Don’t open up the champagne just yet – drilling for an oil surplus

Open up your paper this morning or, if you are new age and don’t remember the blessings of a cup of coffee and a real newspaper, open up your digital morning read on your smartphone, computer or tablet. You will see two different kinds of stories, which, taken together, appear inconsistent. Gas prices are rising again throughout the U.S. and causing increased fuel costs. But don’t fret too long! Salvation is near.

Stories in several leading papers and magazines (among them, the NY Times, the Wall Street Journal, the Orange County Register and the Economist) suggest that increased oil drilling in the U.S., combined with recent oil company leases on the federal Bureau of Land Management land in the Monterey Shale (18,000 acres) will soon make the U.S. and California awash in oil. If California’s producers avoid manipulating prices, if refineries avoid breaking down and oil companies fix the state’s distribution system, lots of gasoline at lower prices will be available in the nation and the Golden State.

Some in California are absolutely orgiastic. Combined with Gov. Jerry Brown’s budget magic and the anticipation of higher taxes paid by oil and oil-related companies, as well as jobs created by the oil industry, California will once again become the Golden State – only this time the gold will be in dollars and not just the state’s sunsets and beautiful landscapes. Back to the future! Instead of the mid-1960s electric billboard near the Bay Bridge, touting California’s population growth and the fact that it would soon have more population than New York, a new solar energy powered sign (a concession to the environmentalists) would show manna falling from heaven or, more appropriate, flowing up from oil wells.

money from frackingRemember the popular song, “I Can Dream, Can’t I”? Go ahead, dream. It’s good therapy and the nation needs it, given its shaky economy and inability to generate a civil and civic dialogue over key energy policy issues, whether issues are general, like fostering use of innovative but “not ready for prime time renewable energy,” or strategic and immediate, like opening up the now-restrictive gas market and the use of alternative transitional fuels to reduce oil imports and dependency. But if you believe, because of the rhetoric being spawned by oil companies and their allies, as well as some in the media and a few economists, that America will become energy independent and that relatively low gas prices, without further initiatives, will be sustained for long periods of time, I know someone who will sell you the proverbial Brooklyn Bridge or maybe the recently painted (and prettier) Golden Gate Bridge. I did leave my heart in San Francisco!

Look, most of the drilling now going on in America is for tight, expensive-to-drill oil – underwater and on land in shale. Gone are the days that we get oil out of the ground easily and for minimal costs. As a result, oil per barrel, at last reading, was well in excess of $100, one of the factors generating higher gas prices. Moreover, as I have said in previous columns, much of the oil thought to exist in California’s Monterey Shale and the Arctic Circle, for example, lies under land or water that are national environmental assets. Hard-to-get-at tight oil drilling is more than an economic issue; it is also a political and legal one. Efforts by national, state and community leaders will slow down or delay drilling (fracking and horizontal drilling) until reasonable, effective regulations are set in place to avoid toxic emissions and water pollution. I believe Americans can find technological solutions to drilling issues, but it will take some time and good will on the part of the industry, environmentalists and others involved from states and communities throughout the nation. Don’t count the barrels from the Monterey Shale or the Arctic and other sensitive area of the nation quite yet. (Already, by the way, many experts have lowered the anticipated yield from the Monterey Shale).

Oil companies will not, all of the sudden, turn philanthropic. They will continue to sell oil to the highest bidder, even if that bidder is located overseas…sometimes in less than friendly or in unfriendly countries. Check the data if you doubt me. America’s exports and imports constitute a large amount of oil activity every day. This is how it is; this is how it will be for some time into the future. The oil market is a global one. Nearly 20 percent of our oil now comes from the Gulf States; most of which is from Saudi Arabia – our new namesake. Read the headlines – according to the media, what is going on now is the “Saudization” of America. Why sell oil in America, if you’re a producer, when you might be able to secure higher profits by selling oil in China, India, South America, Europe and even the Middle East. Put another way, “drill, baby, drill” policies do not assure “low, baby, low” gas prices at the pump. This fact will become more important if the tensions in countries in the Middle East, Mexico and Venezuela increase, as they probably will in the near future, and if the economies of the west and Asia show significant improvement.

Can we do anything to reduce the up and down prices in the costs of gasoline? Can we do anything to dampen long-term trend lines that suggest major increases in the cost of gasoline harmful to the economic and social welfare of this nation? Can we do anything, before we are able to secure cars fueled by renewables that will appeal to low, moderate and middle income households? Can we reduce dependency on oil imports? Can we mitigate the security issues to this country resulting from dependency on oil?

Hate to borrow an old campaign slogan…but, yes we can!

If the U.S. moved to open up the near-monopolistic transportation fuel market to alternative fuels – fuels that are safer, cheaper and environmentally better than gasoline – the competition with gasoline would generate lower prices and would flatten gas spikes over time. Indeed, if fuel costs went low enough and demand for gasoline was reduced through competition, the cost per barrel of oil would likely go down to near $70, reducing producer incentives to drill in high-cost, sensitive environmental areas. Remember Abba Eban, former Israeli Ambassador to the U.S.? He once said that the “Palestinians never miss an opportunity, to miss an opportunity.” Whether he was right or wrong about the Palestinians, they are not the subject of this column. However, as Americans, we have an opportunity now to open up the fuel market to competition and we should take that opportunity. I can dream, can’t I?