Ever since oil prices, and with them gasoline prices, began plummeting last fall, the trend has been portrayed in varying forms as a “gift” or an “early holiday present” or a “tax rebate” for consumers, who are expected to give thanks for this free stuff.
North Dakota’s thriving oil and gas industry accounts for nearly one in seven private-sector jobs covered by unemployment insurance, according to data that could have a big impact on how tax revenue flows to oil-impacted cities, counties and school districts.
Correlation or causation, correlation or causation
Misleading numbers, mistaken assumptions. Who will be the joker?
Okay, I am neither poet nor composer. I can’t even sing. But Fiorello Laguardia was an early hero from the time I met him in my sixth grade history books, and the musical Fiorello! was good fun.
Mayor Laguardia would be amused and bemused by recent articles suggesting that the Monterey Shale isn’t what it was cracked up to be a year or two ago. The story lends itself to his famous encounters with comic books. Despite earlier media hype, its development will not lead to economic nirvana for California and could well lead to real environmental problems.
Why were the numbers that were put out by the oil industry just a couple of years ago wrong? Maybe because of a bit of politics and polka! The articulated slogan concerning oil independence from foreign countries mesmerized many who should have known better.
Similarly, why, while once accepted by relevant federal agencies, have the production numbers concerning the Monterey Shale been recently discounted by the same agencies (EIA) and independent non-partisan analysts? Quite simply, they now know more. Succinctly, it’s too expensive to get the oil out and the oil wells, once completed, will have a comparatively short production life.
Drilling an oil field that is located under flat land is easier than drilling for very tight oil — oil that lies underwater or under a combination of flat as well as hilly, rolling, developed, partially developed or undeveloped areas known for their pervasive, pristine, beautiful environment. Further, the geological formations in the Monterey Shale area are a victim of their youth. They are older than Mel Brooks, but at 6-16 million years, the Monterey Shale is significantly younger than The Bakken. Shale deposits, as a result, are much thicker and “more complex.” According to David Hughes (Post Carbon Institute, 2013), existing Monterey Shale fields are restricted to relatively small geographic areas. “The widespread regions of mature Monterey Shale source rock amendable to high tight oil production from dense drilling…likely do not exist…” “… While many oil and gas operators and energy analysts suggest that it is only a matter of time and technology before ‘the code is cracked’ and the Monterey produces at rates comparable to Bakken and Eagle Ford,” this result is likely is not in cards…the joker is not wild. “Owing to the fundamental geological differences between the Monterey and other tight oil plays and in light of actual Monterey oil production data,” valid comparisons with other tight oil areas are…wishful thinking. Apart from environmental opposition and the costs of related delays, the oil underwater or underground in the Monterey Shale is just not amenable to the opportunity costing dreams of oil company CEOs, unless the price of oil exceeds $150 a barrel. According to new studies from the EIA, the recoverable reserves, instead of being as it projected earlier from 13.7 to 15.4 barrels, will be closer to 0.6 barrels.
If you believe in “drill, baby, drill” as a policy and practice, the cost/price conundrums are real. Low costs per barrel for oil appear at least marginally helpful to consumers and increases in oil costs seem correlated with recessions. Increased production of tight oil depends on much higher per barrel prices and, in many instances, increased debt., Neither in the long term is s good for the economic health of the nation or its residents.
Breaking the strong link between transportation and oil (and its derivative, gasoline) would make it easier to weave wise policy and private-sector behavior through the perils of extended periods of high gasoline prices and oil-related debt. Expanding the number of flex-fuel vehicles (FFVs) through inexpensive conversion of older cars and extended production of flex-fuel vehicles by Detroit would provide a strong market for alternative transition fuels and put pressure on oil companies to open up their franchises and contracts with stations to a supposedly key element of the American creed-competition and free markets. The result, while we encourage and wait for renewable fuels to reach prime time status, would be good for America, good for the environment and good for consumers.
My favorite automobile service group — the AAA — has once again treaded without fear or trepidation into analysis. Remember earlier, when it suggested that E15 harms engines, based on what looked like an oil-industry-generated study? The AAA’s methodology was weak and its conclusions suspect, a judgment supported by the EPA’s response. According to the agency, AAA’s conclusions were erroneous and based on a limited sample. EPA’s own findings were generated from a relatively large sample of cars, indicating that E15 is safe for most engine types and reaffirmed the wisdom of its approval of E15 usage.
I was surprised to find an article in Oil Price by blogger Daniel Graeber, based to a large degree on comments from AAA’s Michael Green suggesting that the oil shale boom has prevented gas prices from going higher than they are now. Graeber approvingly quoted Green, who said, “Sadly, the days of cheap gasoline may never return for most American drivers despite the recent boom in North American crude oil production.” Assumedly, Green meant that the cost of drilling tight oil will remain high and the costs per barrel of oil will follow suit.
Green apparently went on to indicate that political leaders, particularly, members of Congress who argue for a drill-baby-drill policy, are wrong to link more wells to significant price relief for folks who find gas costs a real problem.
The AAA is right when it suggests that, despite the oil shale boom and signs of increasing demand in America, refineries are sending increased amounts of oil-based products overseas. Understandably, their patriotism doesn’t extend to accepting a lower price for oil in the U.S. when they can get higher prices overseas.
The article appears inconsistent, when at one point it mentions that crude oil inventories are running above average, and later blames current exports for low supplies and low supplies for preventing a drop in prices at the pumps.
Both are correct in indicating sales of oil products abroad probably do have an effect on costs-up to now probably marginal. Certainly, if Washington extends export privileges, increased sales of oil abroad may have a more significant impact on consumer costs. More relevant, however, concerning gasoline costs at the pump, will be economic recovery in the U.S., investor speculation and the oil sector’s ability to manage prices.
Cheap oil has been, recently, and likely will be in the future, a fantasy. The cost of oil per barrel has hovered at around $100 and upward for an extended period, and drilling in shale is relatively expensive. Continuous exogenous and existential (don’t you like those words — they create great passion and emotion) threats from the Middle East and Eastern Europe, also, will likely tilt oil prices upward in the near future.
I would commend the AAA, assumed by many to be the leading advocate for automobile owners in the nation, for grasping the fact that the behavior of producers is likely to lead to higher gas costs and create burdens, particularly for low and moderate-income groups. Now with this knowledge, shouldn’t the AAA argue for breaking oil’s near monopoly on fuel? If the AAA was really interested in helping vehicle owners lower their cost of fuel, it might take the lead in arguing for choice at the pump. Wouldn’t it be great if they really stood up for more open fuel markets as well as alcohol-based transitional fuels, such as ethanol and methanol? Competition at the pump from flex-fuel vehicles, combined with conversion of older vehicles to flex-fuel cars would, over time, mute increases in gas prices and, at the same, time generate environmental benefits for a better America. Support for alcohol-based fuels is consistent with support for renewable fuels, if one is concerned about the environment and GHG emissions. Let’s bring them on as fast as we can. But let’s acknowledge that renewable fuels are not really ready yet for prime time. They are too expensive for many Americans and their technical limitations, particularly concerning electric batteries, are not yet coincident with the desires of most Americans.