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SG-W:/ Fw: [energyresources] Bush Energy Policies Will Fail



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                                              Kermit Schlansker
-----Original Message-----
From: Cutler J. Cleveland <cjcleveland@yahoo.com>
To: energyresources@yahoogroups.com <energyresources@yahoogroups.com>
Date: Thursday, March 22, 2001 4:10 PM
Subject: [energyresources] Bush Energy Policies Will Fail


>Why the Bush Oil (Energy) Policy Will Fail
>
>Cutler J. Cleveland and Robert K. Kaufmann
>www.oilanalytics.org
>
>Following his four predecessors, President Bush has
>identified dependence on imported oil as a urgent
>energy, economic, and national security concern.  The
>gap between consumption and domestic production is
>more than 50 percent of total oil consumption;  by
>2020 it will grow to 65 percent of consumption.
>
>To close the ‘oil supply gap’ the President will
>promote the development of domestic resources of oil
>and natural gas.  The argument goes that increased
>domestic production will reduce dependence on imported
>oil and reduce the ability of OPEC to control the
>supply of oil, and hence the price of oil as well.
>This would reduce the chance of oil shocks disrupting
>the economy, and maintain the price of gasoline and
>home heating oil at reasonable levels. The President,
>his energy and environmental advisors, and the oil and
>gas industry maintain that this scenario is plausible,
>and that it can be realized in an environmentally
>responsible manner.
>
>What are the chances of success for this policy?  The
>available evidence suggests that these policies will
>collide with the realities of the state of depletion
>of the domestic oil resource base, the economics of
>the international oil market, and the ecology of some
>the planet’s most important ecosystems.  The policies
>will fail to improve our energy security or reduce
>OPEC’s market control, and they will damage the U.S.
>economy and the environment in significant ways.
>
>The Bush oil policy hinges on four assumptions about
>our energy situation:
>
>Assumption # 1:  Subsidizing domestic production is
>good for the U.S. economy.
>
>Isn’t it always better to develop domestic resources
>of oil and have the economic benefits accrue to the
>U.S. rather than to the Saudis?  Trade benefits
>importing nations when the imported good is less
>costly than the domestic alternative.  Because
>domestic oil sources are more costly to produce than
>overseas alternatives, tax relief and other incentives
>to encourage exploration and development will hurt the
>economy in the same way they did 20 years ago when the
>oil prices shocks produced record rates of drilling.
>Between 1973 and 1980, the total footage of wells
>drilled increased three fold and the fraction of new
>capital investment in the US economy going to the oil
>industry increased from 2 to 7 percent.  What did the
>nation get in return? During this same period, US
>production declined 7 percent and the oil industry’s
>share of GDP declined from 4 to 2 percent. The gap
>between investment and production totaled more than
>100 billion dollars from 1975 to 1987.  Common sense
>economics clearly indicates that the huge diversion of
>income would have produced greater economic benefits
>had it been invested elsewhere in the economy.
>
>The reason for the mismatch between investment and
>return on investment is due to two forces, Over the
>long run,  the domestic oil resource base is depleted
>to the extent that large investments in drilling
>cannot generate a commensurate increase in oil supply.
> On net, depletion effects outweigh technology in
>discovery, development, and production.   Production
>and proved reserves of oil have dropped more than 40
>percent since their peaks in 1970 despite a massive
>drilling campaign.  Returns to drilling generally have
>fallen as well.   Second, short-run increases in
>drilling effort reduce return on investment through
>the "highgrading" effect.  At high drilling rates,
>lower quality resources are targeted for development,
>and vice versa.  Much of the recent increase in
>drilling "success" is due to the collapse of drilling
>effort in the last decade.
>
>The gap between output and investment disappears in
>1986, and has remained so through the present. Note as
>well that the size of the investment-output gap rises
>and falls with the drilling rate.  There is every
>reason to believe that the gap will re-appear should
>political decisions that promote domestic production
>through subsidies or other means.
>
>Assumption #2:  Oil from ANWR will reduce our
>vulnerability to OPEC decisions.
>
>The Administration correctly notes that Area 1002 of
>the Arctic National Wildlife Refuge (ANWR) in Alaska
>lies above the most promising oil prospect in the
>nation.  To what extent can ANWR reduce our reliance
>on oil imports and diminish OPEC’s ability to
>manipulate oil prices? This depends on three factors:
>the quantity of oil in AWR, the rate at it which can
>be developed and extracted, and how that quantity
>compares to world oil production. To start we must
>distinguish between the amount of oil physically in
>place from that which can be extracted under existing
>technological and economic conditions.  The U.S.
>Geological Survey’s estimate of the amount of
>oil-in-place in the 1002 area  is 20.7 billion
>barrels.  The amount recoverable with existing
>technology is 7.7 billion barrels.  The economically
>recoverable amount—that recoverable at$20.00 per
>barrel—is estimated to be about 3 billion barrels.
>The technically recoverable oil is the equivalent of
>390 days of supply at our current rates of use;  the
>economically recoverable oil is just 152 days of
>supply.
>
>If we decide to develop ANWR today, the Energy
>Information Administration projects that by 2020 it
>could supply 1.4 million barrels per day.  The EIA
>projects world oil production in 2020 to be 112
>million billion barrels per day.  ANWR would amount to
>about 1 percent of global oil supply.  Dust in the
>winds of the global oil market, and ultimately,  a
>trifling influence on the price of gasoline and home
>heating oil.  This flow of oil would be about 5 and 8
>percent, respectively, of the 2020 levels of U.S. oil
>consumption and oil imports forecast by the EIA. .
>Even if drillers hit the 1 out of 20 long shot (as
>estimated by the USGS), ANWR would still generate less
>than 2 percent of global supply in 2020.
>
>Assumption #3: The environmental impact of development
>in ANWR will be small.
>
>Disruption of the arctic ecosystem is the most
>contentious issue in the ANWR debate. The coastal
>plain of ANWR is peerless among the planet’s
>ecosystems, providing a vast and unique array of
>ecosystem services that do not have a dollar values
>assigned to them.  Pro-development groups argue that
>the recreational and tourism value of the Refuge is
>small as indicated by the relatively small number of
>visitors each year.  This may be true, but it
>undoubtedly is due to the remoteness of the Refuge.
>More importantly, sixty percent of Americans oppose
>oil development in ANWR, even though the vast majority
>of them will never set foot there.  The inference here
>is that the Refuge has what economists call
>substantial existence value.  Many people believe the
>intrinsic value of the refuge in its wilderness state
>is greater than its value as a source of oil.
>
>The oil industry should be credited for its
>development of new technologies that could reduce its
>ecological footprint in ANWR relative to the type of
>development that has occurred in the last thirty years
>with its neighbor to the west, Prudhoe Bay.
>Exploration vehicles can now use balloon tires instead
>of tracks, offering the potential to reduce the impact
>on vegetation.  Pipelines can now handle multi-phase
>materials, meaning that the oil-gas-water mixture that
>is lifted to the surface can be moved via pipeline to
>existing processing facilities to the west,
>potentially reducing the need to build new ones in
>ANWR. Drilling pads are smaller, and horizontal
>drilling technologies can reduce the number of new
>wells required to develop a given quantity of oil.
>The operative word here is potential.  These
>environmental benefits hinge on the assumption that
>such technologies would in fact be employed rigorously
>and to the fullest extent possible.
>
>New technology is not always footprint-reducing.  3-D
>seismic interpretation has revolutionized the oil
>discovery process, greatly increasing the
>effectiveness of exploration compared to 2-D methods.
>But 3-D methods requires an enormously greater amount
>of data collected in the field, needs that can
>actually increase the number of passes that
>exploratory vehicles must make over the land surface
>compared to 2-D.  These impacts hinge on the exact
>size and type of the geologic structure under
>investigation.
>
>We must also consider entire system of exploration,
>extraction, processing, and transportation.  Oil from
>NAWR could be piped to existing processing facilities
>to the west, transported through the Trans Alaska
>Pipeline to storage and processing facilities at the
>port of Valdez, and ultimately loaded and shipped via
>tanker.  Taken as a whole, this is a large scale
>industrial complex.  Prudhoe Bay operations alone
>cover about 10,000 acres of land;  the entire system
>covers hundreds of square miles of Alaskan wilderness.
> Drilling, processing, and transportation have
>atmospheric emissions of greenhouse gasses and other
>pollutants that exceed many large cities.  Hundreds of
>small oil spills occur every year; in 1998 and 1999
>alone, BPAmoco was fined nearly $6 million for spills
>in Alaska.  The memory of the Exxon Valdez reminds of
>the small but potentially serious chance of a
>catastrophic oil spill.  Even if we grant the oil
>industry a reduced footprint from development in ANWR
>relative to old technology, we are still talking about
>a significant addition to an already large industrial
>operation.
>
>Assumption #4:  The oil industry has been a good
>steward of other important ecosystems.
>
>As evidence its 'good faith' the industry points to
>production in Louisiana.  Louisiana’s 3.5 million
>acres of coastal wetlands represent about 40 percent
>of all of the coastal wetlands in the continental
>United States. Coastal wetland habitats in Louisiana
>serve as the foundation for a $1 billion seafood
>industry, a $200 million sport hunting industry, a $14
>million alligator industry, valuable fur resources,
>wild crawfish resources, hardwood timber and livestock
>rangelands that equate to thousands of jobs crucial to
>the economies of many coastal.  For more than half a
>century,  oil companies have dredged canals through
>the wetlands in Louisiana.  Canals disturb the natural
>hydrologic regime in the wetlands, preventing bayous
>from delivering water and sediments to the wetlands.
>Without these inputs, the wetlands lose the race
>against rising sea level.  More than 25 square miles
>of wetlands are converted to open water each year.
>Since 1930, an area the size of Rhode Island has
>perished. If this loss continues, 20 towns will be
>underwater by 2050 and New Orleans will be an island
>at the hurricane-prone edge of the Gulf of Mexico.
>
>This behavior was enabled by state regulatory agencies
>in Louisiana that rarely denied an application for a
>dredging permit, raising concern about the veracity of
>oversight in Alaska, a state that already has
>contributed millions to pro-development lobbying
>groups and where oil revenues finance 80 percent of
>the state’s budget.
>
>Estimates of current government subsides to the oil
>industry range from $2 to $35 billion per year.  The
>Bush oil plan would shower the energy industry with an
>additional $20 billion. These additional subsidies are
>based on flawed economic, political, and environmental
>logic. But we should not be surprised.  The president,
>vice president, and secretary of commerce are from the
>oil business, and the largest contributors to Bush
>political campaigns are from the energy industries.
>Such credential do no constitute a sound basis for
>economic 'busy work' in ANWR. The Bush plan would
>disturb one of the last great wildernesses on the
>planet for a flow of oil that will not significantly
>reduce our import dependence, will not tilt the world
>oil market in favor of U.S. consumers, and in the
>process actually will harm the economy.
>
>Full text w/graphics at www.oilanalytics.org
>
>
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