It’s Time to use U.S. Oil to make the World Far Safer
by STEVE CHAMBERS
March 24, 2015
The United States has the opportunity to use vast, untapped reserves of oil to make the world far safer, now and for generations to come. These reserves would eliminate the world's concerns about where its oil would come from, how much it would cost, or whether it might be shut off by Mideast warfare or willful disruptions. They would defund some of the world's worst regimes. And they would be profitable at today's prices, so pose no economic burden and in fact would provide many economic benefits. The only thing standing in the way of developing them is feverish environmental fear.
The world consumes about 92 million barrels per day of oil, or roughly 34 billion barrels a year. The oil market is quite separate from the rest of the energy market. Lawrence Livermore Labs provides data that show that 70% of oil consumption in this country fuels transportation (the rest going primarily to industrial uses as both energy and chemical feedstocks), while transportation burns oil for 92% of its fuel. Therefore, the oil market is quite separate from other sources of electrical generation, whether coal, nuclear reactors, or windmills. This pattern is similar around the globe. Global consumption has been growing quite steadily at just about 1% per year and is likely to continue to do so, even allowing for the numerous initiatives to make transportation less dependent on oil, including electric vehicles.
The economic growth of China and India, along with smaller countries, makes continued oil consumption growth virtually certain, and they might actually force growth to accelerate. Each of those two giants alone is likely almost to double current total oil consumption by the time their economies yield per capita incomes comparable to the developed world, which should happen in the next generation or two. The faster they grow their economies, the faster global oil consumption will grow.
Supplying this growing demand are officially declared, proven oil reserves of approximately 1.6 trillion barrels, which would last approximately 47 years at current consumption levels - but which will dwindle much faster as Chinese and Indian consumption grow. Almost half of these global reserves lie under the sands of the Mideast, and would outlast reserves in most other areas given the various current production rates, so the world would become more and more reliant on Muslim oil. As terrorism has bitterly taught the world in the past 14 years, some of the revenues from these Mideast reserves are being used to spread virulent versions of Islamic ideology and its accompanying jihad throughout the world. If it weren't for these oil revenues, militant Islam wouldn't be a major global problem.
Of these global proven reserves, the U.S. contributes only about 30 billion barrels, or less than 2%, despite the rapid increase of reserves from the shale oil fracking boom. At the current consumption of about 19 million barrels per day, these reserves would only last 4 years if not supplemented by imports and further discoveries. Canada officially contributes 173 billion barrels, the third largest in the world, after Venezuela and Saudi Arabia; however, this number grossly understates the real potential in Canada.
The large majority of Canada's reserves come from the heavy oil in the sand formations of far northern Alberta. These are variously estimated actually to contain between 1.6 and 2.5 trillion barrels - that is 1.0-1.6 times global proven conventional reserves. Not all of these reserves can necessarily be recovered at current prices, but clearly the potential is enormous. The lowest cost technology to tap these reserves is economic at about $60-65 per barrel (on a West Texas Intermediate oil price equivalent), according to the Canadian Research Institute, with alternative approaches requiring prices about $30 higher.
But the U.S. reserves are also grossly understated. In the high scrub brush terrain of the Green River area of western Colorado, eastern Utah, and southwest Wyoming lie shale formations on or near the surface that are estimated to contain up to 3 trillion barrels - twice the global proven reserves. Pilot programs have demonstrated that these reserves would be economic at about $35-54 per barrel, per the U.S. Department of Energy. Combining the reserves in the Canadian oil sands with those in the Rockies shales, North America could triple the world's reserves of oil, at today's prices.
Despite the prodigious profit potential of these reserves, only three companies have recently begun tentatively developing them. This is because the vast majority of the reserves lie on Federal lands that are not available for development.
This was not always the case. Towards the end of its last term, the Bush administration issued regulatory policies, over the objections of Congressional Democrats, making these reserves more accessible than they had been. The Obama administration reversed those polices in November 2012. The reason: concerns about anthropogenic climate change (ACC).
Proponents of ACC theories hate all forms of carbon energy, but they harbor a special animus for both Canadian oil sands and Rockies oil shales. Producing them requires large amounts of heat, which requires burning natural gas or oil itself, significantly increasing the carbon footprint of each barrel of oil. As a consequence, environmentalists not only block the development of the Rockies shales, but are also blocking the XL Pipeline that would safely and efficiently transport the Canadian oil to Gulf Coast refineries, where it could be efficiently processed in facilities that were built to handle heavy Venezuelan crude oil.
ACC proponents greatly overstate both the strength of their evidence and the consequences of the potential problems, as an increasing amount of research and findings is demonstrating, including from ACC-promoting scientists. Indeed, even their common claim that, in the words of Vice President Kerry, "Ninety-seven percent of the world's scientists tell us" that ACC is an "urgent" problem turns out to be a fiction.
Many scientists, including MIT professor emeritus of meteorolgy Richard Lindzen, have repeatedly pointed to flaws in the ACC theories, most recently Lindzen in a Wall Street Journal article. In his article, he not only points out that ACC promoters' own models have predicted rapidly rising global temperatures for the last 15 years while actual temperatures have been flat, but also that the proposals to reduce atmospheric carbon dioxide would be onerous for developed economies and crushing for developing ones. Not incidentally, he also describes how Congressional devotees of ACC are trying to use the power of the Federal government to silence skeptics of accepted ACC wisdom.
Several panels of eminent economists, including many Nobel laureates, studied the likely impact of ACC under the aegis of the Copenhagen Consensus. They, along with others such as energy specialist Alex Epstein (in his new book, The Earth is Not a God), have reached conclusions about ACC's economic consequences similar to those of climate scientists such as Professor Lindzen. They have also pointed out that the policies environmentalists propose would hurt people in developing economies in the short and medium term and thus stunt their long term economic growth. It's worth noting, incidentally, that the Copenhagen Consensus panels accepted the premise of ACC in reaching their conclusions.
Ironically, by hurting long term growth in developing countries, ACC proponents' policies would make it harder for the people in those countries to deal with the problems that they worry will occur. If those developing economies instead grew and developed, their people would be able to adapt to and substantially mitigate the predicted negative impacts of ACC - if any in fact materialized. Consequently, poorer countries are not concerned about addressing ACC. They recognize a greater urgency to improve the economic lot of their people today and grow their income to the levels enjoyed by developed countries and won't sacrifice these gains to address problems that might or might not occur generations from now. Nor are developing countries such as Venezuela, Nigeria, and China interested in suppressing their own oil production industries.
The ACC proponents' opposition to American oil is a fool's errand. They can't stop everyone's oil from reaching the global market, just America's, but oil is fungible, so stopping American oil only is pointless. Other countries also have large oil reserves, particularly the Venezuelans, who claim the world's largest reserves, at just under 300 billion barrels. The large majority of these are oil sands, just as carbon-intensive as Canada's, that lie in the nearly inaccessible Orinoco basin. Their production costs would be comparable to Canada's. For the time being, the country's parlous economic and political situation are preventing production. Yet even if Venezuela can overcome these problems, one must ask: Does the world really want this unstable nation and ally of Cuba and Iran to become the next Saudi Arabia? Would the world not prefer to have the U.S. and Canada be the guarantors of oil security?
Even without the Venezuelans, other producers, such as Russia, Angola, and Nigeria, will bring new reserves onto the market, albeit probably at higher prices than North American producers would demand, and probably with their own political baggage. High oil prices would be a grudgingly accepted consolation prize for environmentalists, as it might lead to more conservation. But the price difference would likely be oil in a range a range of $90-110 from higher cost sources versus of $55-90 from the Canadian oil sands and Rockies' shale. Is the limited conservation that this might induce enough to warrant preventing the U.S. from developing its huge reserves? Consider the broader context.
Imagine the geopolitical impact of bountiful and moderately priced oil coming from two stable North American democracies. The greatest impact would be on the militant Muslim petrostates, who are using their oil revenues as a weapon, exporting their extreme versions of Islam and funding terror and turmoil around the world. Even more troubling, Iran's regime is currently in the process of trying to gain control the oil reserves of the Saudis, Iraq, and the other Mideast oil producers. If it succeeds, it will be able unilaterally to threaten the non-Muslim world with oil disruptions - particularly if it obtains nuclear weapons. But with virtually unlimited, moderate cost oil from North America, the oil receipts of Iran - as well as the Saudis - will be far below their current budgetary needs. Not only will the Iranian regime have less money to fund its jihadist, expansionist plans, but the leverage it would hope to gain will virtually disappear, at least once the U.S. shale reserves are actually producing. On the other hand, not developing these reserves will be an open invitation to the ayatollahs to continue to use oil as a sword of its jihad.
Moreover, the significant fiscal pressure that Iran would face for the foreseeable future might force the regime to curtail or even drop its nuclear arms program. As a minimum, such constraints would force them to seek means other than oil exports to fund their regime and its vicious pet programs. At best, the ensuing pressure on Iran's broader economy and people could precipitate merciful regime change.
This same economic vice would grip the Saudis and other militant Islamic petrostates, as well as Russia and Venezuela. These bad actors would have to find other ways to finance their mayhem and ambitions. Better yet, they would have to abandon them, to everyone else's benefit.
Consider also what this would mean for major oil consuming nations. The Chinese regime would not have to worry about where its oil would come from, or whether disruptions in the Mideast could throttle its economic growth, leading to social unrest that might topple the regime and threaten the lives of the Party bosses. This would affect their calculations about whether they need to devote so many of the nation's scarce resources to the blue water navy that it is now rapidly building to control sea lanes and dominate offshore oil reserves. Perhaps with less uncertainty about oil, the Chinese government could be persuaded to be less expansionist and bellicose.
Meanwhile, India and the rest of the developing world would not have to worry about oil security, either, and would be able to focus their efforts and resources on other, more productive matters of economic development. Furthermore, with secure, moderate cost energy, these countries should be able to grow more quickly than with higher cost oil. Such higher growth would not only be a global good in its own right, it might enable some poor residents of an India or Tanzania, who otherwise might not survive to adulthood or receive an education, to develop technology that helps control the problems ACC might create- or demonstrate that there are no such problems in the first place.
Turning to Europe, its people would not be held in thrall by Muslim - or Russian - oil exporters. This should have a liberating effect on their governments' attitudes towards these exporters and the Mideastern immigrants that are causing such burdens on their economies and disruption in their societies. Stable, moderately priced oil would also produce much wider benefits for their economies.
Summarizing this geopolitical opportunity, America's vast oil reserves could be an important offensive economic weapon to help pacify, stabilize, and develop the world. America could free the world from the risks of oil disruptions or price gyrations, not to mention the violence funded by Muslim and Russian oil revenues, to which the ACC proponents now subject us.
In addition to all those significant benefits, one must consider the substantial economic gains the U.S. would receive. Our trade deficit would fall dramatically; every million barrels per day of oil exported would produce about $22 billion in revenue. The U.S. Treasury would receive sizable windfalls from the combination of additional royalties on the oil produced and taxes on the profits of oil producers and income of workers. Assuming an average royalty of 12.5%, reportedly the average for the last 100 years, for every additional 1 million barrels per day of production, the Treasury would receive about $2.7 billion. If the Rockies could supply the incremental growth of the world over the next decade, that would reach roughly 10 million barrels a day in production, or exports of $220 billion per year (roughly half the trade deficit in 2013 of $472 billion) and royalties of $27 billion. As the late Senator Everett Dirksen would have noted, we'd then be talking about "real money," even if the U.S. had to split the exports with Canada.
In addition to these benefits, the economy would reap many other rewards. Well paying jobs would proliferate throughout the Rockies and along the routes that oil would follow for refining and export. The benefits of these job increases would ripple throughout the economy. Stable energy prices at reasonable levels would lower risk and hence allow higher returns on capital and greater productivity gains throughout the economy. At the likely price levels, this situation might even help stimulate alternative, "clean" energy technologies by giving them a moderately high and stable price as a target. Finally, greater geopolitical stability could even lead to a peace dividend.
The U.S. thus has the opportunity to make the world safer while substantially helping its own sluggish and debt-burdened economy. Our choice is a simple but stark one: to use our energy as a weapon to defund and defang the jihad and a resurgent Russian empire while promoting global economic growth and stability; or to allow ACC proponents to perpetuate policies that endanger world peace and burden the global economy with high costs for dubious benefits. Once we decide, the next step is simple. The only thing Washington needs to do is to cut the red tape that is strangling our vast oil reserves (both Rockies shales and others on Federal land) and let private enterprise do the rest.
It's time for the American people to take a hard, clear-eyed, open-minded look at ACC worries and decide whether they really warrant leaving our oil weapon in its scabbard, despite all the good its use could do. Already, poll after poll reports that Americans are overwhelmingly concerned about economic matters, and are far more concerned about national security than they are about ACC, if they even mention anything remotely like ACC among their concerns. If Americans conclude that ACC isn't the great global threat some claim, then we should elect a government that will wield American oil for the prosperity and security of the entire world.
Steve Chambers is a business executive who was a partner of a major corporate strategy consulting firm and a private equity investor, with lifelong interests in the energy sector. He is the author of Jihad on us all: the roots and branches of Islamic Militancy.