United States: Energy Policy And Bush´s Low Expectations

If Dickens had written the script for the Bush administration, Low Expectations would be the title. Conservatives have been cautioned time and again to grow up and be thankful for whatever we can get. Having portrayed Bush as a ne’er-do-well frat boy during the campaign, the Left has apparently underestimated his political talents. In either case, the new administration benefits. Except when it comes to energy policy where the expectations are way out of line with reality.

Free marketeers assume that if you free up the petroleum industry from draconian environmental and other regulatory obstacles it will immediately go out and find billions of barrels of oil in our own back yard. Presumably the days when OPEC could set the price, disrupt supplies, and affect U.S. foreign policy would become relics of the past once you allow the free market to work.

The Left assumes, quite cynically of course, that Bush has cut a deal to reward his rich friends at the Houston Country Club with all kinds of incentives to go out and find new domestic supplies of petroleum, all the better to gouge the consumer.

But in either case, no one can tell us where the exploration companies are going to find all of this new oil. We hear a lot about ANWR, the Alaskan National Wildlife Refuge, where estimates of reserves hover around 19 billion barrels. That sounds like a lot, but with American imports at about 6 million barrels a day and rising, it’s not as much as it seems.

Even if the Administration does succeed in getting Congress’s approval to open ANWR for exploration, George Bush won’t see the results until long after his political career is over. It will be close to a decade before the spigots open, and even then we won’t see an appreciable affect on the domestic market. It’s more profitable for the oil companies to ship Alaskan crude to Japan. What’s left over will barely make a dent in our consumption growth. Meanwhile, reserves in the lower 48 are continuing on their historic decline.

Mexico is a potential factor in a truly hemispheric energy policy, and surely George Bush had this in the back of his mind when he began using this terminology shortly after his inauguration. Mexico is not an OPEC member. Their nationalized industry is woefully inefficient. Possibly with privatization and deregulation we could expect to see significant gains in efficiency of production. Maybe they can begin to supply more of our import needs, making us less dependent on OPEC.

But American consumption will still continue to outpace production and the curve just gets worse and worse. That is, unless we take a closer look at Alberta, Canada, which so far has not hit the radar screen of U.S. energy policy makers.

The oil sands in Alberta contain estimates that range between 1 trillion and 2 ½ trillion barrels of crude oil equivalent. Yes, that’s TRILLION. This is more than the entire estimated reserves of conventional petroleum world-wide. Place this against the estimated 300 billion barrels in Saudi Arabia, and you begin to get the picture. With upwards of 2 ½ trillion barrels in our next door neighbor’s back yard, the Saudis may end up having to find new market niches for desert sand in order to maintain their lavish lifestyles. Incidentally, you won’t find any mention of the oil sands in the official OPEC website that otherwise provides accurate data on world oil reserves.

Unlike ANWR, the oil sands are already on line, having developed over the past decade a technology for producing and converting heavy oil at reasonably competitive prices. Pipelines already connect Alberta with the central and southern states and connect with refineries along the way. The industry has invested approximately $20 billion this decade to increase capacity. So what is the problem?

The problem is that the major oil companies are still investing considerably more funds in OPEC countries like Nigeria and Venezuela and in political hotspots like the Caspian Sea Basin where the cost per barrel of production is marginally less than in Alberta. Chevron alone is investing $20 billion in the Caspian Sea, even though there is still no pipeline to connect it with the rest of the world, and even though the American consumer will never see a drop of it. It will fuel the growing economies of South and East Asia.

If the Bush Administration wants to meet the high expectations placed on its energy policy, it will have to become a believer in the oil sands in Alberta as America’s energy lifeline. It needs to develop innovative policies, in conjunction with industry, the Alberta government, and consumer, taxpayer and environmental groups that will spur a much higher rate of investment in the oil sands. The sky is the limit. The current production rate of 900,000 barrels per day will likely increase to about 2 million barrels per day by the end of the decade. It needs to be three times that. At least.

The investment rate is growing to be sure, the result of increased investment all around the globe, what with higher per barrel petroleum prices. But there are reasons why exploration in Alberta is slower still than it could be. Not least of which are the folks in Alberta understandably do not wish their province to become another Houston suburb. But there really is no alternative energy lifeline for the U.S. Some way must be found to redirect the billions being invested by the major oil companies—some might even say misspent—in foreign countries hostile to our interests. If Bush is such a powerful and influential guy in the oil bi’ness, as they say in Midland, maybe he can jawbone his rich friends into investing a little closer to home. Or maybe the American consumer will understand the sense behind guaranteeing a price floor at the pump that will spur increased investment in the oil sands. The bottom line is that Alberta can and should become the source for close to all of America’s petroleum import needs for a couple of centuries. By then we will be driving cars that run on tap water.