Obama Should Heed His Own Call For Oil Exploration

I couldn’t believe my ears when I heard him say it, so went a-googling.  Sure enough, on May 14, 2105, President Obama said “we are going to continue to be using fossil fuels,” adding for good measure, “U.S. production of oil and natural gas is important.”  No kidding, Mr. President.  The only surprising thing was to hear him admit it.

Now, he prefaced that by saying that he expected the U.S. to “replace, over time, fossil fuels with clean energies,” preserving his environmental bona fides.  Yet that phrase raises a critical question: What’s the time frame?

Many people, perhaps including President Obama, don’t realize that there actually are two energy markets in this country.  One is for transportation, which is fueled overwhelmingly -- 92% -- by oil, and consumes 70% of the oil used in the U.S.  The rest of our oil consumption goes into industry, largely as a raw material, and a little for heating, which along with electricity production comprise the other big market for energy.  That market is fueled by all other sources of energy, from coal and natural gas to exotic renewables.

So how does President Obama expect to replace oil, which really means refined transportation fuels?  Is he expecting Elon Musk to bail him out?  I recently teasingly asked a friend who was planning a multi-day car trip whether he was going to take his pride and joy, his new Tesla.  He looked at me as if I had two heads.  As I well knew, to make such a trip in an electric car, he would have to plan it around Supercharging stations and stop every 250 miles -- roughly three to five driving hours -- which would lengthen his trip by days.

It will be many years, probably over a decade, before Tesla’s or anyone else’s technology will allow long distance driving as do liquid fuels.  If/when this technology arrives, these vehicles will still need a decade or longer to become enough of the total U.S. car fleet to have any noticeable impact.  Major oil companies such as BP forecast that in 20 years, plug-in vehicles will still represent less than 10% of new car sales, which means they will be about 1% of the total fleet in use.  Moreover, cars of course don’t consume all our transportation fuel -- only about 60% of it.  How many decades will it take before electric cars materially reduce our total transportation sector’s need for oil-based fuels?

Similar logic argues against natural gas having any noticeable effect on transportation for decades.  The big integrated oil companies, who are also natural gas producers, also agree with this.

So oil is going to be our transportation fuel for generations.  The President is therefore correct to say we’ll need to keep producing and finding U.S. oil.  But then why is President Obama keeping the largest economic oil reserve in the world off limits to development?

There’s roughly 1.6 trillion barrels of known oil reserves in the entire world.  In comparison, the scrubland of our Rockies hold oil shale deposits sitting on or near the surface (not to be confused with deep shale oil that requires drilling and fracking) containing up to 3 trillion barrels of oil.  Meanwhile, the total U.S. proven reserves are about 30 billion barrels.  Unproven reserves of other U.S. oil deposits, largely of the fracked variety, may range into the low hundred billions of barrels, but they will still be dwarfed by the Rockies’ deposits.  And these reserves would be economic today; as I have written elsewhere, trial tests suggest developers can produce this oil for about $35-54 per barrel.  Unfortunately for the entire world, President Obama has made it a priority to put these reserves off limits.

One of the President Obama’s first actions in the energy arena, in February 2009, was to reverse prior plans to permit development of the Rockies oil shales, which lie almost entirely on Federal lands.  The administration reinforced these restrictions in November 2012.  In light of the President’s own recent statements, this is lunacy.

Not only does the U.S. need oil, so does the whole world, and it needs secure sources of it.  Despite the surge in U.S. oil production, Mideast and African countries still account for about 40% of production and more importantly for the future hold about two thirds of the world’s oil reserves.  The Saudis and Iranians combined are the largest oil exporters, and they also both export terrorism and mayhem, albeit in their own distinctive ways.  Were it not for oil wealth, militant Muslims would not be a global security problem.

Worse, though, it is obvious that Iran is trying to encircle the Saudi fields, which lie in the Eastern Province under land populated by Iran’s coreligionist Shi’a.  The Saudi oil infrastructure is physically highly concentrated and hence extremely vulnerable to attack with conventional -- much less atomic -- weapons.

It’s worth noting in this context that Iran’s strategy to strangle Saudi/Wahhabi oil production also dovetails with Putin’s interests.  As the ruler of the second largest exporter of oil, he would be delighted to see the Kingdom’s production eliminated or severely curtailed and global prices soar to unseen levels.  No wonder he is so overtly supporting Iran.

The risk of Iran and the Saudi/Wahhabi kingdom getting into a war that severely curtails oil production is already rising rapidly and will accelerate if Iran develops a nuclear arsenal.  A war between them would precipitate a terrible global economic crisis, lasting for at least as long as the oil is disrupted.

The best protection against such a grim scenario is to develop the Rockies shales and make Mideast oil utterly superfluous.  The Mideast producers enjoy the lowest production costs in the world, so would continue to export their oil if the Rockies came on line. But should they ever stop producing, the Rockies could fill the gap, preventing oil prices from rocketing into the stratosphere.

The benefits of developing our Rockies shales would be enormous, for the U.S. and for the world.  But developing these reserves will take years.  The world can’t wait until the Mideast fields go up in flames to start producing oil from our shales.  It’s time for President Obama to heed his own call for oil development and open these reserves, as well as all our others.