Friday, September 05, 2008

Drilling makes us more dependent on foreign oil

Just thought I should point out that US oil reserves are not inexhaustible, and that most of the oil in the world is still elsewhere. If we continue to feed our addiction to oil-based energy by producing more in the US, that means, when our reserves are depleted, we will end up having to feed that addiction by buying more oil from abroad. On the other hand, if we shift to other forms of energy (which unfortunately include coal), we can hopefully break that addiction and really end our dependence on foreign oil.

My title is a bit of an exaggeration, I admit. Drilling doesn't necessarily make us more dependent on foreign oil, but it doesn't make us less dependent either, except in the short run. It shifts our dependence into the future. It makes us more dependent in the sense that we will remain dependent for a longer period of time (but be less so initially).

While I'm on the subject, a nice slogan for the Pigou Club, courtesy of Al Gore, via Battlepanda:
Tax what we burn, not what we earn.

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19 Comments:

Anonymous Anonymous said...

Riiiight.

So if we never, ever drill a domestic well, we will maximize our independence from foreign oil.

Wait, I sense a flaw in the argument...

Sat Sep 06, 01:06:00 AM EDT  
Blogger knzn said...

"So if we never, ever drill a domestic well, we will maximize our independence from foreign oil."

In the long run, yes. The less we drill, the more expensive oil will be, and the more we'll have to switch to other forms of energy (or to less energy-intensive activities), which will ultimately enable us to become more independent of the foreign oil that we would eventually have to purchase anyway when US reserves are depleted. Moreover, the less we drill, the more reserves we retain: it's like having a huge, huge stockpile. That's what makes us independent -- not the fact that we can exploit our resources more quickly.

I'm not sure what flaw you sense, unless the flaw is that it requires some thinking to understand the argument. I suppose that's a flaw, since most people aren't willing to think.

Sat Sep 06, 07:28:00 AM EDT  
Anonymous Anonymous said...

If we never drill a domestic well and ban the use of foreign oil you may be right. We will hasten the use of alternative fuels. We will also be paying considerably more for energy, leaving us a lot less money for other things and a generally lower standard of living.

But it we simply ban domestic drilling and otherwise leave people free to use the most cost efficient form of transportation fuel available, we will be using 100% foreign oil.

And if the day ever comes when alternatives actually are more cost efficient, we will have lots of worthless oil in the ground that we could have used back when oil was a multi billion dollar resource because it was the most efficient thing we had.

Huzzah.

Sat Sep 06, 12:57:00 PM EDT  
Blogger knzn said...

I didn't say that not drilling would be cheaper in the long run, only that it would make us less dependent. Who knows what's going to happen with alternatives? Maybe they will become more efficient than oil, and that's fine: ex post we will have made the non-optimal choice, but anyhow things will be OK. But let's take the worst case, where alternatives don't become cheaper, and foreign oil becomes increasingly under the control of a monopolistic supplier that isn't willing to sell to the US. (It's hard to imagine how the monopolization could happen suddenly.) As we start to see foreign oil become scarcer for the US, then we can start drilling, and we'll have very large reserves to draw upon. If we've already extracted most of the US reserves, we'll be in trouble.

Sat Sep 06, 02:50:00 PM EDT  
Anonymous Anonymous said...

Extractable Oil in the ground will never be worthless. The damn stuff is very useful for a lot of things.
Unextractable oil will be worthless and there is a lot of that in the ground. Technology may convert some of that to extractable.

Then again the less we use the lower price the Chinese and Indians have to pay for what they use.

I agree that we should use up everyone else's oil and save some of ours for just in case.

Sat Sep 06, 02:55:00 PM EDT  
Blogger The Opinionated Bastard said...

Don't forget that oil is used for other things besides gasoline.

Sat Sep 06, 03:44:00 PM EDT  
Anonymous Anonymous said...

Thomas L. Friedman was on David Letterman show last night, promoting his new book "Hot, Flat, and Crowded" while Letterman finally let the crowd have it on his views regarding the climate crisis (he thinks we're toast).
I agree - tax what we burn, not what we earn.
Now that we have elections going in both Canada and the U.S., it's time for the economists to write letters to the editors.

Tue Sep 09, 11:15:00 AM EDT  
Anonymous Anonymous said...

I came to this site from an aggregator. I couldn't believe anything could be so stupid. Of course then I saw you were a Phd in econ. Now it is all clear. The same fuzzy headed BS that got us into this doo doo. So Brazil must be really stupid for finding 70 - 100 billion barrels of oil off of their coast. They will become more dependent on oil. Wait they are also the largest producer of ethanol -- the efficient sugar type, but wait they are also doubling their nuclear plants from two to four, but wait they already have over 85% of their energy from hydro but are now adding some dams that guess what environmentalist are complaining about, but wait they are also developing coal for steel making, and oh by the way they also found a bunch of natural gas. Oh and they all drive small cars. And their debt to GDP ratio is about 80%,not 350%. They are really stupid for doing that. I live here and I'm so pissed at Brazil. Pull your head out of your ass pal!!! You can drill for the oil and use it when you want to. The gov't can take royalties. In fact we can even follow Paris Hilton's advice and use oil revenues to develop alternative energy. Or we can stick our head in the sand and do nothing. The US needs forex, as it is technically bankrupt. Half the trade deficit is oil. Alternative energy is years away as is much of the new oil, but Brazil had the same problem int the '70's and they did someting about it, and they were poor. You have about as much common sense as a Phd economist. And by the fact it's the only thing you mention about yourself, you must be very satisfied about being an idiot!!

Mon Sep 15, 01:36:00 AM EDT  
Blogger knzn said...

"You can drill for the oil and use it when you want to."

Ah, yes, because it costs nothing to store oil. How could I have forgotten that?

And experience shows us that oil markets are always very efficient and rational and will always take into account all the possible long-term consequences of using too much oil in the short run. So clearly, once the oil is extracted, there will be incentives to store it.

And after all, we have complete markets in which every form of risk can be easily hedged. So people with oil inventories obviously won’t have to worry about the uncertainty involved. Of course, yes, so they’ll just store the oil, since it’s costless to do so.

And after all, some of the oil will be stored by the government. There is no problem with massively increasing the size of the Strategic Petroleum Reserve. No, it’s not like some president might ever decide to sell off some of those reserves just for political reasons.

Drilling for oil now and using it later. Heck, why didn’t I think of that?

Mon Sep 15, 09:29:00 AM EDT  
Anonymous Anonymous said...

Not sure how drilling makes us more dependent on foreign oil. You stated that if we drill for our own oil, that is what will deplete our oil reserves. Why can't we drill for oil AND make sure our reserves are kept up? I am all for alternitves for fossil fuels but if we never drill for our own oil, we will always de dependent on our enemies for it, like saudi arabia where we get 70% of our imported oil AND the very country that is responsible for the terrorists of 9/11. Then there is venezuela from which we get 15% of our oil. That adds up to 85% of our oil comming from countries that hate us.

Sun Sep 21, 12:30:00 PM EDT  
Anonymous Anonymous said...

You are a f*cking idiot with no facts to back up your paranoid anti-American diatribe. Our enemies are energy-independent - why the hell can't we be? Because of morons like you. Here's a fact you didn't know - we have more coal reserves in the U.S. than anywhere in the world. In addition, with oil shale extraction technology, and all of our hidden shale and oil reserves - we do have as much oil as anywhere else in the world.

This argument is for nothing more than to weaken the U.S. economically. You people hate this country and the thought of us keeping $30 trillion extra dollars at home every year, and freeing ourselves from our enemies energy makes you cringe in horror. Idiot.

Tue Sep 23, 11:05:00 AM EDT  
Anonymous Anonymous said...

Lol

After reading all of this post I had an idea lol

I just bought drill4more.com I just had to, wanted to see if the big oil companies would go for it or some political group would buy it. Sounded like a winner when they started talking about US off shore drilling lol...
blsq

Fri Oct 10, 02:07:00 AM EDT  
Anonymous Anonymous said...

"Why can't we drill for oil AND make sure our reserves are kept up?"

Ha ha, that's a good one. "Reserves" are made up of oil in the ground. If you drill it (and pump it, I assume you mean), then there's less oil in the ground than you started with...that's a pretty simple concept. Increased exploration won't raise reserves much, either, because of Hubbert peak oil theory (the U.S. passed it's peak oil production in 1970. It cannot be increased, no matter how much drilling/exploration).

". In addition, with oil shale extraction technology, and all of our hidden shale and oil reserves - we do have as much oil as anywhere else in the world."

Oil shale (and tar sands, like they have in Canada) require massive amounts of raw material to be dug out of the ground, and then it must be HEATED to release the oil Guess what..this takes energy, and I think it's close to about 30% of what comes out of it. Also, (for tar sands at least), it takes a huge amount of fresh water. Oil shale only becomes profitable at very high sustained oil prices, which has not occurred, yet.

"Our enemies are energy-independent - why the hell can't we be? Because of morons like you. "

Actually, its because of the typical American. The United States has the highest per capita energy use in the world. We have less then 5% of the world's population, yet consume 25% of the energy.

We are not "dependent" on foreign oil...it's just cheaper. In fact, if oil prices decrease, domestic production suffers, because it is heavier, lower quality oil scattered among tens of thousands of small fields, instead of Middle Eastern light sweet crude which is confined to a few very large oil fields (and therefore is very cheap to produce, and shipping it halfway around the world in massive tankers costs almost nothing).

It doesn't matter if we drill all that is physically possible, we will not find a considerable amount of oil, period. World oil production peaked in 2006 with the peak of Saudi Arabia's production, and there is no way to increase it. Saudi Arabia has recently shown an inability to regulate prices as the "swing producer" when oil prices spiked last summer. It is actually not in OPEC's benefit to sustain very high crude prices, because consumption will eventually decrease and total revenue will actually go down.

In regards to the original article, not drilling for our own oil also does something else...if we were to produce all the oil in the country and the world at the maximum possible rate, it would have resulted in a steep uphill climb to peak production, followed by an abrupt drop off. This lends to higher price volatility, and would be disastrous to the world economy. By restricting production (through domestic laws, or OPEC trying to control prices), peak production is delayed, and the following downhill fall will theoretically be flatter, resulting in a slower price increase.

Global Warming and the War on Terrorism are both related to peak oil, IMO. Global warming would increase the cost of all fossil fuel use through carbon credits (natural gas is about to peak, too, and coal will peak in 50 years at current consumption rates...increased consumption rates will make this peak occur sooner, obviously). The War on Terrorism is designed to place the U.S. military in or near oil producing regions globally.

"Here's a fact you didn't know - we have more coal reserves in the U.S. than anywhere in the world"

Have you tried running your pickup truck on coal lately? Coal is used to produce electricity, but almost all transportation is fueled by petroleum distillates such as gasoline and diesel. Though it is theoretically possible to liquefy coal into liquid hydrocarbon fuels, it's expensive, and coal is still a finite resource.

Coal is also very dirty. Though the technology exists to burn coal cleanly, it's not Federally mandated, so most isn't. The majority of coal power plants are in the middle of nowhere, probably to be placed near coal reserves, and also for political reasons. No one wants a coal power plant in their backyard, but the pollution still travels globally. They release huge amounts of soot and CO2, as well as sulfur dioxide and mercury. Hundreds of thousands of deaths globally result from burning of coal.

Fri Nov 14, 05:06:00 PM EST  
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