Relevant and even prescient commentary on news, politics and the economy.

US to be leading producer of oil?? What does that mean?

Lifted from a note on energy from Reader rjs comes a link filled narrative on oil and production issues for oil.  He deals with one aspect of drilling for “energy independence”.

From reader rjs:

Saudi America?

The release of this year’s edition of the World Energy Outlook from the IEA (International Energy Agency) received quite a bit of media attention over this several weeks, mostly for its forecast that the US will overtake Saudi Arabia to become the world’s largest oil producer by around 2020. That such would happen shouldn’t be much of surprise to anyone who’s followed world oil production for any length of time; the Saudis, Russia and the US have been the world’s leading producers for at least 40 years.

 Just compare historical production for the US, for Russia, and for Saudi Arabia).  Our problem has always been that we’ve consumed more than twice our production, while the Saudis, with their smaller population and domestic usage, have been the world’s leading exporter and the one country seen as having reserves ample enough to backstop the markets. Apparently the IEA feels that even with enhanced recovery methods, the Saudi’s cant squeeze much more out of their declining Ghawar oil field, which supplies 60% of their production, and for the next few decades US production will increase due to our unconventional recovery techniques, notably fracking.

But we should note is that even if this temporary switch in world production leaders were to come to pass (and there are plenty of skeptics), this near energy independence will not lower our costs of gasoline for several reasons. The most obvious reason self sufficiency in energy wont lower prices is that crude oil is fungible and prices are determined by worldwide demand & supply. Moreover, the IEA figures include natural gas liquids in our expected production, which by 2011 had come to account for 28% our total unconventional production, & you cant produce gasoline from natural gas liquids. The other reason that domestic oil will of necessity stay high priced is the amount of continued investment that is needed to produce oil from shale.

The adjacent graph, which comes from a report from the N.Dakota Dept of Resources (pdf), shows the production over time from a typical well in the Bakken shale, which is now the most productive field in the US. What you see here is that unlike conventional oil wells, where you might drill one well that produces decently for 40 years, the typical bakken well production falls by over 80% in just two years, because after the initial oil flow from the pulverized rock, the flow slows to a trickle.

So to continue to produce oil from the bakken, or any other shale formation, you have to drill more & more wells, smash more bedrock, truck in millions of gallons more of water & chemicals, all of which is an ongoing capital drain. And even though we are expanding our capacity to tap shale oil considerably, the seven fold increase in oil drilling rigs in the US since 2009 has only produced about a 20% increase in oil production

The Binders That Bind

The most revealing moment last night came as Ann Romney walked toward her husband onstage at the end.  That expression on her face.  I thought she looked like a woman in a binder.

It is, I suppose, poetic justice for Romney that an obviously misspoken phrase of that sort is the catch phrase from last night.  But the phrase, while generating hilarious witticisms, is not the reason why Romney won’t recover.  Instead, it is the binders that Romney has placed himself in that surely became clear to many of his new-found fans of the last two weeks—the binders that underlie his entire campaign. 

Most significantly, in my opinion, that his tax plan is, rather than the new math—as he’s been claiming—actually is no math. 

And that he takes contradictory positions at the same time—starkly, last night, for example, that he’s proud that because of him, virtually everyone in Massachusetts has healthcare insurance, yet Obamacare must be repealed because it’s keeping employers from hiring.  (There were others that surely became clear to a lot of people, but this one just bowled me over, because he said these two things within a few minutes of each other.)

And—yes; finally!—that he habitually plucks statistics out of their context and misrepresents their meaning, although the most clearly illustrative one was one that Obama wasn’t able to make fully clear last night because of time constraints on his reply to Romney’s allegation.  It will be easy for him to do so now, though.

That statistic: Romney’s claim that Obama has reduced oil production from drilling on federal lands by 14% by denying drilling permits and leases.  Romney first claimed, falsely, that there has been a 14% reduction in oil production from drilling on federal lands since Obama took office.  After Obama repeatedly interjected that that was false and that the level of that oil production actually had increased during his administration, Romney finally qualified his claim; production had decreased by 14% over the past year.

I loved it that Obama stepped forward—literally—and explained that the leases and permits that his administration had revoked were ones that the leaseholders and permit holders had not been using, and that that was the reason for the revocations; he wanted the leases and permits to be reissued to others, who would use them.

That was a great moment, albeit one that probably won’t get much attention.  But even more important is that, as Andrea Mitchell explained during the NBC recap and analysis, the 14% reduction occurred (as Romney finally acknowledged) only in the last year—and that the reason for the drop was … a fire at, and consequent shutdown, of a major refinery in Texas!  And, even with that 14% drop in the last year, production from drilling on federal lands has increased more than 10% since Obama took office.

I think the Obama campaign should do an ad on this, saying that apparently Romney thought it was Obama administration policy to have a fire at a major refinery.  And that Romney’s so inept at math that he doesn’t know the difference between a 10% increase and a 14% decrease.

The public will get the point.  Romney is trying to game them. Not a particularly attractive trait in a presidential candidate.

But one misuse of a statistic by Romney came earlier in the debate, and it downright shouted sophistry, thanks to Obama’s unmasking of it: Romney’s comparison of gas prices in January 2009 and gas prices now.  When Obama pointed out why gas prices were so low when he assumed office—and why they’ve doubled since then—I knew Obama would win the debate.  And when, later, during the discussion of the policy similarities between G.W. Bush’s policies and Romney’s proposed ones, Obama cleverly said Romney probably would send gas prices falling, by crashing the economy and thus lowering demand for oil, I thought then that Obama won the election last night.  
And in the light of today, I’m pretty sure of it.
Binders.  Indeed.