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SVSE ~~~~~~ Why Should The U.S. Increase Domestic Oil Production

Oil is the world’s most critical and scarce energy resource. Only oil is easily divisible, transportable, and vital for most transportation. Japan’s shuttered nuclear plants mean new demand for more millions of barrels of fuel oil to generate electricity for its cities and factories. Libyan oil production will now be shut down for months or years. There is almost no spare capacity in world production.

Here’s a tough fact to face: World prosperity is critically dependent upon the stability of a single decrepit, corrupt dictatorship in Saudi Arabia. While the regime there has been quick to put down calls for expanded rights, the protests for political, civil, and economic rights continue. Chaos in Saudi Arabia, which produces about 12 percent of the world’s oil, would cause such shortages of oil in Asia and Europe that the whole world could be thrust into major economic crisis. Closed factories in China, Japan, and Korea would crash commodity prices and world trade. Banks would again be tottering and calling in loans. Russia with its supplies would have a stranglehold over a dependent Europe. And Americans might be lined up for hours at gasoline stations, maybe with ration cards.

Saudi Arabia’s status quo hangs by a thread on the lives of an 86-year-old king and an 85-year-old prince. They are the last surviving direct heirs of old King Ibn Saud. After them will come jockeying and infighting among thousands of princes descended from Saud’s many wives and concubines from different tribes, none with a clear mandate to become the new absolute monarch. The Economist explains the complicated maze of palace intrigue and notes that there are no rules for succession except for the ruling family to chose the “best qualified” prince, which in Arabic can mean “most capable” or “most virtuous.” There’s no way to know exactly how succession will play out, but even the present government is more vulnerable than it appears. The sick king’s hurried promise last week (finally) to allow first time municipal elections and his offer to create 60,000 new public sector “jobs” shows weakness, not a position of strength.

Yet for America, there is a way to greatly minimize, if not fully end, our dependence upon shaky Middle East dictatorships, including Saudi Arabia. With dependable Canadian production and using our own shut-in resources, we can vastly reduce our need for imports. This should be a vital, immediate national interest. America imports some 10 million barrels per day (bpd). Of this Canada sends us 2 million bpd (the amount is constantly increasing) and Mexico sends about 1 million bpd. Nigeria, Angola, and Venezuela send another 1.5 million bpd, all of which is pretty reliable. That comes to around 4.5 million bpd, which means that there’s 5.5 million bpd coming from less-reliable sources, including the Middle East.

If it were able to produce more freely, American oil production could ramp up significantly, reducing reliance on Saudi Arabian, Libyan, and other similar sources. Instead our oil industry is stymied, delayed, and denigrated by a president and Congress that continues to daydream about tiny and very expensive amounts of energy from solar power, windmills, and ethanol. Even with vast subsidies (Obama’s stimulus bill tossed $80 billion toward alternative energy), these sources produce a tiny fraction of American energy usage: One percent for windmills, and 1 tenth of 1 percent for solar. Most renewable energy comes from aging hydroelectric dams. Electric cars are expected to sell a few tens of thousands this year, compared to over 250 million registered gas-dependent cars on the road. These figures show some of the absurdity of most alternative energy hype.

In the Gulf of Mexico, deep-water drilling and exploration has been shut down for almost a year while permitting shallow wells in known fields is agonizingly slow. On land, Interior Secretary Ken Salazar revoked oil drilling permits issued under the Bush administration, retroactively canceled already approved coal mining permits, and has thrown many new investments under a cloud of risk as companies fear more retroactive permit revocations. Environmental extremists file crippling, unending lawsuits precisely to cause costly, interminable delays and frighten off investors. As Alaska Gov. Sean Parnell’s recent speech to the National Press Club makes clear, environmentalist proposals to further limit oil drilling have been picked up by Obama’s appointees.

Here are six things the federal government could do to increase domestic oil production:

1) The Alaska pipeline now runs two-thirds empty. It alone could carry 1.5 million barrels more per day if Washington was to allow drilling at ANWR and in the shallow, 100-foot-deep waters close in offshore from fixed platforms or manmade islands. Instead, for example, Shell Oil has been sandbagged with purposeful delays, including a five year wait for a clean air permit over the Arctic Ocean.

2) The Gulf of Mexico could be producing another half million barrels per day within five years if permitting were expedited by the Department of the Interior. The catastrophic spill last April came after thousands of successful and safe deep water wells have been drilled. It was a freak accident compounded by serious human errors committed by BP, the (foreign) drilling company with one of the highest large company accident records in the industry. Various new procedures have made deep drilling even safer.

3) A crash program to provide abundant LNG (liquid natural gas—compressed to reduce its volume by a factor of 600) pumps at major interstate truck stops would encourage conversions from using diesel oil, which is imported. A thousand cubic feet of (compressed) gas equals the energy equivalent of seven gallons of diesel oil costing some four times as much. Merchandise transport accounts for 18 percent of oil usage. Already municipal trucks and buses are converting to natural gas; taxis could too. The price spread between diesel and compressed gas is very unlikely to change for many years, so there is plenty of incentive for truckers to buy their new trucks with LNG engines, but they need to be assured of fueling stations. For peanuts compared to all the subsidies for ethanol and solar cells, the government could help pay for these costs.

4) Modern oil production allows drilling horizontally miles and miles out in all directions from a single platform. Formerly wells could only drill straight down with a single pipe. Just a few platforms can now drill and produce from a wide area. They are not the eyesore of years ago. Allowing coastal states some of the royalties from offshore drilling would do wonders for curtailing opposition. Reasonable permissions for drilling off our Atlantic and Pacific coasts could produce more billions of barrels of oil. New technology is constantly triggering higher production, for example, with previously unusable oil shale (such as the Bakken fields in North Dakota) which actually caused an increase in yearly U.S. production. The prolific oil off the coast of Santa Barbara, California, scene of a spill 40 years ago, is in waters only 300 feet deep with wells 3,000 feet deep. Oil companies now routinely drill in 5,000 feet of water down to over 20,000 feet. Within a year California could be producing from fixed platforms which have a 15 year record of almost no serious spills out of 11,000 wells drilled.

5) Allow building of the proposed Keystone XL Pipeline from Canada’s massive tar sands, which would bring in another half million barrels per day as production ramps up. However, environmental groups are fighting the project tooth and nail, arguing that it would contribute to global warming, because the sands need heating to separate out the oil. As the debate unfolds, China is already offering to buy the oil instead.

6) Congress needs to correct the Environmental Protection Agency’s rules to force it to make decisions within 30 days and to use rational measurements instead of a few parts per million as grounds for declaring any product hazardous and illegal. Special fast-track courts for environmental issues, as suggested by Tea Party leader Rep. Michele Bachman (R-Minn.), could be established to expedite environmental lawsuits.

The above projects could cut imports roughly in half from their current 10 million barrels per day and end dependence upon Middle Eastern oil. They involve very little cost for taxpayers, unlike alternative-energy schemes, and would produce hundreds of thousands of new jobs and tens of billions of new tax revenue for Washington. Admittedly, we may have to wait until Americans are waiting in gasoline lines to consummate any or all of the above, but these measures are the way to save ourselves and possibly the world economy from an oil shortage catastrophe. Additionally, it would undercut the rationale for the seemingly unending wars we’re now waging while trying to secure Middle East oil.

Jon Basil Utley is associate publisher of The American Conservative. He was a foreign correspondent for Knight Ridder newspapers and former associate editor of The Times of the Americas. For 17 years, he was a commentator for the Voice of America. In the 1980s, he owned and operated a small oil drilling partnership in Pennsylvania.

http://reason.com/archives/2011/03/30/the-case-for-increasing-domest

Interesting Read About Canadian Oil

The Untold Story about Canada's "Defection"
by James Baldwin | published December 14th, 2011 OIL & GAS INVESTOR
Even after the scores of lectures I've sat through on environmental economics, or the long discussions about energy policy with think tanks at the Johns Hopkins D.C. campus…
I never expected this to happen.
At least not from the perpetrator in drama…
Not Canada. They were supposed to live by example for the West…
But, on Tuesday, citing economic and political concerns, Canada became the first country to officially withdraw from the Kyoto Protocol, a 1997 agreement under which 37 countries committed to reduce carbon emissions below 1990 levels.
On the surface, this represents a breakdown in transnational climate negotiations.
But underneath, there's more important trend. And it's very good news for oil and energy investors like you and me.
So… while policy wonks debate "what's next" for climate talks, we need to discuss what this means for the future of energy investment in North America.
And it's positive… for now.
A Policy Breakdown
As you'll see, there are actually two stories here.
The first is about policy failure and the blow to members' expectations that economies could meet emissions reductions by 2012.
But the Canadian government has, for at least a decade, expressed dissatisfaction with the Kyoto Treaty since it fails to hold two of the largest emitters and economies in the world – India and China – accountable for meeting reductions targets. In addition, the United States, the second-largest emitter in the world, never ratified the treaty in the Senate.
Meanwhile, Canada was reducing its emissions. The country has been weaning itself off coal for the better part of a decade.
Its decline in coal consumption was mainly due to the Ontario government phasing out its remaining 6.1 gigawatts of coal-fired plant capacity through 2014.
Still, that reduction would never have been enough to meet Kyoto's rigid standards.
Under the agreement, Canada was supposed to cut its emissions to 6% below 1990 levels during the four years between 2008 and 2012.
As of today, the country is roughly 30% above its target.
So, in order to fulfill its obligations, Canada would now have to buy carbon emission permits from other Kyoto signatories to offset this imbalance and meet its agreed target.
That price tag was estimated at $14 billion – or $1,600 from every Canadian household – even though these permits still wouldn't reduce global emissions levels.
Now, Canada will likely avoid these costs.
But the second story was more troubling to politicians.
In order to reach future emissions targets, the country would likely have to curb significant levels of economic activity and strip down its oil and gas production, particularly in the Alberta tar sands, its largest source of new emissions.
And this is the story every oil and energy investor needs to know, but isn't hearing anywhere else.
A Nod to Energy Producers
The Canadian economy continues to be a shining example to a Western world struggling to rebound from the global financial crisis. The resource-rich nation has enjoyed a nice buffer from the aftershock of the crisis, thanks to strong production in energy, minerals, and agriculture.
In the last nine years, Canada's GDP has doubled.
And leaders would like to keep this going.
The country has immensely benefitted from the boom in oil and gas production in the sands of Alberta. But tar-sand mining is far more carbon-intensivethan traditional crude oil production.
The rise in tar sand production naturally has led to increased emissions since 2008, even though a heavy majority of the crude is used as energy in places like the United States or China – two countries that aren't bound by the emissions treaty.
So even though Canada is a very small emitter of carbon by comparison, political leaders had to be asking themselves one question: Why should Canada buy credits for their emissions from oil production, when two of their largest consumers of oil and gas are not required to do the same for burning their imported oil?
And, why should they cut production or stall growth in order to meet these obligations?
It appears Canada isn't willing to turn off the pumps or pay the costs for now, not with global energy demand rising and financial conditions ripe for production in Alberta.
As Kent has noted before, the price of oil needs to be roughly $70 to $75 a barrel in order for production in new oil sands fields to be profitable.
Existing fields require crude prices to be at least $50 to $55 in order to justify extraction of crude. With global prices expected to swell well past $100 a barrel in 2012, now is the right time to be producing oil in Alberta.
Profiting Upstream (and Midstream)
Canada is the largest supplier of oil and gas to the United States, shipping approximately 75% of its exports here each month. According to the government of Alberta, nearly 173 billion barrels of recoverable oil rest in these tar sands, based on current production costs.
This represents nearly 75% of the total North American reserves currently available.
And such a tally has attracted a great number of upstream and integrated companies looking to produce with demand rising and access to conventional sources falling.
It was just last year, in an interview with Money Morning, that Kent explained why Asian state oil firms, led by China, were acquiring interests in oil sands projects and spending billions to satisfy their rising energy needs.
And this trend is expected to continue as greater production from unconventional sources is needed to meet this demand. With margins increasing, upstream producers are settling in and expecting strong returns.
In fact, in August, Travis Davies, a spokesman for the Canadian Association of Petroleum Producers, told the New York Times that the sector expects oil sands production to roughly double by 2020, depending on the long-term price of crude.
This should also be welcome news to midstream service providers.
Despite the delay of the Keystone Pipeline between Canada and the United States, it's clear that production will continue, uninhibited, and that politicians are on board.
And anywhere the oil is flowing is a good thing for midstream providers.
Remember, these companies are assessing fees in order to move oil and products from the production points (upstream) to processing, treatment, and retail centers (downstream).
So the greater the levels of production, the more these services will be needed to transport and store these fuels.
Canadian rail companies were already increasing domestic transporting capacity with the growth of the Bakken shale field. Now, expansion of tar sand production will only pique their interest even more as they aim to profit on this "black gold" rush.
Of course, Canada has stated that it is willing to step back to the table to negotiate a long-term treaty that binds all countries to specific emissions cuts, which would likely introduce new taxes or fees on producers.
But given the lukewarm outcomes in Durban last week and Copenhagen in 2009, I'm expecting Mr. Davies' prediction will come soon long before these nations, all seeking to grow their economies, can reach a profound agreement.
It's a good time to look north for opportunity.

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