Gingrich's "Energy Independence Day" makes false promises

Posted on July 4, 2008

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American Solutions, Newt Gingrich’s allegedly non-partisan organization for developing “real, significant solutions to the most important issues facing our country”, has a new petition out and a goal of making today, July 4, “Energy Independence Day.” The goal of the project is for citizens to attend their Senators’ and Representatives’ Town Hall meetings and ask them some pointed questions, using a pre-written sheet of talking points like the following:

  • Gasoline, diesel, natural gas, and aviation fuel prices are all at record highs. Because of these prices, Americans are finding it more costly to get to work, drop the kids off at school and visit relatives. High fuel prices have also lead to more expensive goods and services – especially groceries.
  • Utilizing America’s resources will lead to lower prices at the pump and enhanced national security.

And let’s not forget the pre-written letter for your Congressperson or newspaper editor and the “here’s how you can help in your community” guide, and we have here the makings of a false solution to high oil prices – the “Drill Here. Drill Now. Pay Less.” campaign.

American Solutions would like you to believe that we can drill our way out of our oil problems. After all, their so-called fact sheet tries to address some of the most common criticisms that drilling supporters are likely to face:

  1. Oil development should happen in those areas already slated for drilling before more areas are opened up to new drilling.
  2. Drilling won’t bring new supplies on-line in time to matter.
  3. The U.S. doesn’t have enough oil to matter in the big scheme of things.
  4. Speculation is driving up oil prices.
  5. The cost and environmental footprint is too high for shale development.

Of course, American Solutions has “facts” that supposedly debunk all those myths. It’s really too bad, then, that their facts are selective or flat out wrong.

In response to the first criticism (“Oil development should happen in those areas already slated for drilling before more areas are opened up to new drilling.”), American Solutions says that the leased areas have been explored and all the oil that’s worth extracting is already gone. Unfortunately, the government’s own data doesn’t support this conclusion. According to the the Energy Information Administration, the total proven reserves of crude oil in the United States was 20.972 billion barrels, of which 5.174 billion were non-producing reserves. That’s 24.7% of all proven U.S. reserves of crude that were not being drilled and/or pumped. So why can’t we extract that quarter of our proven reserves before we open up new land to development? Maybe it’s cost, since extracting oil from lots of small fields does cost more than extracting oil from a few big fields. Or maybe it’s because there aren’t enough oil derricks to extract the oil we’ve already got and it takes a between 1 and 2 years to build a new on-shore drilling rig and 2-4 years to make an offshore drilling rig in order to boost oil drilling capacity….

According to American Solutions, criticism #2 (“Drilling won’t bring new supplies on-line in time to matter.”) is bogus because if we’d only been drilling and developing U.S. oil over the last 20-30 years, we wouldn’t be in this mess, and because any increase in supply will calm global supply jitters now that are driving up oil futures. The first problem is that even if the U.S. had allowed greater development of domestic oil fields, they wouldn’t have been developed due to the low price of oil and the high price of extracting domestic fields. The very oil shale deposits that American Solutions proposes as the next great source of oil were abandoned by oil companies in 1989 because they cost too much to extract – until the price of oil rose above $40 per barrel again in 2004. And with 25% of the proven oil reserves in the U.S. untapped, do you really believe that oil companies would have left it in the ground if it had been cheaper to pump domestically than it was to import? Me either. As far as calming future supply jitters, the EIA estimates that the world crude oil supply in 2006 was 73.54 million barrels per day, of which 5.1 million barrels per day (~6.9%) was from U.S. supplies. Assuming we can boost that by 2.5 million barrels per day in 10 years (.7 from outer continental shelf drilling, 0.2 from U.S. tar sands, 0.6 from U.S. heavy oil in California and Alaska, and 1.0 from Green River Basin oil shale, from a 2007 GAO crude oil study), we might see a drop in 5% from improved stability in the commodities markets, or a reduction of $7.25 today’s NYMEX closing price of $145.29 per barrel. That gets us down to a whopping $138.03 per barrel.

Criticism #3 (“The U.S. doesn’t have enough oil to matter in the big scheme of things”) is answered by a fact – the EIA does estimate that oil shale deposits in the Green River Basin are up to 3 trillion barrels of oil, and Shell Oil has developed an in-situ technology that works by heating up the shale oil without mining it first. Unfortunately, the GAO study linked above points out that Shell Oil’s best-case roll-out of their technology put them producing 0.5 to 1.0 million barrels per day from the entire 3 trillion barrel Basin deposit by 2015. Adding in the fact that every single deep water drilling ship being built today is already spoken for, even if this American Solutions petition convinced Congress to permit more drilling, there wouldn’t be enough platforms to drill all that supply in a meaningful period of time. Supply is all well and good, but it’s useless if you can’t get to it at a reasonable price (reasonable defined in this case as “low enough that it doesn’t cause a global depression”) and a timely fashion.

The “speculation is driving up oil prices” criticism that they address is fairly accurate as far as I can tell, and I blogged about it myself in this week’s Carboholic.

The last criticism, that “the cost and environmental footprint is too high for shale development”, is the one that bugs me the most, because American Solutions tried to shove it under the proverbial rug. The “fact sheet” says that the development costs of oil shale are certainly competitive at $140 per barrel if a RAND study said that the costs were viable at $90, and having read the study myself, I agree with that piece – so long as there isn’t any carbon tax or cap-and-trade system implemented. However, Shell Oil’s in-situ rock heating extraction technology needs massive power plants in order to heat up the shale to 600-750 degrees Fahrenheit, and the oil extracted needs even more energy to refine it to usable, standard petroleum products like gasoline, diesel, and jet fuel. So Shell Oil would need to build billions of dollar of new power plants which would most likely be coal or natural gas fueled. In addition, Shell Oil doesn’t know yet how the heating process will affect groundwater in the area, or how much water will be necessary in a part of the country where global heating is expected to make it even drier than it already is. And they haven’t even tried to scale the research project up to even a single commercial-sized extraction facility yet.

In other words, American Solutions’ “Drill Here. Drill Now. Pay Less.” campaign is pushing for a solution that is neither real nor significant. If Newt Gingrich really wanted to to make today “Energy Independence Day”, then his organization should have written a petition calling on Congress to repeal oil subsidies and redirect all that money into carbon-free electricity generation research and development and the construction of a new national transmission grid instead.

Kudos to Dr. Denny for the heads-up on this one

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