Drill baby Drill! vs. Alternatives now!

WNYC's Brian Lehrer show has an awesome series called "30 issues in 30 days," which is a daily segment that he started running late last month. The special segment runs through the end of October and has tackled important issues such as immigration, education, middle east policy, and infrastructure. Last Friday they aired the #1 issue as voted by listeners, and that was energy independence. Drill baby Drill vs. Alternative Energy contains some interesting interviews, such as the one with the guy who traveled across the US in a car that ran on veggie oil, but the interview I want to highlight is the one between David Kruetzer, an energy policy analyst from the Heritage Foundation, a right leaning think tank, and Antonia Juhasz, author of "The Tyranny of Oil."

The debate highlighted the contrasts between the two sides of the energy independence debate - which is the one side's belief that we have enough oil offshore and in places like ANWR so there shouldn't be an urgency to displace oil, or the other side, which says we need start working on replacing oil completely right now. I think I'm in the latter category, although I agree with Senator Obama that it is okay to compromise on additional offshore drilling as long as incentives for renewables are part of the package.

I learn something new every time I listen to a lecture or read a book on energy issues, and listening to their debate was no different. It is well known that the US is #1 in worldwide energy consumption, but did you know that we are #3 oil producing nation in the world? Hard to believe but it is true! (Although Mr. Kruetzer seemed surprised by it!) The full show is at this page or you can listen using the embedded player below.

Omelets without Eggs / Fuel without Oil

Over at the Freakonomics blog, Steven Dubner hints that we could be in the process of witnessing what Austrian economist Joseph Schumpeter called "Creative Destruction."

From his post "Don't Throw out Capitalism just yet."

The turbulence of the U.S. economy has lots of people railing against capitalism itself, and with good reason: capitalism is inherently turbulent. That’s why the legendary economist Joseph Schumpeter called it “creative destruction.” Not only must eggs be broken to make an omelet, but sometimes people may decide they want their omelets made with no eggs at all.

In business school my strategy processor often referred to Schumpeter's theory of creative description throughout our course on renewable strategy. Creative destruction happens when an established process or technology is displaced by newer, more efficient technologies. Think of the iPod replacing the walkman, or DVDs displacing VHS. Schumpeter was one of the earlier figures to discuss business cycles, and his classic book Capitalism, Democracy, and Socialism served as a rebuttal to Karl Marx, who said that capitalism's natural turbulence would eventually lead to it's collapse and it's replacement communism. Schumpeter's response was that, while Marx had a point that periods of capitalism will experience crisis (like we are with energy prices today), but that instead of a collapse of the capitalist system the crisis would motivate capitalists (like a T. Boone Pickens) and entrepreneurs (the Tesla Motors guys) which would lead to the old way of doing things being destroyed and replaced by new ways (wind / solar energy replacing coal and dirty electricity in the case of Pickens, electric cars replacing gasoline powered cars in the case of Tesla).

Periods of creative destruction aren't always as pretty as the iPod example. When an entire industry goes under there can be a lot of pain during the shakeout and transition to new technologies. If this were to happen to the petroleum fuel industry here in the US be negative consequences - jobs would be lost and shareholders would lose money, but in the big picture we would be much better off compared to what typically happens after these massive "gales of destruction." For one, since we would still have a need for petroleum based products such made from plastics and rubber, most of those 150 refineries who would still be in business producing petroleum derivatives including plastics and rubber. Additionally, since our fuels would be grown here domestically, through renewable fuels such as biodiesel or electricity, we would probably end up with a net creation of jobs for our economy.

Furthermore, there would be tremendous benefits to our economy. Our dependence on petroleum means sending upwards of $700 billion a year in oil revenues to foreign oil producing states, and that figure will only get higher the longer we wait to take serious actions to reduce our oil consumption. Sending all of those dollars overseas creates a huge trade imbalance, leading to downward pressure on the value of the dollar. Eliminating or drastically reducing our imports of oil would make the US much more competitive with the nations who have used their flush bank accounts to gobble up foreign corporations and natural resources.

So how likely are we to see creative destruction within the petroleum fuels industry here in the US? The longer oil and gasoline prices stay at these current levels, the more likely that investment into alternatives would increase to the point where we are technologically capable of replacing all of our petroleum based fuels with non-hydrocarbon sources. Creative destruction is a reason why oil states like Saudi Arabia have an incentive to keep oil prices low, and it is the reason why in the past US officials could press the Saudi Royal family into increasing their supply of oil to the marketplace, and once the Saudi's turned on the spigots, the price of crude oil would drop upon a moment's notice. However, this strategy is no longer effective. The Saudis, the largest producers of oil in the world, are now worried that their supplies may be diminishing. It has been documented that some of the largest Saudi Arabian oil fields are approaching their peak production. The Wall Street Journal's Environmental Capital blog had a post on the Saudi oil supply situation not too long ago and I encourage you to read it. Here is an excerpt from some of their interviews:

Even in Saudi Arabia, home to more than a quarter of the world’s known recoverable reserves, the age of cheap and easily pumped oil is over. To tap Khurais, Saudi Arabian Oil Co., known as Aramco, has embarked on the most complex earth- and water-moving project in its history. It is spending up to $15 billion on a vast network of pipes, oil-treatment facilities, deep horizontal wells and water-injection systems that it calls “one of the largest industrial projects being executed in the world today.”

Think Global Warming and the potential for catastrophic climate change is scary? What if top oilman from the largest producer of oil said that their oil was running out?

“Khurais and [offshore field] Manifa are the last two giants in Saudi Arabia,” says Sadad al-Husseini, a former Aramco vice president for oil exploration. “Sure, we will discover dozens of other smaller fields, but after these, we are chasing after smaller and smaller fish.”

After reading the books such as "Oil on the Brain" and following the great Oil Drum blog I'm more worried about us not quitting our dependence on oil before we reach the peak of global oil supply. The risk of a global economic collapse due to an insane increase in crude oil prices could easily result in the next world war if we're not ready to replace oil. This is more likely to happen during my lifetime or your lifetime any of the catastrophic event that are supposed to be a result of global climate change.

The looming crisis of global peak oil and the results of that crisis are why we need to embrace creative destruction by saying goodbye to gasoline powered vehicles and hello to the era of electric vehicles, hydrogen fuel cells, and other sources of renewable fuels. We can actually create more jobs here in the US by depending on home grown fuel sources, such as cellulosic ethanol, and clean electricity from solar, wind, and geothermal plants. Trying to drill for more oil domestically, which most Republicans are calling for, and now some Democrats are calling for, would only delay the inevitable, which is the absolute necessity that our society stops using petroleum for fuel.

21 billion barrels in proven oil reserves won't last long

So John McCain caught wind that the United States has 21 billion barrels of domestic proven oil reserves. That was his justification for lifting the federal ban on offshore drilling during his love fest with the oil and gas industry in Houston earlier today. Regardless, the fact that we do have 21 billion barrels of oil reserves shouldn't give anyone any comfort since the United States will consume that amount within fewer than three years. McCain's solution is a short term fix that chooses political expediency over energy independence for future generations.

Below is a table of the top oil consuming nations. The US consumes about 21 million barrels of crude oil a day. This is a little over 7.6 billion barrels a year, and that figure will rise as our daily consumption rises. It should be clear that 21 billion barrels is not that much crude oil and not worth the cost that comes with offshore drilling and drilling in environmentally sensitive areas.

For John McCain and those fact-challenged Republicans who think that drilling in ANWR and off of our shores is the solution, I suggest you start educating yourselves. A good place to start is the wonderfully informative The Oil Drum blog.

World Oil Consumption for 2007

#1	United States:	20,730,000 bbl/day
#2	China:	6,534,000 bbl/day
#3	Japan:	5,578,000 bbl/day
#4	Germany:	2,650,000 bbl/day
#5	Russia:	2,500,000 bbl/day
#6	India:	2,450,000 bbl/day
#7	Canada:	2,294,000 bbl/day
#8	Korea, South:	2,149,000 bbl/day
#9	Brazil:	2,100,000 bbl/day
#10	France:	1,970,000 bbl/day

No longer a Maverick

John McCain, Republican nominee for President and the artist formerly known as "the maverick," now supports lifting the federal ban on offshore drilling. Today, John McCain spoke to the big the oil companies in Houston and has told them that the answer to high gas prices is to drill for oil off the shores of places like Florida, a state the relies on heavily on its beaches and ocean wildlife for its tourism industry. John McCain is now going along with the Republican party line that says the United States should start drilling in federally protected lands, such as the Alaskan National Wildlife Refuge (ANWR), and said that the individual states should have the right to "choose to permit exploration" on these lands.

The problem that McCain and most Republicans, including my Congressman, Tim Murphy, have is that the volume of oil reserves in places like ANWR is so small that its impact on oil prices in the global market would be negligible. A recent report (May 2008) by the US Department of Energy Report agrees, and concluded the following:

Additional oil production resulting from the opening of ANWR would be only a small portion of total world oil production, and would likely be offset in part by somewhat lower production outside the United States. The opening of ANWR is projected to have its largest oil price reduction impacts as follows: a reduction in low-sulfur, light crude oil prices of $0.41 per barrel (2006 dollars) in 2026 for the low oil resource case, $0.75 per barrel in 2025 for the mean oil resource case, and $1.44 per barrel in 2027 for the high oil resource case, relative to the reference case.

So the DOE report states that drilling for oil now would only move oil prices by about 40 to 50 cents a barrel. What does this do for us at the pump? This translates to an average savings of around how about 5 to 6 cents for a gallon of gasoline. The report also mentions that the crude oil wouldn't even be available to refineries until 2013. So how does that help us now John McCain?

It doesn't, and it should be clear that the negative impact on wildlife in ANWR is not worth the tiny benefits resulting from drilling for oil there. But John McCain doesn't see things this way. Here is an excerpt from his speech to the energy industry down in Houston today:

Quite rightly, I believe, we confer a special status on some areas of our country that are best left undisturbed. When America set aside the Arctic National Wildlife Refuge, we called it a “refuge” for a reason.

But the stakes are high for our citizens and for our economy. And with gasoline running at more than four bucks a gallon, many do not have the luxury of waiting on the far-off plans of futurists and politicians. We have proven oil reserves of at least 21 billion barrels in the United States. But a broad federal moratorium stands in the way of energy exploration and production. And I believe it is time for the federal government to lift these restrictions and to put our own reserves to use.

We can do this in ways that are consistent with sensible standards of environmental protection. And in states that choose to permit exploration, there must be an appropriate sharing of benefits between federal and state governments. But as a matter of fairness to the American people, and a matter of duty for our government, we must deal with the here and now, and assure affordable fuel for America by increasing domestic production.

We should set the highest goals for ourselves for the years and decades to come, and I am a believer in the technologies that one day will free us from oil entirely. But to get there at all, a more pragmatic approach will serve us better. In the short term, we must take the world as it is and our resources where they are – even as we press on with new and cleaner sources of energy. We must be bold in our plans to break our strategic dependence on oil, and over the next two weeks, I’ll be offering a vision that will be bold. But we must also address the concerns of Americans, who are struggling right now to pay for gasoline, groceries, and other necessities of life.

What is certain in energy policy is that we have learned a few clear lessons along the way. Somehow all of them seem to have escaped my opponent. He says that high oil prices are not the problem, but only that they rose too quickly. He’s doesn’t support new domestic production. He doesn’t support new nuclear plants. He doesn’t support more traditional use of coal, either.

Each major election year the Republican party call for drilling in ANWR and try to blame the Democrats for the high oil prices since they are blocking drilling on that land. Not too long ago I received a mailer from my congressmen, Tim Murphy, that showed a map of our oil reserves and said that in order to lower gas prices we must drill off shore. This is pure political BS and it shows a lack of knowledge of the realties of the geopolitical world of crude oil. In 2004, a similar report from the DOE said the same thing as the 2008 report, but that didn't stop the Republicans from politicizing high oil prices back then either.

Here is the link to McCain's speech, and here is one to the DOE report on ANWR from May of 2008. John McCain may be one of the few Republicans who believe in Global Warming and Climate Change, but lately it seems like he is more likely to follow the non-leadership of the Bush administration on ending our dependence on foreign oil, since focusing on diminishing domestic oil reserves instead of new forms of renewable fuels is just delaying the inevitable - which is the economic catastrophe that results when global peak oil is reached and oil prices are so high that today's $4 a gallon for gasoline looks cheap.

U.S. House passes Renewable Energy Standards for Publicly traded utilties - oil company tax cut rollback is up next

Good news so far.......the House approved a measure for a federal mandate that all publicly traded utility companies produce at least 15% of their electricity from renewable sources. This is a big win indeed. Although some states, such as California, are already ahead of the federal government on this requirement, this is still a big deal because it sets the floor at 15% instead of allowing some states to set very low thresholds while overruling the states which do not even have a standard.

Next up - Congress must pass a measure that will roll back $16 billion in tax cuts to the oil companies. Some of the funds from these tax cuts, if rolled back, would go towards incentives for renewables and cleantech development. The oil industry lobbyists, and the slimy congressman who are in bed with the oil companies, are fighting the tax cut roll back intensely, saying it will hurt our domestic oil production.

"We have been down in the trenches fighting (this) proposal tooth and nail," said Tom Kuhn, president of the Edison Electric Institute, the trade association for the investor-owned utility companies. Lobbying powerhouses such as the U.S. Chamber of Commerce and National Association of Manufactures also have fought the proposal.

In the trenches.......that is laughable. Are these individuals, the congressman, the utility companies, and the supporters of big coal and oil, so out of touch with public opinion? I am against an "excise" profits tax, something some of the Democrats have argued for as companies like Exxon are raking in record profits. That is just too anti-capitalist to me. I am all for taking away their tax cuts and using them as subsidies for green energy initiatives . These corporations are in existence today, and making the billions of profits today, because you and I, as consumers, have supported them over the years with our hard earned dollar. The oil enterprise does not exist just to please shareholders - it has to give something back to society. Letting go of tax breaks and investing in renewable fuels is a fair deal.

Here is a suggestion for those that are threatened by the green movement. It is time the oil companies do what great companies do and have done over time - adapt, evolve, and re-invent. The green energy train has already left the building. The oil companies realize their monopoly on fueling our vehicles is waning. They are fighting tooth and nail to hang on to what they have, but if they continue to try to fight it they are only going to aggravate you and I even more, and we will continue to put more emphasis on electing officials who look out for our interests before theirs. If these companies got on board and started investing more seriously in renewable fuels, rather than just spend a few million on BS marketing, we might be able to get somewhere on this issue.

Exxon Chief Cautions Against Rapid Action to Cut Carbon Emissions

Rex Tillerson, who leads the world’s largest publicly traded company, gave an unalloyed defense of the oil industry and predicted that hydrocarbons would dominate the world’s transportation as energy demand grows by an expected 40 percent by 2030. At an industry gathering Mr. Tillerson, like President Bush, finally admitted that we are experiencing climate change due to global warming. However, Tillerson brushed off alternative fuels during talks with reporters at the "major industry gathering" and said "There is no significant alternative to oil in coming decades and Exxon will continue to make oil and natural gas its primary products."

This is in-step with the empty rhetoric I have read on the corporate websites and heard coming from the mouths of managers and recruiters from Chevron, ConocoPhillips, and even Exxon who come to recruit graduating MBAs at top business schools each year.

While I do believe Exxon has a right, as publicly traded company, to pursue profits, I also agree with the late great Peter Drucker that the pursuit of financial profits and social responsibility go hand in hand.

Full coverage at NYT.com