If you want to lower the price of something, the best solution is to produce more of it. This is basic Econ 101 stuff. But nowhere in the administration’s new energy proposals, presented by the president this Wedesday in a speech at Georgetown University, is the idea of pumping more oil in the United States addressed, except to say it is impossible.
To reach this conclusion, the president had to speak a gross untruth, one he tells so often that he even felt a need to apologize before saying it again: that the United States sits on only 2 percent of the world’s oil supplies, while using 25 percent of the world’s oil. As I pointed out in an article recently, the Department of Energy, which most assuredly vetted this speech before it was released, has known for years this is wrong. In just one 35-miles-square area of the Midwest there is more recoverable oil than in the entire Middle East.
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This may be just the tip of the iceberg. Oil shales throughout the region may hold trillions of barrels more. There may even be hundreds of billions more barrels off our coasts and in other areas from which they can be recovered relatively cheaply. We won’t know for a few years yet, as the administration will not let the oil companies look for it. Instead, the president presents the tired canard that 57 percent of onshore and 70 percent of offshore leases are not being developed — the implication being that since the companies are not fully exploiting their current resources, giving them access to more would not help.
Think about that. Oil companies can sell oil at over a $100 a barrel, and yet they are not developing these lands. Why would they do that? The simple answer is that the oil companies do not believe there is any oil in these areas. The argument Obama was pretending to refute is unaffected by this fact: Why not let the oil companies lease and develop the areas where we already know the oil is?
Rather than increasing the oil supply, Obama wants to invest (spend) money on all kinds of green initiatives. Of course, this comes with the promise of creating hundreds of thousands of “green jobs,” which is a reduction from the 5 million green jobs the president promised during his campaign. We should all be thankful the administration failed to keep that promise, as the Europeans already went down the green-jobs route, with devastating consequences. Independent studies in Britain and Spain show that every new green job cost 2.5 to 4 other wage earners their jobs.
Obama also placed a tremendous emphasis on increasing our production of biofuels. Never mind that we are already plowing-under a quarter of our corn supply, so as to turn it into an inefficient and costly fuel. Worse, this unprecedented destruction of food supplies is raising the price of food worldwide, sparking riots and upheavals on a global scale. In fact, rising food costs are the driving force sending many Arabs into the streets and adding a huge risk premium to the cost of oil. In no small measure, biofuels are the root cause of $4 gasoline — some irony.
The speech was not all bad, though. The president put his stamp of approval on natural-gas exploitation and reaffirmed his support for nuclear energy. It remains to be seen whether he will expend any political capital battling his environmental base on either issue. Still, he gave them lip-service, and one must sometimes be grateful for small mercies.
One might wonder if Obama understands how important oil is to maintaining a thriving economy, if it were not for the fact that he recognizes its importance to other nations. During his speech, he mentioned that one of the reasons he went to Brazil was to talk about how they could use American technology to develop recently discovered oil reserves off their coast. If only he was as keen to let American oil companies use their technology to search for and develop the fields off our own coasts.
Anyone who was expecting new ideas or directions for U.S. energy policies — so as to cope with $100 oil — must be chagrined. Instead, the president presented a litany of failed and failing policies that are already damaging the economy without solving our energy problems. The president went to Georgetown University to prove to Americans that he was taking the increasing price of energy seriously. It takes a true master to speak almost 6,000 words on the topic of reducing energy costs without ever addressing the one sure method of addressing those costs — drill, baby, drill.
What makes this speech truly special, though, is that every alternative Obama offered for expensive oil is more costly than oil itself.
We have to do better than this.
— Jim Lacey is the professor of strategic studies at the Marine War College and author of the forthcoming The First Clash. The views in this article are the author’s own and do not in any way represent the views or positions of the Department of Defense or any of its members.
Your analysis and criticism of president Obama's speech is on track, and I couldn't agree more with your main point about the need to return to responsible drilling for more domestic oil.
On the other hand, you are cleary undereducated on the issues related to Ethanol production -- yourself repeating gross untruths from the food-vs-fuel debate with your absolutely unfounded assertion that Ethanol production is causing the rise in oil prices worldwide. What complete nonsense. The clear (and well researched) fact is this: higher energy prices worldwide are the primary cause of higher food prices worldwide.
There are many causes of higher energy prices, not the least of which are poor policy decisions involving drilling for domestic oil -- your main point. But you are no different than liberals when you attempt to persuade public opinion against a given energy policy on idealogical (using over-the-top comments like you did above) rather than rational grounds.
As far as I've been able to discern, one cannot "drill" most oil shale. Bakken, yes, but only at depths where geothermal heat has converted kerogen into recoverable liquids and gasses. Green River? News to me... There is talk of heating the shale in situ before extraction, but that's a far cry from simple drilling or hydrofraccing, etc.
I'm afraid the author doesn't know what he's talking about. Not good for our side...
Wind power does not decrease fossil fuel use. The reason for this apparent contradiction is plain once you understand how modern power plants work.
It takes days for a coal fire plant to go from 10% to 100% power production. It takes hours for oil and natural gas plants to do the same.
On the other hand, wind turbines can drop from 100% to 0% in a matter of minutes.
The result of this is that you need a backup fossil fuel power plant for every megawatt of wind power that you have, and those fossil fuel plants have to be kept running at pretty close to full power. The energy generated, just thrown away because it isn't needed.
Solar power has the advantage of at least being predictable. You know when the sun is going to rise and set a long time in advance. Clouds can cut your power production substantially at random intervals, though never all the way to zero.
Solar power unfortunately suffers from the same problem that ethanol does. It takes more power to create the cells, the packaging and mounting hardware, than you can hope to recover from the cell over it's usefull lifespan.
(For what it's worth, wind power also suffers from this last problem. When you add up the energy it takes to make the turbine, blades, hundred plus foot tower, and the multi-ton concrete footing the base is bolted onto. You're lucky if you recover enough energy from the the turbine before it de-commissions itself.)
Even if it were true that ethanol's net energy value were slightly negative, it might be justifiable in terms of overall energy policy and, specifically, the policy of reducing reliance on foreign oil.
However, there have been many studies that show ethanol has a positive net energy value...somewhere between 1.06 and 1.67, depending on whether coproducts are included or not, and depending on the study. What is clear is that the ethanol industry is improving the net energy value over time, as they become more efficient.
DNeedham, I think there is some justification for linking rising food prices with use of corn for ethanol. If one assumes that the land used for producing (non-food) corn would instead be used to produce food, then the supply of food is impacted by the use of farmland to produce non-food. It may not be a global effect, but the US (so I hear) exports food, so it may be global, even if the effect itself is small.
I have also heard that other things, like switchgrass, can be used to make ethanol. Perhaps there is an issue with productivity efficiency. Maybe there is a higher sugar content in the field corn than in the switchgrass, leading to more ethanol being produced per bushel.
A farming friend told me that people eat "sweet corn" and "field corn" is animal feed. So using the corn for ethanol makes the price of animal feed and thus meat increase. Again, the effect may not be global or large at a global scale, but mathematically it seems plausible.
I think the President is doing everything he can to prevent drilling so as to starve the economy to make us weaker. Maybe it's part of his foreign policy to make other nations think we aren't so big and scary, but I find his stupidity on this issue to be much more scary. He wants to pick the economic winners domestically, too, with his handouts to green companies.
rimfrel, I do not dispute some cause-effect linkage between corn prices and food prices. Most studies I have read indicate this. But, the impact is much, much lower than most people assume, and certainly lower than what is reported. For example, less that 3% in the US and somewhere between 5% and 12% worldwide, as a result of the predominance of grain in foreign diets.
However, corn, being a commodity, it is subject to market pricing, and the law of supply and demand. Corn prices go up (e.g. as a result of increased investment in ethanol production), so farmers initially shift acreage from soybeans to corn (because they can make more money selling corn). This will constrain soybeans and cause the price of soybeans to rise, giving incentive for farmers to plant both. This will drive investment in more farming equipment, to plant more acres (rotating crops).
Some will say there is a shortage of farmland -- not true. There are nearly 1 billion farmland acres in the US, and only 40% of thee are used for crops. Of these 40%, only 20% are used for corn.
You are right, the higher sugar content of corn makes it a better stock for ethanol production. Corn-based ethanol has one of the highest net energy values (among ethanol types). The promise of switchgrass is that, by using it, it will not impact food prices. But, as I mentioned above, corn-based ethanol has a limited impact on food prices already, so moving to switchgrass, while it may reduce food prices slightly, also reduces the net energy value of ethanol substantially.
Ethanol production does not increase the cost of feedstock. In fact, it reduces the cost, by producing ethanol by-products (wet and dry distillers grains) as feedstock. These feedstocks are higher in protein than traditional feedstocks, and they cost less, increasing feedlot profits where they can take advantage of them.
This is coming off the top of my head from an Environment Science course I took a few years ago so the exact numbers may be a bit off (all data was from Department of Energy Statistics at the time of the course)
The key do determining if oil or ethanol is more efficient is looking the energy foot print of each. In other words how much energy is expended to release the fuels inherent energy.
We can standardize by using the British Thermal Unit (BTU) as reference.
Oil is amazingly efficient, as I can best recall it 'costs' 8 BTUs spent for every 100 BTUs extracted.
On the other hand for ethanol 'costs’ 98 BTUs for 100 BTUs extracted. Ethanol has a net energy surplus but it’s extraordinarily inefficient compared to oil.
A significant reason for this is 2 fold, one it takes significant energy to grow the corn crop and then convert it to usable fuel. Secondly this usable fuel has a different chemical structure then oil thus it takes 2 gallons of ethanol to create the same energy output as 1 gallon of oil.
This is why ethanol must be subsidized because oil is more cost effective and thus would always win out in the market place.
A further caveat to ethanol...it is being sold as cleaner...but not necessarily true......yes, 1 gallon of ethanol produces 50% less 'emissions' then 1 gallon of oil but this is disingenuous as it delivers 50% less energy too.
This is coming off the top of my head from an Environment Science course I took a few years ago so the exact numbers may be a bit off (all data was from Department of Energy Statistics at the time of the course)
The key do determining if oil or ethanol is more efficient is looking the energy foot print of each. In other words how much energy is expended to release the fuels inherent energy.
We can standardize by using the British Thermal Unit (BTU) as reference.
Oil is amazingly efficient, as I can best recall it 'costs' 8 BTUs spent for every 100 BTUs extracted.
On the other hand for ethanol 'costs’ 98 BTUs for 100 BTUs extracted. Ethanol has a net energy surplus but it’s extraordinarily inefficient compared to oil.
A significant reason for this is 2 fold, one it takes significant energy to grow the corn crop and then convert it to usable fuel. Secondly this usable fuel has a different chemical structure then oil thus it takes 2 gallons of ethanol to create the same energy output as 1 gallon of oil.
This is why ethanol must be subsidized because oil is more cost effective and thus would always win out in the market place.
A further caveat to ethanol...it is being sold as cleaner...but not necessarily true......yes, 1 gallon of ethanol produces 50% less 'emissions' then 1 gallon of oil but this is disingenuous as it delivers 50% less energy too.
DNeedham is correct that the by products from corn ethanol production, which is used as cattle feed, are overlooked in most analyses of efficiency of ethanol as an energy source.
Cellulosic (switchgrass and other feedstocks) ethanol is a tough nut to crack. I work at a tech startup that is working on that. I'll just leave it at that.
The real answer is as Lacey says, with whatever flaws there are in his column. We must pursue fossil fuels aggresively.
As Mark stated, we can convert coal to oil for about $45 per barrel using the Kerrick process, with an investment of $5b to build a moderate sized plant. I think the numbers will work, even though I haven't checked them in a couple years, but we need the will to do it. People like us have to be resolute against the very vocal minority of environmentalists.
Tell them that the advent of fossil fuels saved the whales, and most of the USA's forestation.
Maybe this is obvious, but it doesn't seem "cost-to-consumer", or the notion that cheap energy is what has fueled (pardon the pun)this country's success, factors into the policy decisions at all.
I was very interested in the comments on this article.
My question is what are the implications of what you are saying with respect to switchgrass and other options if the starting premise is different?
Lacey begins with a Econ 101 lesson on supply and demand which frames the argument around a goal of lowering the price of oil.
Why is this a good thing? Shouldn't we want a moderate price spike to provide market incentive to improve efficiencies and alternative energy options?
The $200 barrel or more barrel is coming but at the same time as the resulting massive economic contraction we will require major R&D spending due to the ingenuity gap.
It still amazes me to read comments dismissing "environmentalists" as if they exist outside of economics. There are negative externalities to everything we do (also Econ 101).
Have any of you read up on Bakken? We're talking a year or two of US oil supply total and the technology is a good decade away before we even get started. And it is very destructive.
Lacey's numbers are based on the RAND study from 2005 which was simply a rough estimate of the amount of oil shale. Subsequent studies on its accessibility have revealed a far less exciting find.
Bill: While it is true that $200/brl oil is coming, but so what? Do you believe that the people who make this stuff for a living don't already know that?
First off, we won't go from cheap oil to expensive oil over night. What happens is that oil comes from many sources. These sources run from the very cheap (Saudi oil can be pumped for just a few dollars a barrel) to just a few dollars below the current market price. For obvious reasons, the producers want to use up the cheapest sources first. As these sources run out, the average cost of producing oil goes up, and so does the price. However, as the price goes up, new sources of oil start to become profitable. IE, a source that costs $75/brl to produce will be ignored when oil is $50/brl, but will be exploited when oil reaches $100/brl.
Additionally, new technologies that can get more oil out of old fields start to become effective. Two that I have heard of, one involves pumping solvents down into the well. Waiting for them to loosen up the oil, then pump out the solvent and the oil. Rinse, lather, repeat. Another involves fields that have multiple wells. (The vast majority of them) Pump CO2 down into from one well. Which forces the remaining oil over to the other wells.
So you see, there is no need to artificially make oil more expensive now.
