(Reposted from Group News Blog, 2008.06.19. This was written for an American audience with an American voice.)

Newt Gingrich, primary beneficiary of the 1994 “Contract with on America“, has started a “Drill Here. Drill Now. Pay Less.” ad campaign in conjunction with last year’s book, A Contract with the Earth. In classic Newtian fashion, DHDNPL breaks down into a small set of bullet points:

• We have problems:
  • Dictators controlling US energy supplies
  • Billions of US dollars going overseas
  • Airline industry in trouble
  • Trucking industry in trouble
  • Food prices up
• This is “a politician’s energy crisis”:
  • Liberal politicians deny us:
  • • nuclear power
    • clean coal
    • shale oil
    • offshore drilling
  • We need to get the price of gasoline down in the short term
  • We need to increase alternative sources of fuel in the long term:
    • Hydrogen
    • Nuclear Power
    • Solar Energy
    • Wind Power

Let’s look at them one by one and then overall, shall we?

We Have Problems

Absolutely, we do. No one paying $4 or more for a gallon of gas can deny that. And every one of Newt’s bullet points is at least arguably true, even if his explanations for them are sometimes not so.

The US imported between 12.75 and 14 million barrels per day (Mbpd) during the month of May 2008 against a monthly average usage during Q1 2008 of between 19.75 and 20.8 Mbpd. That translates to importing about 2/3 of our petrochemical usage at a daily cost of $1.7 billion (assume 13.33 Mbpd @ $130) or about $630 trillion annually.

The Top Ten countries of origin for US petrochemical imports are (in kbpd, March 2008): Canada (2542), Saudi Arabia (1542), Mexico (1358), Nigeria (1174), Venezuela (1033), Iraq (772), Algeria (441), Russia (402), Angola (388), Virgin Islands (290). I think it’s reasonable to consider that Canada, Mexico, Venezuela, and the Virgin Islands (about 5.2 Mpbd between them) are not ruled by dictators (although reasonable people can disagree) vs. 4.7 Mbpd that are. That still leaves 2.8 to 4 Mpbd unaccounted for, and countries like Libya and Azerbaijan on that list are certainly dictatorships, but I just can’t put the Bahamas, Belgium, France, and Germany on that list.

Not All Problems are Energy Related

The Airline industry is certainly in trouble. But that’s nothing new. In the 30 years since US deregulation of the airline industry, losses top gains by $13 billion, largely caused by overcapacity and the resulting downward price pressure. Energy prices don’t help, but the industry wasn’t making money when oil was cheap, either.

The Trucking industry is also suffering, but for different reasons. The average long-haul truck gets about 6 mpg in the US (other sources say 4.5 to 7.5), whereas Canada averaged 7.15 mpg in 1999. I read an article (can’t find a source) suggesting that 10 mpg was within reach. In 2003, it was suggested that $1.40 diesel would drive truckers to improve their aerodynamics, tires, and transmissions. High speed raises fuel usage, and up to 50% of engine hours are spent idling. There are huge gains to be made by simple procedural efficiencies.

There is a lot of press about worldwide food prices. Some suggest that biofuels are causing the rise. But world coarse grain production peaked in 1996-1997 at 907 million tons and declined to 860 million tons in 2000-2001. Inconsistency in crop yields has reduced grain inventories worldwide. The cost of petrochemicals has unquestionably transferred some grain from food use to fuel use, but the essential problem of grain supply was with us before the current oil price rise. We have relied upon the “Green Revolution” to increase global food production and in doing so have outstripped our available carrying capacity.

Liberal Politicians Have Nothing to do With These Problems

In Newt’s reality, we don’t have infinite nuclear power, clean coal, oil shale derived petrochemicals, and energy independence because of offshore drilling because of “liberal politicians”.

Aside from the fact that conservatives controlled the entire executive and legislative branches of government for several years there, Newt’s blamefest for liberal boogiemen lacks foundation in other ways. Both Congress and President George H. W. Bush have prevented offshore drilling: the 97th US Congress (House controlled by the Democratic Party 244 - 191, Senate by the Republican Party 53 - 46 - 1) banned offshore oil drilling in 1981; the first President Bush’s executive order banned coastal oil exploration in 1990. It’s hard to see how a split Congress and Bush 41 can be considered “liberal politicians”.

Nuclear power has been stalled in the US since the Three Mile Island accident in 1979. No new plants have been built since 1973, although there are now multiple applications for nuclear plants before the NRC (pdf). Environmental concerns undoubtedly played a part in the unofficial moratorium, but low petroleum prices and an institutional switch to natural gas were almost certainly more important factors.

Clean coal has been a priority of the DoE during the present Bush administration. And isn’t it funny how lack of action by energy companies becomes “liberal politicians locking us out of clean coal” while the Chinese work on it? Free marketeers like Newt always say that government incentives are distorting the market until they want incentives for their pet projects, and then the lack of those incentives is suddenly the fault of “liberal politicians”. Clean coal is a wonderful idea if it can be done, but the fact that it’s not happening is not about liberal politicians blocking it, it’s about technical difficulty.

Oil shale? Like the Canadian tar sands, oil shale is tremendously dirty and difficult to extract economically. In Alberta, two-thirds of the extracted energy goes into the extraction process, along with huge volumes of water. It’s not clear yet that the tar sands are energy positive and the ecological impact is enormous and obvious. Oil shale will be the same way in the US. We are not ready yet to safely and economically extract that energy, and we may never be ready. Liberal policies have nothing to do with it.

Gas Prices in the Short Term

The price of gas in the short term is driven by supply and demand, with additional complicating factors. Oil production* worldwide is about 86 Mbpd and closely matches demand. However, excess extraction capacity in the OPEC nations has dropped precipitously in the last few years. According to J. L. Williams at wtrg.com, OPEC spare capacity has dropped from 6 million bpd to under 2 million:

In mid 2002, there was over 6 million barrels per day of excess production capacity and by mid-2003 the excess was below 2 million. During much of 2004 and 2005 the spare capacity to produce oil was under a million barrels per day. A million barrels per day is not enough spare capacity to cover an interruption of supply from most OPEC producers. In a world that consumes over 80 million barrels per day of petroleum products that added a significant risk premium to crude oil price and is largely responsible for prices in excess of $40-$50 per barrel

Without significant spare capacity, we lack extraction buffers against short-term supply interruptions like those happening in Nigeria or the 2006 pipeline shutdown in Alaska. Instead, we must rely upon post-extraction storage buffers like the US Strategic Petroleum Reserve.

*Oil “production” is more properly termed “extraction” because the process does not “produce” anything but merely “extracts” existing petrochemicals from one reservoir (presumably a natural one) into another (presumably an artificial one). I prefer the more correct term “extraction” not only because it properly explains the process, but because it reminds us that we are dealing with a fixed existing supply of material instead of the expandable output of a production line.

In the short term, supply and demand fundamentals explain a great deal about oil and gas prices. Concerns about future supply include militarism, nationalism, activism, accidents, weather, and resource nationalism. Some believe that these non-supply factors may account for $50/bbl of cost. Others believe that fundamentals adequately explain oil at $150 or even more. Others think we have plenty of oil and this is all some sort of speculator-driven conspiracy.

Alternatives in the Long Term

The best way to encourage alternative energy development is a combination of high energy prices and public policy. If public policy says that government will subsidize or prefer clean or renewable energy, then the market should respond relatively quickly. It is the very cheapness of petrochemicals (and the widespread externalization of pollution and other negatives) which has prevented the development of alternatives to this point. If we are in favor of non-petrochemical energy sources, we should be pleased about high petrochemical prices. I know it’s hard, but that’s why they call economics “the dismal science.”

As for specific alternatives Newt likes, hydrogen isn’t an energy source, it’s just a storage medium. One of the major problems facing us is that petrochemicals are very energy dense. We can’t build batteries that store energy nearly as well as gasoline does. Hydrogen (possibly in some kind of aerogel frame) is pretty promising in that regard.

Nuclear power has a definite place in our future, especially if pebble-bed reactors pan out. If so, we add 85 years of uranium (at current usage levels) to our energy supplies. Nuclear fission power is thus a bridging technology, which is exactly what we need while we finish developing long-term sustainable systems.

Solar, hydro, and wind power are true renewable technologies, and the high price of petrochemicals is encouraging development and deployment around the world. Subsidies would speed up deployment, but the market is taking care of that so long as the cost of oil remains high.

Typical Conservative Bullshit Posturing

“Drill Here. Drill Now. Pay Less.” is a typical piece of bullshit Conservative posturing. Most of Newt’s supporting points aren’t, but that’s not the worst of it. The solution won’t solve any of the problems. Studies of ANWR show that drilling there will yield maybe $.01/gallon improvement in gas prices. In 2025. ANWR would deliver 875 Kbpd at peak and a total of about 10.4 billion barrels. Bush’s plan for offshore drilling alleges 18 billion barrels, so we might suggest that the offshore flow would be double ANWR or about 1.7 Mbpd and so we might get another 3 - 5 cents off each gallon of gas.

In return for that 4 - 6 cents off a gallon of gas, this is what we get: Oil spills. This is the 1979 Ixtoc I spill — the largest accidental oil spill in history (only the deliberate release of oil during Gulf War 1 was larger) — 140 million gallons spilled over at least six months. Despite Newt’s lie that Hurricane Katrina couldn’t knock out modern oil platforms, Katrina destroyed at least 46 platforms. And let me remind you that Exxon has still not paid their fine for the 1989 Exxon Valdez spill in Prince William Sound.

What DHDNPL will do is enrich American oil companies. As resource nationalism denies them access to major fields in Russia, Venezuela, and the Middle East, the non-national oil companies like ExxonMobil, RoyalDutchShell, and Chevron are trying to ensure their access to other sources. I’m sure that if politicians were to arrange for offshore drilling to be allowed in the US, they’d be richly rewarded.

Oh. I guess they already are.

Disclosure: I am passively invested in the extraction side of petrochemicals. I do not own stock in or have any active (decision-making) relationship with any company mentioned in the post.