Your Offensive Obama Oil Policy Infographics of the Day... by Bill S. Feb. 28, 2012

Your Offensive Obama Oil Policy Infographics of the Day

  

Posted by Bill S (Diary)

Tuesday, February 28th at 3:15PM EST

6 Comments

If you’re looking for a single picture that captures the salient points of President Barack Obama’s oil policy, here it is. Courtesy of the Republican Study Committee:

This was timely, given Steve Maley’s excellent posting yesterday on the “10 Ways Obama Could Reduce Gas Prices Now“. Now some on the Left, including the President himself, are trying to convince us that there’s nothing he can do to bring gas prices down in the short term. And in fact it is pretty obvious that his administration’s policies are diametrically opposed to the idea of reducing prices in the first place (witness the Steven Chu quote cited in the infographic). But as my colleague Steve posted in his RedHot tweet last night, there is ample evidence that past Presidential actions have resulted in just such immediate relief as Obama and his minions deny are possible…behold, the second best infographic of the day:

(source: energytomorrow.org)

Despite the feeble efforts of the Left to excuse Obama’s offensive energy policy as having little or no impact on gas and oil prices, the evidence speaks for itself. Not only have the policies of the Obama administration had an adverse impact on the price of oil, but theseanti-oil policies are probably hindering the economic recovery that the President supposedly seeks. But hey, Obama’s tree-hugging buddies are pleased as can be at his eco-pandering and continued efforts to use government money to shore up an “alternative energy” industry that is neither profitable nor practical.  While Obama and Chu continue to peddle lies about the oil and gas industry, they stick us with the price tag for follies like Solyndra.  As Marita Noon describes, it’s “Obama’s Fake Fossil Fuel Infatuation“:

While greens describe Section 1603 as a program that “provided grants in lieu of tax credits to small renewable companies,” free market, fiscal conservatives—who don’t like subsidies in the first place—would be outraged if they understood how the program is really used. The PTC gave owners of wind turbines a tax credit of 2.2 cents per kilowatt-hour (kWh) of electricity produced during the first 10 years of operation. A 50 MW installation operating at an average capacity factor of 30% would generate 131,000,000 kWh per year. The owner would receive a PTC of $2,891,000 per year or $28,910,000 over 10 years. However, Section 1603 allowed the turbine owners to take a “cash grant” equal to 30% of capital costs up front ($100-120 million, 30% = $30-36 million) that came directly from the US Treasury—whether or not the turbine ever produced any electricity. This removes the performance risk for the developer and allows projects with a marginal net capacity factor to get built—even though, like Solyndra, the project doesn’t attract enough private investment. Plus, the cash grant is a “grant,” not a loan. The government doesn’t expect any money back. With the money taken up front, rather than annually based on actual production, turbine owners do not have the incentive to keep up the costly maintenance, and the turbines can eventually be abandoned. Additionally, much of the money is given to foreign companies—not “small renewable companies.”

These brief samples of President Obama’s priorities, as outlined in his proposed budget, highlight the flaws of his ideology. Instead of building on strength, it builds on failure. Renewables have repeatedly proven that they are more expensive than traditional fuels and are unwanted—requiring mandates and government programs to create an artificial market. There are thousands of abandoned wind turbines rusting in the wind. There were no buyers for Solyndra. Their stock of solar tubes were tossed in the trash. Fledgling companies from all segments of the renewable industry have gone bankrupt. They were surviving solely on subsidies and couldn’t compete without the frequent cash infusions. Yet, the budget promises them billions more—good money thrown after bad.

Peter Morici, of the University of Maryland Smith School of Business sums it up well:

Under Mr. Obama’s stewardship, the U.S. economy is not recovering as it should. As per usual, the president distracts public attention from poor policy choices by blaming and ridiculing others.

After three years, the president, who promised Americans millions of clean energy jobs in place of a thriving petroleum industry and much lower unemployment, should own up to his mistakes. Most Americans are needlessly paying too much for gas and foreign oil, while federally subsidized solar and wind projects are filing for bankruptcy.

This November, poor judgment and weakness of character—such as the president’s repeated attacks on the petroleum industry and failure to take responsibility for the consequences of his actions—make the most compelling case for change.

Americans should not expect a perfect president but at least one who bases decisions on facts not whimsy, and learns from mistakes.

Americans are simply not getting fact-based leadership and good judgment from President Obama.

The infographic does tell the story:

• Inauguration Day, 2009:  $1.92 a gallon.  Today: $3.72 a gallon.  
• Chu: “Somehow we have to figure out how to boost the price of gasoline to the levels of Europe” 

Yay, Obama Energy Policy!

What's Wrong with, Peak Oil Theory? Consider Peak Gas. by Steve Maley Jan. 28, 2012 "gold is everywhere you find it, but oil must be sought first of all in our minds" Wallace E. Pratt

What's Wrong with Peak Oil Theory? Consider 'Peak Gas'.

'Gold is where you find it, but oil must be sought first of all in our minds.' - Wallace E. Pratt

Posted by Steve Maley (Diary)

Saturday, January 28th at 11:00AM EST

30 Comments

This is an abbreviated version of a post at my personal blog. There you will find more detailed text, additional figures and references.

In 1956, M. King Hubbert predicted that crude oil production in the U.S. (ex-Alaska) would peak in rate around 1970, to be followed by a long, irreversible decline. Hubbert nailed the timing of the peak, and in doing so, cemented his status as a technological visionary among neo-Malthusians and opponents of the "fossil fuels". But Hubbert's paper also contained a similar forecast for gas.

In 1956, Hubbert's estimate of the amount of natural gas that would ultimately be consumed in the U.S. was 850 trillion cubic feet (TCF).

In the 1978 update, Hubbert increased his estimate to 1,103 TCF, but considered that value to be on the high side.

Lower 48 Gas Production, 1900-2010

By the end of 2010, we had produced and marketed 1,131 TCF from the Lower 48, more gas than Hubbert thought would ever be possible. We find ourselves in the midst of a natural gas boom, with gas production now exceeding the peaks of 1973: rates are over three times higher than the 7 TCF per year Hubbert foresaw for 2010. The Lower 48 resource base is some 3,100 TCF, three to four times Hubbert's earlier estimates.

Peak Oilers rarely mention Peak Gas. Hubbert expected his method to work for all resources; why did it fail with respect to gas? The answers to that question shed light on the shortcomings of Peak Oil Theory, and reveal the reasons why it should not be used as a policy-making tool.

Shortcoming #1: Hubbert's technique depends entirely upon the estimate of the ultimate resource base. Any extrapolation of historical trends contains only the information embedded in the history. There is no way to anticipate "game-changing" developments outside the confines of the history upon which it is based. A forecast of a limited future thus becomes a self-fulfilling prophecy if it is used to set policy.

Shortcoming #2: "Hubbert's Peak" is the ultimate ceteris paribus analysis. Problem is, all other things are never equal, particularly in the realm of economics. Hubbert's equations worked well in his experience, so well that he accepted them as immutable laws. Hubbert showed little concern for how changing policies or economics might affect his resource estimates (see Shortcoming #1).

Shortcoming #3: We are all limited by our imaginations. Hubbert could not imagine economic production of hydrocarbons from water depths over 600 feet; we now have production in nearly 10,000 feet of water. Shale rocks were never considered to have economic potential. Moore's Law has enabled accomplishments in drilling and exploration beyond Hubbert's wildest dreams.

Product Price

Until the mid-1970s, natural gas was dirt cheap, so cheap that drillers rarely targeted it intentionally. Most of the gas that was found and produced was incidental to oil operations, which explains why Hubbert deemed the gas resource to be a ratio of his crude oil estimate.
The following graph shows the history of natural gas prices (which was historically priced per mcf, or 1,000 standard cubic feet). The average wellhead price (i.e., the price received by the producer in the field) from 1925 until 1970 was less than 10¢ per mcf (about 66¢ in 2005 dollars). The energy content of one barrel of oil is roughly the same as 6 mcf of gas, so that the cost of buying one barrel's worth of energy in natural gas form was only 60¢ (or less than $4.00 in 2005 dollars).

Nominal and Real U.S. Wellhead Gas Prices, 1925-2010

Public Policy

Since 1938, the Natural Gas Act had enforced low gas prices and near monopoly status for the big interstate gas pipelines. It was not unusual for a producer to be locked into a long term gas sales contract at 3¢ per mcf, with no recourse and no alternatives. In an effort to build domestic gas supplies, President Carter signed the Natural Gas Policy Act (NGPA) in 1978. It maintained existing price controls while granting preference to newly-found supplies. Its recognition of a dozen or more "vintages" of gas led to a price structure that became increasingly byzantine over time.

President Reagan began phasing out price controls on oil and gas in 1983. Tax reform ended limited partnerships' tax shelters for drilling dry holes. The industry floundered as prices tanked and investors vanished. From 1981 until 1985, the count of active drilling rigs declined from 4,500 to under 700. Under severe economic pressure, the energy industry consolidated and contracted, then set about figuring out how to regain profitability.

Technology

Coincidentally, by about 1985, the impact of desktop computing began to be felt in the industry. Directly or indirectly, the PC era would contribute to a number of important technical advances in exploration and well operations, including 3-D seismic, horizontal drilling and logging-while-drilling. Using these and other new technologies, operators began finding ways to produce natural gas from rocks that had been never before been considered to be commercial sources of hydrocarbons. Explorers drilled fewer dry holes, and more efficiently developed smaller accumulations than in earlier days.

Real Wellhead Price and Lower 48 Gas Production, 1925-2010

Conclusion

Hubbert may have been correct about the ultimate volume of gas that would have been produced under pre-1970 prices and marketing structures. That price was unrealistically low compared to the energy content of gas. Today's gas prices are about six times the pre-1970 average (2005 dollars), but gas is still a relative bargain. (Six thousand cubic feet of gas costs about $24, but can do as much work as one $100 barrel of oil.)

So, if all this is true, why does Hubbert's curve seem to work so well for crude oil?

One key fact distinguishes natural gas and oil. Oil can be readily imported from anywhere in the world. Gas is primarily a North American commodity. Imports (other than Canadian pipeline imports) can impact the market only when domestic prices are high – and even then we have to compete with Japan and other regular customer on the world market. At the current low price of gas (relative to oil), the United States may become a gas exporter.

The transportability of oil caused the oil-oriented major integrated companies to focus their exploration efforts overseas when drilling and production costs rose in the U.S. Finding large deposits of oil overseas was easier, cheaper and more efficient than it was in the States. The U.S. natural gas market became the domain of domestic independents.

Policy decisions have taken much of the domestic oil resource base off the table, namely in the Alaskan North Slope, much of the Mountain West and the 85% of the Outer Continental Shelf which is closed to exploration. We cannot know how big this potential resource base is until we drill it. Many would prefer not to know, whether for political or environmental reasons, so we can expect the fight to continue.

Cross-posted at stevemaley.com.