With all the political posturing and agenda advancement, it’s no wonder the public is totally confused and upset at the price of energy. We need to step back and take a real look at what is happening. The following are some points to ponder:
1. We are paying the price for a decision in the 60s to remove the oil depletion allowance in favor of supply and demand, and the evolution of the “not in my backyard (NIMBY)” attitude toward drilling, refining, and terminals. We are in a global energy market and we must pay what the market demands.
2. It is true that we can’t drill ourselves out of the situation we find ourselves in today. But to do nothing is to roll over and admit defeat. Nothing else re: alternative energy will help (in the short term) either. Converting food stuffs to fuel is one of the most insane things we have done yet.
3. Drilling on our own turf will, however, benefit our floundering economy and quickly. Based on some reasonable assumptions for onshore drilling (off-shore and directional can be much more expensive, but potentially much more productive), we could see an almost immediate boost to our economy:
∑ The average hole (either oil or gas) will cost about $2.5 million before a barrel of oil or a cubic foot of gas is produced. All of this is up-front money injected into the economy.
∑ Assuming an average production rate of 100 barrels a day, it would take 10,000 wells to generate 1 million barrels a day of production. That is 2.5 trillion dollars invested in our economy instead of some foreign dictator’s country, where most would end up in some Swiss bank account. Very little would ever be invested in the U.S. economy.
∑ It is true that any additional production would have to enter the world oil pool because we can’t refine any more oil than we are today. This is because the environmental extremists have made construction of any more refineries in this country infeasible. They have also been responsible for the closure of hundreds of smaller refineries that couldn’t justify the expense of meeting emission standards.
∑ The US will have to purchase any additional products and pay whatever the market demands. The refineries we have are producing at near full capacity already. The primary benefit would be that the money to drill and produce would strengthen our economy and feed our people.

4. The energy companies that provide the fuel for our economies are in the business of providing energy to the market, regardless of where they have to get it. That is why they are in business and they expect to make a profit (at least the stockholders expect it). To meet their obligations, they will drill and produce wherever they are allowed. They can invest here or somewhere else. That is our choice. Most investment councilors will not recommend oil stocks because the profit margin is too small, even in today’s market.
5. Regarding oil shale. We made a serious error when Unocal, Oxy and Exxon exited the development of oil shale production. We were still on the sharp part of the learning curve (I worked for both Unocal and Oxy Oil Shale) when the projects terminated. It will take years to learn all that will be needed to know in how to handle and effectively produce shale oil. But, to not start again would be an even worse decision. Nobody should expect to build a commercial facility that works the way some pilot plant project indicated it might. It will take a lot of on-site learning. But again, it is money invested in the U.S. economy and that is what feeds America.

Ed Foy
Grand Junction

This entry was posted on Monday, June 30th, 2008 at 3:54 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.