For my first Diary I have decided to try and simplify the drilling our way to energy independence in our country argument. Hopefully I will have succeeded to a certain extent.
Any comments and/or criticisms will be certainly welcomed.
With certain politicians & pundits saying the solution to high gas prices is to “Drill, Baby, Drill” the reality is not so simple.
Some would say that speculation is the reason for high oil prices. Short term that may be true, however, speculation can only be held up for so long before collapsing. Thru the years the trend has been for the price of a barrel of oil to be going up and there are a few reasons for this.
Here are some interesting facts…
The price of a barrel of oil is based on the world market. Every barrel produced in the United States gets put on the world market. Therefore it does not matter how much we drill in this country, it will not lower the price of gas one penny. It is because of this that the United States has become a net exporter of petroleum products (diesel, gasoline, and jet fuel). That means we refine much more diesel, gasoline & jet fuel then we use. According to the Energy Department the U.S. has exported more diesel, gasoline and other fuels for the first time since 1949. Oil product demand in 2005 was 20.8 million barrels a day. In 2011 oil product demand was 18.8 million barrels a day. A 9.5 percent drop. At first, one would think that an almost ten percent drop in demand would result in cheaper gas prices. And it would if the supply and demand component was limited to the United States, however, it is not. This country is also competing with the rest of the world as their standard of living increases.
The United States has less than 2% of the world’s “proven” oil reserves, however, we consume between 20% to 25% percent of the global reserves. The United States is the number one consumer of oil in the world. According to the International Energy Agency by 2030 China will be importing as much oil as the U.S. is currently importing.
The word proven is in quotation marks because people have been confused about what “proven” oil reserves are and what other categories of oil reserves there are and mean – identified, probable, potential, ultimately recoverable and unconventional.
“Proven oil reserves” as defined by the oil industry is one that can be developed economically. Paradoxically the higher the price of oil the more economical (profitable) it is to drill in more difficult regions. A good example of this would be deep off shore drilling. If a barrel of oil was worth only $40 a barrel it would be too expensive to drill that far off shore, however, when a barrel of oil gets above $80 a barrel it becomes more economical (profitable) to drill.
There are some that say that the world is awash in oil and technically they are correct. The problem is all of the easy to extract oil is almost depleted and what the world has left is the harder to extract, more expensive to refine, oil. According to The International Energy Outlook paper issued by the U.S. Department of Energy the world’s energy consumption will rise 53% by 2035. Much of this consumption will be by emerging economies. Long term The I.E.O. expects the average price of a barrel of oil to be $108 by 2020 and $125 by 2035 assuming there are no catastrophic disruptions in supply. They also project that world demand will grow from 85.7 million barrels a day in 2008 to 97.6 million barrels a day by 2020 to 112.2 million barrels a day by 2035. Essentially while our oil consumption declines due to energy efficient policies and
technologies enacted, the world’s consumption will continue to rise.
The growth in unconventional supplies (which includes oil sands, extra heavy oil & shale oil) is expected to increase at a rate of 4.6 percent a year thru 2035 while the “easy” oil fields are expected to lose three quarters of their productive capacity over the next 25 years. The last of the so called economically feasible oil is in deepwater oil fields and that is only economical because the price of a barrel of oil is over $80 a barrel. In 1995 deepwater drilling only accounted for one percent of the world’s supply. By 2020 it will account for ten percent of the world’s oil. The expense of developing these deep water oil fields will not be cheap as it will cost tens if not hundreds of billions of dollars to develop. And the oil companies can only afford to do that if the price for a barrel remains above $90.
The cost to develop tar sand oils, extra heavy oil and shale oil is even more expensive. Once you see an increase in production in those you will have to come to a realization that the price (being higher) is right, never to go backwards again.
So, in conclusion, the idea of ever having cheap gasoline prices ever again should be seen as a fantasy. Even if the United States managed to cut oil consumption every year due to policies & technological advancements global demand for oil would still increase due to the emerging economies and with easy to get at oil supplies being played out there is only one direction for the price of oil. Supply and Demand plus the availability of getting access to that precious fuel will dictate what the price is and it’s not going to be cheap. Electric cars anyone?
UPDATE...
Fri Sep 28, 2012 at 5:55 AM PT: A little side note here...Just how many oil wells do you think we have in this country? 50,000? 100,000? 300,000? How about a little over 500,000! The U.S. already has the most oil wells in the world.
http://www.gravmag.com/...
And while the U.S. may have more greater "oil resources" than Saudi Arabia "oil reserves" are only 1/10 of of Saudi Arabia.
http://www.theoildrum.com/...