Oil down, dollar up since Bush rescinded drilling restrictions
posted at 10:00 am on July 23, 2008 by Ed Morrissey
Don’t look now, but investors and speculators have taken notice of the political metamorphosis among Americans on domestic drilling — even if American politicians have been slower to do so. Since George Bush rescinded the federal moratorium on off-shore drilling and since demand for higher domestic production has increased in the face of $5 per gallon gasoline, the price of crude has dropped over $20 a barrel in less than two weeks. The stock market has improved and the dollar has strengthened at the same time:
Overseas stock markets were higher and Wall Street index futures pointed to a solid open as the cost of oil retreated further and traders turned a bit more hopeful about the economy.
Light sweet crude oil for September delivery was down $2.17 at US$126.25 per barrel on the New York Mercantile Exchange, after dropping more than $3 in the previous session as Hurricane Dolly looked likely to avoid oil installations in the Gulf of Mexico.
Crude now is down by more than $20 a barrel from its July 11 peak above $147 – a surge that had raised worries that inflation would cripple the economy.
It’s amazing what the promise of more supply can do for market psychology. And it goes beyond a few hundred thousand barrels of oil a day, what Bush tried to beg out of the Saudis earlier this year. According to this Bureau of Land Management release yesterday, the potential for oil shale recovery alone could far outstrip the known reserves in the Middle East:
The Department of the Interior’s Bureau of Land Management today published proposed regulations to establish a commercial oil shale program that could result in the addition of up to 800 billion barrels of recoverable oil from lands in the western United States. …
In remarks last month calling on Congress to expand domestic energy production, President Bush noted the “extraordinary potential” of oil shale resources on public lands in the West. According to the U.S. Geological Survey, the U.S. holds more than half of the world’s oil shale resources.
The largest known deposits of oil shale are located in a 16,000-square mile area in the Green River formation in Colorado, Utah and Wyoming. Shale formations in that area hold the equivalent of up to 800 billion barrels of recoverable oil. Federal lands comprise 72 percent of the total surface of oil shale acreage in the Green River formation.
Currently, the US uses 20 million barrels of oil a day, 12 million of which we import. We also import refined gasoline, thanks to a lack of refining capacity in the US. The reserves in the Green River formation would supply us with 182 years of what we import now, or 109 years at our total rate of consumption. Once in motion, Green River alone could give us complete energy independence far beyond the time we need to find alternatives to fossil fuels.
That would be environmentally less risky than off-shore drilling, although as Jazz Shaw wrote on Monday, the risks there don’t come from drilling as much as it does from storage:
They go on to list some fairly remarkable numbers. There were a total of 125 reported incidents of oil spillage from rigs, platforms and pipelines. “Those spills did not occur due to loss of control of the producing wells.” The MMS defines a “major spill” as one where 2,381 or more barrels of oil are lost. None of the incidents qualifed as a “major spill” and in fact, a grand total of only 16,302 barrels were lost from those 125 spills. On top of that, the oil that was lost didn’t come from equipment failures in the rigs. As per the report, “Oil losses were mostly limited to the oil stored on platforms that were damaged or oil contained in individual segments of pipelines that were damaged.”
According to a report on “Oil in the Sea” from the National Academy of Sciences (1995), far more oil enters the ocean from natural, underwater seeps than from offshore production platforms. In fact, the seeps introduce about 1700 barrels of oil a day into U.S. marine waters, which is about 150 times the amount from oil and gas activities.
No matter what energy source man uses, risks accompany it. We should work to minimize those risks, but we shouldn’t allow ourselves to get paralyzed by the necessity of doing so. As the data Jazz references demonstrates, the risks of OCS drilling have been tremendously reduced over the last several decades, and the technology for extracting the oil has improved at the same time. We can get more, and get it cleaner, than ever before.
Balance that with the risks of transferring vast sums of wealth to nations like Saudi Arabia, Iran, and Venezuela by having de facto price supports with our refusal to add supply to the market. The risks to our national security and our economy far outweigh the risks of unleashing our domestic production. Undercutting oil prices should be our national policy, if only to keep cash out of the hands of dangerous despots with ties to terrorists such as Hezbollah, Hamas, and FARC.
Everyone would love to see a new, clean energy source replace oil — but it has to be reliable and mass-produceable. We can work in parallel to find and develop that source, but until then, we need to start acting like responsible adults and take charge of our own energy needs with our own vast resources.