever been achieved. The often touted 750 billion barrels of recoverable oil in America's oil shale deposits are, in fact, not recoverable at all and may never be.

Since reserves are defined as those resources which can be produced at today's prices using existing technology from known fields, America's reserves in the form of oil shale are currently exactly zero. Moreover, it seems that even with advances in technology, it will be difficult to produce oil from this very refractory resource at anything but a trickle compared to America's needs. In fact, the EIA estimated that even under its high oil price scenario, the United States will produce no more than 140,000 barrels per day of oil from oil shale by 2030, a drop in the bucket compared to the country's projected needs of about 15 million barrels per day.

Then there is the claim that the Canadian tar sands will slake America's thirst for oil. (If it were true, that wouldn't make the United States energy independent though it would provide imports from a politically stable and friendly neighbour.) Chris Nelder points out that ramping up tar sands production has been easier said than done. "Let's remember that tar sands production was projected to grow from 1 mbpd in 2006 to 2.8 mbpd in 2012, but actual production is currently just 1.6 mbpd," he writes citing a Canadian Association of Petroleum Producers forecast from 2006.

U.S. imports from Canada are now close to 3 mbpd. That's for all petroleum products, both crude and refined. That still leaves the United States heavily dependent on other producers including OPEC countries which currently supply about 4 mbpd, according the EIA. Even doubling tar sands production and sending all the extra oil to the United States wouldn't end American dependence on other importers. Of course, this scenario assumes that none of the extra production would go to fast-growing Asian markets which Canada is already planning to serve by adding capacity to a pipeline that runs to its west coast.

The United States remains self-sufficient in coal. But it is likely that coal reserves have been vastly overstated. The truth is nobody knows for sure what they are because no comprehensive survey has been done. It would be unwise to assume that America's coal reserves are limitless.

What America has a lot of are wind and solar resources, waiting to be tapped. Wind resources alone could produce almost 11,000 gigawatts of electricity, according to a recent study by the U.S. National Renewable Energy Laboratory. That's more than 10 times the current total installed capacity of 1,039 gigawatts for the entire United States as of 2010. Of that capacity only 37 gigawatts comes from wind. As for solar, less than one gigawatt of U.S. electricity comes from solar photovoltaic. That's right, just one out of 1,039.

Another thing America has a lot of is ingenuity. Already we know how to build dwellings that use 80 percent less energy than conventional buildings, and we can do this with only a modest increase in building costs, usually less than 10 percent. These techniques, often referred to as passive house design, were perfected by the Germans after Americans, who originated the idea calling it the superinsulated house, abandoned its development in the early 1980s.

Though slightly more expensive to build, this type of design actually saves building owners huge sums in the long run in both energy and money. What we need to do now is figure out how to apply these techniques to retrofits so that America's 114 million dwelling units and countless commercial buildings can be made energy efficient in a manner that is cost-effective. The U.S. Department of Energy has been funding efforts to experiment with ways of accomplishing so-called "deep retrofits."

It has never been the plan of the oil and gas industry to charge Americans less than it can get elsewhere in the world. In fact, it is currently the dream of every natural gas producer in the United States to become linked (as oil producers already are) to global markets. Natural gas produced in North America is trapped here since there is currently no way to transport it overseas.

But already the federal government has approved new export terminals for liquefied natural gas (LNG), which is cooled to -260 degrees F for loading onto special tankers. LNG cargoes delivered from elsewhere to Europe currently fetch $12 per thousand cubic feet. In Asia the price is $16. With the U.S. domestic natural gas price lingering around $2 per thousand cubic feet, it's easy to see why oil and gas producers want to get their natural gas onto world markets. If the dreams of U.S. gas producers come true, any American "independence" in natural gas supplies would essentially be meaningless because Americans would pay high world prices rather than the low domestic prices they are currently enjoying.

No relief from high gasoline prices, larger oil and gas industry profits, potential offshore oil spill disasters, disfigured wild landscapes, hollowed out environmental protections--not surprisingly, none of these are persuasive reasons for the public to support expanded drilling in the United States. So, the industry has had to come up with something else, and that something else is the potent but false promise of American energy independence. Unfortunately, judging from recent polling, the public is falling for it.

How the Oil Industry has Deceived the US with the Promise of Energy Independence

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