Energy exploration involves taking risks
One of the greatest threats to our national security and economy is the high cost of energy and the security of supply.
At $140 per barrel, the United States is spending $700 billion annually on imported oil, a number comparable to the annual Defense Department budget. I agree with Sen. Joe Biden’s July 9 op-ed article that America can only achieve energy security by reducing dependence on oil.
However, Biden’s conclusion that oil companies don’t need additional access to the Outer Continental Shelf and his call for a windfall profits tax are both flawed.
Not all leases are created equal. Many leases end up never being developed because no economically recoverable reserves are found. This is why exploration for oil and gas is called “wildcatting,” with an approximately 20 percent success rate.
Eighty-five percent of the coastal waters adjacent to the lower 48 states are off-limits to oil and natural gas exploration. According to U.S. Geological Service estimates, the estimated recoverable oil and gas resources in these areas are 31 billion barrels of oil equivalent — or three times Prudhoe Bay.
The seismic data are so outdated and incomplete, we probably can’t estimate the actual recoverable reserves that might be discovered.
The Arctic National Wildlife Refuge, also off limits, is estimated to contain 10 billion barrels of oil, and could be developed using a drilling footprint of 2,000 acres, a small fraction of ANWR’s 19 million acres.
The United States will not drill itself to energy security, but no serious national energy plan should exclude offshore or ANWR exploration. Recent polls indicate two-thirds of Americans support offshore drilling. Again, the actual resource potential is never known until drilling occurs.
An example of offshore potential is Brazil’s recent deep discoveries that could make it a major oil producer in the next five years.
Because of the financial risk associated with offshore exploration, only the major companies have the capital to participate. Because of the sheer magnitude of these companies, sizeable profits are generated. However, their historic returns have not been out of line with other companies in the S&P 500.
Imposing a windfall profits tax does not provide incentive to find additional supplies. The windfall profits tax of 1980 proved a failure. Prices for oil, corn, soybeans and wheat all have recently doubled. I don’t hear congressmen calling for a windfall profits tax on farmers.
Biden indicated the five largest domestic oil companies recently recorded $37 billion in quarterly profits. If the United States was like Venezuela, some congressmen might go so far as to urge nationalizing the major oil companies to help balance the federal budget.
In its June 2008 report, the U.S. Energy Information Administration projects global energy needs increasing 50 percent by 2030. Most of this growth is from China, India, Russia, Brazil and other non-Organization for Economic Cooperation and Development nations.
American energy consumption per capita is eight times China’s and India’s. The United States has 70 times the number of automobiles per capita as do China and India. The runup in energy prices is principally due to global supply and demand fundamentals.
The world produces 85 million barrels of oil a day, and despite three years of record price increases, global oil production has declined. The energy supply-and-demand equation is inelastic in the short run. It will take decades to transition to a less carbon-intensive energy economy. Efforts analogous to the Manhattan and Apollo projects need to be undertaken to meet this 21st-century challenge.
A national energy policy needs to address diversified supply and demand initiatives. Nuclear power currently supplies 20 percent — and is capable of generating 30 percent to 40 percent of American electrical generation needs by 2030. Storage of radioactive waste is a political rather than a technical challenge. The federal government has ample land that could be used to site nuclear plants, thereby avoiding objections and delays.
By comparison, nuclear power generates 78 percent of France’s electricity.
A Department of Energy study released in May concluded wind power could satisfy 20 percent of American electrical generation needs by 2030. Photovoltaic solar power needs to be promoted; efficiencies and manufacturing costs are needed to make this alternative economically feasible.
American coal reserves are the largest in the world. While coal can be made cleaner, carbon dioxide separation and sequestering might never be commercially feasible.
As to demand initiatives, conservation is the most environmentally friendly option. Plug-in electric vehicles can help break the stranglehold that hydrocarbons have on transportation. Advances in lithium batteries are needed to make this a reality. Electricity generated by nuclear and wind would recharge batteries during off-peak periods.
Lastly, we need to make more investments in mass transportation and spend proportionally less on highways. Companies and schools should be encouraged to go to four-day work weeks. Online teaching can reduce physical attendance in schools. Urban living will experience a renaissance..
The next Congress should implement a strong national energy plan that will lead to energy security and provide thousands of good-paying jobs. America needs both.
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