Mythical Energy World

Shale Oil Still a Mirage

By Richard Martin, 6-13-08

	Caption: It burns, but can it be mined?

Talk of a “new boom” in oil shale production has been heard for more than two years now – but it’s not happening soon.

While they are opposed on most energy issues, Republican Sen. Wayne Allard and Democratic Rep. Mark Udall, both of Colorado, are opposed to a new plan to mine potentially rich shale deposits on the Western Slope put forth by, among others, Royal Dutch Shell. A proposal introduced this week by Utah Rep. Chris Cannon would allow immediate development of oil shale on public land. Allard says he supports oil-shale production in general, but will not vote for any project that circumvents federal regulations.

“Udall says the proposal proves some have “oil shale fever” and want to sacrifice Colorado’s Western Slope,” reports The Daily Camera.

Since the Energy Policy Act of 2005 was passed, establishing a regulatory framework for leasing public lands for oil-shale development, oil companies have invested millions into figuring out to profitably produce petroleum from the flammable rock. Supporters claim that oil shale reserves in western Colorado, eastern Utah and southwestern Wyoming could contain between up to 2 trillion barrels of oil.

Meanwhile Colo. Sen. Ken Salazar was accused by two senatorial colleagues – Allard and Utah Sen. Orrin Hatch – of standing in the way of any form of oil shale development.

“The charges are false,” Salazar thundered Wednesday on a phone call to reporters in Colorado, according to The Daily Sentinel in Grand Junction. “We need to face the reality that the American people have been living in a mythical world of energy. We cannot, in my mind, drill our way to energy independence.”

[End of article]

How much longer will we accept the foot-dragging excuses by the politicos to do absolutely nothing about our energy situation? See: planetgore.nationalreview.com/post/?q=MGRmM2I3ODdkOTJlNzYxOGJmNmVkZjA2NTM2ZGUzNDE

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Despite 35 years of empty rhetoric from politicians bemoaning U.S. dependence on foreign oil, legislatively enacted environmental barriers have actually resulted in a 25-percent decline in domestic production since the first ’70s energy crisis — while our usage has increased 20 percent.

Regardless of one’s ideological proclivities, it seems logical that you can’t reduce foreign-oil dependence by cutting production at the same time that demand is rising. Despite how obvious this seems, one of our nation’s two major political parties stubbornly continues to ignore that logic...

Assuming there was no environmental/political element, the logical and exceedingly obvious answer is currently being proffered by former House Speaker Newt Gingrich’s American Solutions for Winning the Future: Drill Here, Drill Now, and Pay Less.

As the former Speaker said to Fox News’s Bill O’Reilly last Thursday:

[O]pen up the coast to drilling. And open up the Rocky Mountains for shale oil. We have in the Rocky Mountains three times the amount of oil that the Saudis have, three times the amount of the entire Saudi reserve in the Rocky Mountains. The Brazilians are now energy independent in terms of oil, because they found two huge reserves in the Atlantic ocean. It’s currently illegal for Americans to go on American territory in the Atlantic, the Eastern Gulf of Mexico, the Pacific, northern Alaska. It’s illegal for us right now to go after the Rocky Mountain shale oil.

Gingrich was right on the money, for according to an April 2006 study done for the Library of Congress:

Oil shale is prevalent in the western states of Colorado, Utah, and Wyoming. The resource potential of these shales is estimated to be the equivalent of 1.8 trillion barrels of oil in place. . . . In comparison, Saudi Arabia reportedly holds proved reserves of 267 billion barrels...

Predictably, the liberal counter-argument is that such production is years out, and won’t solve today’s supply problems. Such thinking ignores the speculative component to energy prices, and how much today’s bullish consensus about oil is based on the expectation that American production will continue to decline as it has for going on four decades.

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We have the Chinese drilling 60 miles off the Florida coast on behalf of the Cubans, but yet we refuse. Does that make any sense at all??? Finally the speculators like Goldman Sachs, a favored darling of the Dems, is receiving some scrutiny regarding potential market manipulation. All the talk about a windfall profits tax, carbon tax, and cap and trade tax finds someone else to blame and hides the antics of the speculators. 50 to 60% of the current oil cost is a speculation premium enjoyed by the likes of Goldman Sachs.

First of all, the Chinese are not drilling off the coast of Florida. Dick Cheney was forced to retract that statement after the Congressional Research Service proved that it was absolutely untrue--It's a flat-out lie.

But what we should be worried about is the fact that if we open our coasts to drilling, there is no guarantee that the oil won't be shipped abroad.

What we really need is to move beyond oil. We need more energy choices, like wind and solar. The only people who stand to benefit from more drilling are oil executives--who are doing quite well, thank you.

Drilling won't lower gas prices. It won't solve our energy crisis.

kristina, you are correct about China and Cuba. At the time I had read the news reports that were linked to George Will. He has since apologized for his error. Is China working with Cuba? Yes.

Regarding you point about gas prices, I completely disagree. Profs Coats and Pecquet speak to your claim. See: http://mpra.ub.uni-muenchen.de/9543/

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Everyone knows that oil discovered today, perhaps in the Alaskan National Wildlife Refuge (ANWR), has no effect on prices until that oil hits the market. For instance, on its website, the Democratic Policy Committee, (http://democrats.senate.gov/~dpc/pubs/107-1-72.html) states that “it will require seven to twelve years from approval before there is any oil production from the ANWR area. Therefore, production in ANWR will have no impact on current or short-term gasoline and oil supplies and prices.” While this is something that everyone seems to know, it is a case that the theory held by everyone just happens to be wrong. Since future prices are expected to be lower, future profits are also lower, so the value of oil not produced now, but held for future sales, is lower, making it more profitable to go ahead and produce and sell now instead of waiting for future profits. Using oil now reduces the amount of oil available for the future, which involves the opportunity cost of forgone future profits, which are sometime called the marginal user costs or scarcity rents. In this paper, we use simple two-period models to show that if an amount of newly discovered oil is significant enough to reduce prices in the future, any drop in future prices reduces the future profitability of oil, reducing the marginal user costs of oil now. That reduction in the marginal user costs reduces the current price of oil just as if there were a reduction in the marginal costs of extracting oil now. We explore the effects of the reduction in marginal user costs in the competitive or price-taker case as well as the price-searcher case, where a monopolist or dominant supplier responds to a substantial discovery by another seller, but where the discovery will not contribute to production for some years to come. In both cases, we find that oil that is expected to reach the market at some time in the future has an immediate impact on oil prices.
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Their paper was rejected by The Energy Journal because the point they made was nothing new. An established fact. Right now about half the cost is a speculative premium. Signaling to drill dampens that expectation and decreases that premium. That is an immediate effect before the drill bit bites the earth.

kristina, you are correct about China and Cuba. At the time I had read the news reports that were linked to George Will. He has since apologized for his error. Is China working with Cuba? Yes.

Regarding you point about gas prices, I completely disagree. Profs Coats and Pecquet speak to your claim. See: http://mpra.ub.uni-muenchen.de/9543/

>>>>>>>
Everyone knows that oil discovered today, perhaps in the Alaskan National Wildlife Refuge (ANWR), has no effect on prices until that oil hits the market. For instance, on its website, the Democratic Policy Committee, (http://www.democrats.senate.gov/~dpc/pubs/107-1-72.html) states that “it will require seven to twelve years from approval before there is any oil production from the ANWR area. Therefore, production in ANWR will have no impact on current or short-term gasoline and oil supplies and prices.” While this is something that everyone seems to know, it is a case that the theory held by everyone just happens to be wrong. Since future prices are expected to be lower, future profits are also lower, so the value of oil not produced now, but held for future sales, is lower, making it more profitable to go ahead and produce and sell now instead of waiting for future profits. Using oil now reduces the amount of oil available for the future, which involves the opportunity cost of forgone future profits, which are sometime called the marginal user costs or scarcity rents. In this paper, we use simple two-period models to show that if an amount of newly discovered oil is significant enough to reduce prices in the future, any drop in future prices reduces the future profitability of oil, reducing the marginal user costs of oil now. That reduction in the marginal user costs reduces the current price of oil just as if there were a reduction in the marginal costs of extracting oil now. We explore the effects of the reduction in marginal user costs in the competitive or price-taker case as well as the price-searcher case, where a monopolist or dominant supplier responds to a substantial discovery by another seller, but where the discovery will not contribute to production for some years to come. In both cases, we find that oil that is expected to reach the market at some time in the future has an immediate impact on oil prices.
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Their paper was rejected by The Energy Journal because the point they made was nothing new. An established fact. Right now about half the cost is a speculative premium. Signaling to drill dampens that expectation and decreases that premium. That is an immediate effect before the drill bit bites the earth.