Drilling Our Way to Security?

Recent oil finds won't come close to meeting energy needs

By Louis Grinzo

Jeffrey Loney's Speaking Out essay ("Tap U.S. soil, seas for oil, gas; stop buying foreign energy," Nov. 14) is a classic example of the "we can drill our way to a better energy future" approach. I don't think that view fully represents our situation, for several reasons:

It's not the amount of oil or natural gas in the ground that matters, but the rate at which they can be extracted and at what cost. For example, Mr. Loney mentions the recent find in the Gulf of Mexico that "might contain up to 15 billion barrels of oil, increasing U.S. reserves by 50 percent."

If you look carefully at the reports of that find, you see that the field is spread over 300 square miles, requiring multiple, very costly wells. The most widely quoted estimates say that this field holds between 3 billion and 15 billion barrels of an unknown mix of oil and natural gas. Further, it is estimated that it will take at least six years to bring it fully online, and even then it will produce only 1.5 million barrels of oil per day.

Currently, the United States consumes more than 20 million barrels per day. It will take many millions of dollars to exploit a resource that's beneath 7,000 feet of water and another 21,000 of rock. Mr. Loney says, "Our nation's offshore oil and gas could replace Persian Gulf imports for many decades."

That's an interesting way of putting it, as the United States imports more oil from Canada (2.1 million barrels per day) than from any other country, and almost the same amount from Venezuela as from Saudi Arabia. A more reasonable approach is to consider all U.S. imports. The United States currently imports 13.5 million barrels of oil per day — two-thirds of all the oil we consume. Deep offshore sources couldn't come near replacing those imports.

Many of the "conventional" oil reserves around the world are past their peak of production or very close to it. Deep-sea, Arctic, shale/sand and extremely heavy (and therefore expensive to refine) oils make up an ever increasing portion of world consumption.

But that oil is much more expensive to locate, extract and turn into usable products. The fact that oil companies are already spending enormous sums of money to develop such reserves is the clearest sign possible that the age of cheap, conventional oil has all but ended.

The U.S. Department of Energy's projections leave a great deal to be desired. Aside from the 40 percent increase in oil and natural gas consumption by 2030, which Mr. Loney quotes, the DOE also says that Mexico will continue to provide the same level of oil to the United States for decades, even though we know that their production peaked in 2004. The DOE is an excellent source for statistical summaries, but a highly questionable one for predictions.

As for what happens next, I think it's unmistakably clear: We will indeed exploit those offshore oil and natural gas resources, but not as part of any attempt to wean us from imports or achieve the Holy Grail of energy independence. We simply won't have any other choice. We use too much oil in a world that's increasingly turning to ever tighter and more expensive reserves.

Similarly, we use too much natural gas, five years after the peak in North American natural gas production and without sufficient LNG (liquefied natural gas) terminals in operation to import a significant portion of our consumption of that fossil fuel. As a result, there will be endless political wars over when and how to exploit which oil and natural gas resources, and how quickly and where we can build new LNG terminals (there are dozens in the planning stage, with only five in operation).

I am absolutely confident that we will find a way out of this complicated mess and build a cleaner, better world for our children, but it will be far more economically, environmentally and politically painful than many people yet realize. We will have to rely on a mix of new energy source development, alternative sources and plain old conservation. We don't have a single silver bullet that will fix our energy woes, but a whole handful of silver BB's that collectively can get the job done.

Louis Grinzo is an economist and publisher of "The Cost of Energy" a Web site that can be found at www.grinzo.com/energy.