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By Robert Rapier on Apr 8, 2009 with no responses

Anything But Oil

The 2009 EIA Energy Conference is history, and I will write a summary as soon as can. One of the things I commented on today is that I am concerned about the path we are headed down on our domestic oil and gas industry – and if things don’t go according to plan it will mean more dependence on OPEC. A great line by Paul Sankey today (he had many) was that the policy imperative seems to be “Anything but oil.”

I really do understand the desire to move away from oil. A portion of my career has been devoted to developing replacements for petroleum. But as I said today, I am also a realist. Let’s suppose for a second that the following happens. Policies are put into place that hasten the downfall of our domestic oil and gas industry. Marginal wells become uneconomic and are shut in. According to Morgan Downey in Oil 101 there are 500,000 producing oil wells in the U.S., 80% of which produce 10 bpd or less. Yet those 10 bpd wells account for 20% of U.S. production. What happens if we put these marginal producers out of business?

Some of you will say “That would be great. That’s what we need to combat climate change.” OK, I respect that opinion. However, there is now a shortfall in production to deal with. We either reduce demand or we have to find something renewable to fill the void. Right now, I don’t see anything that can fill even a 10% shortfall in U.S. production in the next few years. So that means either higher prices or some incentives (paid for by higher taxes) will be needed to reduce demand (and I don’t think that’s a bad thing) or we will become even more dependent upon OPEC – the outcome that I think is most likely in this scenario.

Robert Bryce* – author of Gusher of Lies which was the other book I mentioned today – just wrote a provocative essay that touches upon this theme of declaring war on our domestic oil and gas industry. He notes that while it is seemingly a great idea to have Treasury Secretaries from Wall Street, being from the energy industry almost immediately disqualifies a person from being energy secretary:

Let Exxon Run the Energy Dept.

This is stunning. At the same time that the Treasury Department has begun looking like a wholly owned subsidiary of Goldman Sachs and the other Wall Street mega-firms that are too big to fail, the top leadership at the Department of Energy remains a bastion of anything-but-Big Oil. “It’s the mythology of the Beltway,” one Houston energy analyst told me recently. “You are hopelessly compromised if you are anywhere close to the oil industry.”

Bryce runs through the history of our Energy Secretaries:

A Nobel Prize-winning physicist, Chu has experience in energy-related issues, including his job as director of the Lawrence Berkeley National Laboratory, but he’s never been in the energy business.

Jimmy Carter named James Schlesinger—an apparatchik with no history in the energy sector—as the nation’s first Energy secretary.

Ronald Reagan claimed he was going to dismantle the Department of Energy. His pick for Energy secretary was James B. Edwards, a man who understood drilling—he was a dentist.

Bill Clinton’s choices for the top Energy spot were: Hazel O’Leary, a lawyer; Federico Pena, another lawyer; and finally Bill Richardson, a politico and diplomat.

George W. Bush’s choices to head the Department of Energy included Spencer Abraham, a lawyer who’d just lost his seat in the U.S. Senate, and Samuel Bodman, an engineer whose professional career was in investments and chemical production.

I understand that there are many who still think if we can only run Exxon out of town, we will live happily ever after in a low-carbon, renewable world. I would just warn against the law of unintended consequences, as it is quite possible that Chu’s pleas to OPEC to keep production flowing will take on a more urgent tone if we pursue the extinction of our domestic oil and gas industry.

* Incidentally, if you guessed based on his views on energy, you would probably incorrectly guess Bryce’s political leanings. And if you want to be disabused of the notion that he is involved in the oil industry, read the book he wrote called Cronies: Oil, The Bushes, And The Rise Of Texas, America’s Superstate.