Posted by: bmeverett | March 13, 2011

Honestly, Mr. Speaker


Despite rising public support for conservative ideas, the Republican Party still seems clueless. The country faces serious economic problems, yet very few elected officials show any interest in actually diagnosing these problems and seeking solutions. Instead, they posture and position for advantage in the next election. Having played this game both excessively and poorly during the Bush administration, voters gave them a clear signal in 2008. Just saying “The Democrats are worse” is not enough to keep you in power. The public wants substance. With Republicans now back in power, at least in the House, the public is eager to see if they got the memo.

Speaker of the House John Boehner was a first-string player on the Republican’s losing team between 2000 and 2008, and is now the Speaker of the Republican House. Some fresh blood would have been better, and Boehner is already calling some plays from the old losing playbook. In the face of rising oil and gasoline prices, the Speaker blames the President, claiming “The Obama administration has consistently blocked American energy production that would lower costs and create jobs in our country. They’ve canceled new leases for exploration, jeopardized our nuclear energy industry, and imposed a de facto moratorium on future drilling in our country. They’ve even pushed a cap-and-trade energy tax that the president himself admitted would cause the price of energy to skyrocket.”

I don’t like the Democrats’ energy policies much either, but let’s see if the Speaker’s comments make any analytical, as opposed to just political, sense. According to the Energy Information Administration (EIA), average US crude oil prices were about $82 per barrel at the end of 2010 and have since risen to over $100, an increase of nearly 25%. Gasoline prices have followed, rising from $3.00 a gallon at the end of last year to over $3.40 a gallon now. In some areas, like California, gasoline prices are already over $4.00. Not a real good thing for the consumer or the US economic recovery, but is President Obama to blame?

Let’s first dispose of the nuclear energy myth. A thriving nuclear industry in the US would do many things, but reducing oil imports and thereby reducing pressure on oil prices is not one of them. The US uses very little oil for power generation because it’s simply too expensive. In 2010, the US generated over 4,000 terrawatt-hours (trillion watt-hours) of electricity. Only about one half of one percent of that total came from oil. We have a few old fuel oil power plants in the Northeast, but most oil is used either for stand-by generation for extremely high-demand periods, for back-up diesel generators for hospitals and other key facilities or for small generators in remote locations off the electricity grid. Less than 1% of our oil supply is used for power generation. Nuclear power trades off with coal and natural gas, not oil.

How about the Obama Administration’s de facto drilling moratorium? Total world oil supply is currently about 87 million barrels per day (MBD). The US contributes about 9 MBD or just about 10%. It makes perfectly good economic sense to open up potential US oil resources to development. New oil production would create jobs and the economic benefits of the producing operations would accrue to the US and not to other countries. However, the US is a mature oil producing area, which has been extensively explored. There are relatively few areas with significant new potential.

The President’s moratorium on drilling in the deep Gulf of Mexico following the BP disaster last April was not a thoughtful or constructive response to the problem. However, at the beginning of the Obama Administration and well before the BP blow-out, the EIA was projected that oil production from the deep Gulf of Mexico would increase from 1.23 MBD in 2009 to 1.67 MBD in 2035. In other words, the baseline before president Obama was inaugurated was an increase of about 17 thousand barrels per day per year or 0.02% of global production. An additional 0.4 MBD of domestic oil over 26 years is nothing to sneeze at, but it’s a real stretch to blame the lack of deep-water drilling for the current oil price.

The President’s “cap-and-trade” bill would have been a disaster, but it wasn’t passed. Hard to pin the current gasoline price on a bad idea that wasn’t implemented.

President Obama can be blamed for a lot of things, including the abysmal Stimulus Bill and the even more abysmal Health care Bill, but gasoline prices are driven by forces beyond our control. Demands for a “comprehensive energy policy” or “energy independence” sound great but make no sense. Despite all the very real political and national security problems associated with oil, the global oil market is still our only economic source of transportation fuel. At $4 a gallon, $5 a gallon or $10 a gallon, oil will still be our cheapest option.

Speaker Boehner’s comments appear to be the same-old, same-old – cleverly crafted to appeal to focus groups with no analysis or meaningful solutions. Blame the Democrats for unpopular things and hope that voters will turn to the Republicans for relief. What exactly does the Speaker propose to do that would reduce world oil prices? Is he saying that gasoline prices would be lower if the Republicans held the White House? Not likely. My guess is that the public will not stand for this kind of behavior. If the Republicans want to ride the wave of public sentiment for real solutions, they better get on the stick and offer some.

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Responses

  1. Sorry, but the US only produces about 5.5 million barrels of crude oil per day and about 2 milliion barrels of hydrocarbon liquids (condensate). Far cry from 9 million barerls. And – the increase of Gulf production does not make room for the peak rates during that period – peak has to be much higher in those years in between now and 2035. Oil production declines at a rate of 25-40% in the first year or so and thereafter probably at 10-15% annually. These are very rough figures and vary from field to field depending on reservoir conditions and the gravity of the crude oil.
    Who’s fault is it – INEPT UNSCRUPULOUS POLITICIANS!

    • Thanks for this comment. Oil supply is always statistically confusing. I include crude oil, natural gas liquids, biofuels, ethers and other blending components which end up in the final petroleum product supply. To your (quite correct) 5.5 MBD of crude and 2 MBD of NGLs, you need to add about 0.9 MBD of biofuels and 0.2 MBD of bits and pieces, which adds up to 8.6 rounded to 9 MBD.

      I try to keep these posts short and use rough numbers to make the point.


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