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Granted, some huge but unknown quantity of oil lies buried around the globe. That untapped oil awaiting discovery, combined with improving alternative energies, will be able to satisfy demand far into the future. Immense undeveloped reserves of shale oil, natural gas and petroleum, coal and uranium remain in the United States and Canada, sufficient for centuries ahead.
Brazil, which just tapped into its second huge offshore field, is energy independent for the foreseeable future. Prospects for a similar find off the U.S. coast are excellent and would go a long way toward reducing our dependence on foreign oil sources.
In the meantime, what is preventing oil-rich countries from expanding production to relieve the crisis?
OPEC, realizing high returns from each barrel (costing a few dollars to extract) is making munificent profits and wishes to extend the status quo as long as possible. OPEC controls a majority of exports, and by resisting production increases, exerts strong influence over world supply and price.
Until real competition comes along, OPEC won’t open the taps allowing less expensive oil into the market. Flooding the market to discourage new production, used effectively in the 1980s, would not work well today because of growing demand in the third world.
Substantial new supplies entering the market from other quarters would precipitate a drop in price, but not reaching the levels of 20 years ago.
Other exporting countries, Russia, Mexico and Norway are lagging behind in modernizing oil fields. Now that Iraq’s political climate is stabilizing, their oil ministry has begun letting contracts that will return the world’s second largest oil field to its former capacity.
Back home, members of Congress heaped criticism on petroleum executives for not producing in 68 million acres of offshore leases. Actually, many of the leases, mostly in the Gulf of Mexico, are responsible for nearly 80 percent of domestic production. Others are in various stages of exploration (by advanced methods). Not all leased areas will produce in commercial quantities, because oil is not uniformly distributed throughout the subsurface.
Producers must exercise judgment in the selection and sequencing of drilling, particularly in deep offshore waters where it is more expensive than in near-shore. The panels failed to mention that areas now banned from drilling (nearly all waters out to the 200-nautical-mile territorial limit) except for the Gulf of Mexico total about 1.5 billion acres. That’s nearly 20 times what’s now open to exploration.
I once accepted the idea that high commodity prices result from rampant speculation.
No question speculation does play a role in oil’s run-up. But, do mutual funds, pension funds and hedge funds, acting on their own, cause the observed volatility? Could pure speculation, absent tight supply and ever-present risk of natural disaster or international crisis, cause high prices? Obviously not.
Speculators and players with long positions in high-priced energy, including T. Boone Pickens with a big stake in wind and solar power, welcome prospects for tight oil and grain supplies, while seeking haven from a weakened currency.
Efforts by Congress to curb speculation would not address the fundamental cause — the threat of curtailed supply — but would drive oil futures trading out of the country. Congress, by restricting domestic drilling, earns its overall approval rating of 9 percent — a historic low. By threatening to regulate commodities, Democrat-controlled Congress is redirecting attention away from its part in creating the energy crunch.
Two years after gaining control, Democrats, catering to the environmental lobby, have yet to propose an energy plan they promised during the 2006 elections. They have stymied every initiative to address domestic drilling. Even now, House and Senate leaderships are blocking attempts by members of either party to repeal the long-standing drilling bans. Apparently, they fear rank-and-file Democrats would join Republicans, who favor the new drilling now supported by a strong majority of U.S. voters.
Rep. Ron Kind owes it to his constituents to sign the discharge petition bringing a floor vote that would relieve the burden of high gas prices.
Steps that encourage expanded domestic drilling would send a clear signal to OPEC and dampen the speculation that has carried oil to all-time highs. Many believe mere approval of drilling in the postage-stamp sized 2,000 acres of the Arctic National Wildlife Refuge, with the oil specified for U.S. refineries, would quickly undercut the price of oil by $30 to $35 per barrel. That would be a great start, congressmen!
William D. Balgord, consultant and writer, heads Environmental & Resources Technology Inc. in Middleton.
