Wednesday, September 24, 2008

Where's the Oil?

All the talk lately has been on the Wall Street bailout, but I'd like to step back to another important topic: America's energy policy. NPR's Day to Day recently interviewed Robert Kaufmann, director of the Center for Energy and Environmental Studies at Boston University. He points out that the best bet for finding oil in the U.S. is most likely in the Gulf of Mexico, but it's probably not worth the effort to get it. As he points out, the most "wildly optimistic" assessment for drilling now puts oil flowing from off-shore drilling no sooner than 5 years from now, and that is for a relatively small amount of oil. Even in ANWR, where oil companies are already operating in the neighborhood, it could take 10 years to get oil to market.

Oil companies currently have the rights to drill in millions of acres of Federal land (and some areas off-shore), and yet they are not. Why? Because when their own dollars are at stake, they aren't as eager to put their theories of how much oil is out there to the test. They are more than happy to be given the rights, however, in case they can get a rock-solid estimate -- or more likely government subsidies for exploration and drilling.

If off-shore drilling rights are granted, pay close attention to the contracts that are awarded. You might find incentives such as tax breaks for the oil companies, or even the government directly picking up the tab for bringing the oil to market. What you won't find will be profit sharing once that oil starts flowing, though. Even Alaska's Governor Palin has had a difficult time getting oil companies to build a natural gas pipeline in her state -- largely because they don't want to spend the money on the infrastructure. Alaska now has a plan in the works, but instead of working with the oil companies, a Canadian firm is planning on building the pipeline -- with millions of dollars for planning, environmental impact assessments, and other expenses being chipped in by the state.

So what will "drill here drill now" get us? We will spend our finite resources looking for an extremely small percentage of our energy needs that won't make it to market for at least 5 years (more likely between 5 and 10 years), AND it very likely might cost the taxpayers money to get the projects off the ground. In the meantime we'll be that much farther behind in R&D into alternative energy sources. As Kaufman noted:
The question for this country is... how will we insure that we have energy over the next 20 years? To do that we have a finite amount of capital that we can invest in the energy industry. It's highly unlikely that investing that money in off-shore oil and gas drilling will insure that we have sufficient supplies of energy 10 and 20 years from now. We've tried that experiment in the past -- despite all those wells drilled, domestic oil and gas production continued to decline. So in hindsight, that money was not effectively spent.


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