And your evidence of this is what, Justin? Blog chatter from the oil-hating leftosphere?

Here’s my evidence…

The “too much supply” part of the argument comes from the Wall Street Journal…

LONDON — While politicians urge crude-oil producers to increase output to cool off record-high prices, traders of physical crude oil say their market is suffering from too much supply, not too little.

And the “not developing” comes from this report (.pdf) from the Committee on Natural Resources…

In the last four years, the Bureau of Land Management has issued 28,776 permits to drill on public land; yet, in that same time, 18,954 wells were actually drilled. That means that companies have stockpiled nearly 10,000 extra permits to drill that they are not using to increase domestic production.

Now, about that highly credible op-ed piece that’s written by a lobbyist for Big Oil…it’s ironic that in an article titled “The ‘Idle’ Oil Field Fallacy”, Cavaney seems to make one while arguing it.

First, he makes the point that it takes a lot of time, money and hard work to drill on public lands, and even then there’s no guarantee that there will be anything available. And sure, I think that’s common knowledge since drilling is a highly speculative business.

However, he then says this…

For exploration to take place, our companies need access to the areas – offshore and onshore – that we know have the potential to produce the oil and natural gas consumers will need, if ours is to remain a viable economy in an increasingly competitive global marketplace.

So how can he claim that there are no guarantees, but then turn around and claim a near certainty with “we know have the potential?” Potential for what? More wasted time?

Also…remember those 10,000 undeveloped leases from the Committee’s findings.

When you consider how long and hard Cavaney claimed it would take to drill, do you think the oil companies could be buying up leases so they can keep the competition out of those areas, but not be developing the land since it is so time consuming and expensive?

After all, as I’ve demonstrated above, there’s really no problem with supply in the marketplace, and the oil companies are making record profits, so what would be the motivation to actually drill more in places that are highly speculative?

Even Cavaney acknowledges that leases go completely undeveloped…

In addition, if the company does not develop the lease within a certain period of time, it must return it to the federal government, forfeiting all its costs. All during this active exploration and evaluation phase, however, the lease is listed as “nonproducing.”

And that’s pretty much all I have to say about that. I believe the Committee’s numbers and you believe a lobbyist.

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About the 8 cents math, I think you’ve made a compelling case that his numbers aren’t solid.

So are you saying that it would be 80 cents instead? What IS the math?

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Concerning the Fischer-Tropsch’s, coal to oil method, I agree it could be compelling and I’ve written about this in 2005, but I will say it again…the problem is not supply.

Also, given current climate change issues, we should be investing in these more renewable and sustainable sources. And yes, I know there are multiple stages to investing in this (initial and maintenance), but it should happen sooner rather than later.

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Last, about algae oil…I’ve read about this and it sounds too good to be true. First there’s the cost per barrel issue they’re currently working on, but then there’s the massive question mark about how they’d address capacity. Because I’m sure you’re well aware at how they grow this stuff. It doesn’t seem scalable, even though they say it is. Neither does anything that has to do with bacteria growing oil, etc.

However, maybe I’m missing something. I’ve only seen a couple articles about it.

To get back somewhat to the subject of the post – my Governator. I agree with him on both counts. The federal ban on offshore drilling should be lifted. This is clearly an area that the states can and should make the decision for themselves. Same story if Alaskans want to drill in the .011% of ANWR. fine. Their governor is reflecting the will of the Alaskan people and the feds should permit drilling. No problem.

That said, Arnie is not going to support more off-shore drilling here in California. Unlike Alaska, the people of Ca don’t want it. I’m good with that too. I don’t want to see any drilling off of our Northern Ca coast. I don’t want to risk my abalone and salmon fishery any more than they are already stressed. OTOH, I don’t care about Southern California. They can drill all they want. I don’t really consider them part of the same state anyway.

And your evidence of this is what, Justin? Blog chatter from the oil-hating leftosphere? If they’re PUMPING PLENTY OF OIL why are there supply shortages sufficient to boost prices as far as they’ve gone? Here, take a glimpse at how public-land leasing REALLY works. I do a fair amount of contract work for indie oil companies, and I spent a year once acquiring leasing rights as an agent–I know for a fact that less than 15% of the 10-year leases I acquired ever qualified for drilling at all, less than half of those were actually drilled inside the lease period due to the price of oil not justifying the gamble, and of those maybe half produced an actual profit. Yet all of them had to be paid every year unless the leasing company went bankrupt.

Now, call up an oil services company and ask them what their current time backlog is on leasing equipment now that prices have gone up 50% in under a year…if we never open the markets for broadened exploration, we’ll never have the equipment to do it. The idea that we can just turn on the tap is idiotic. It doesn’t work that way. We’ve had several clear warnings over the last few decades that we needed to expand domestic production, and the Dems in Congress have stifled it each time with the same old “it would take ten years” line. But they’ve been saying that for over three decades…and in that time both Canada and Mexico have nearly doubled their production, while ours has fallen. (Oh and BTW, you do know that Big Oil is international, not American? That 95% of producing world reserves are owned by government-owned companies? And that NONE of those are American?)

So that brings us to the numbers of the 8 cents drop…and that doesn’t matter if it comes from a partisan site. A certain amount of oil pump will result in a certain drop…that’s just the math of the situation. If you have different numbers, please present them, but until then don’t dismiss mine as partisan.

Sorry, now we’re in MY business, resource economics and public finance, and I’d flunk an econ student who cited like that..the way Baker did, that is. First off, he ignores a huge number of factors to make an unsupported claim for apparently partisan purposes. Second, he makes up numbers off the top of his freakin’ head, and even says so. Being a partisan himself he has ZERO credibility unless he provides accurate citations in correct context, which means holistic examination and NOT cherry-picked talking points with invented numbers, and your citing him as a source thus also provides ZERO credibilty, being fourth hand chatter without source citations. MORAL: Never trust a partisan source on any politicized issue. Do your own homework.

Current DoE estimate of the demand price elasticity of oil is not 0.3 as Baker “ballparks,” it’s 20 to 1, or 0.05. (My own current estimate is a range falling between 0.04 and 0.08) In addition, transportation costs reduce the cost of domestic crude–you don’t have to ship it nearly as far to refine it. Baker also doesn’t mention that the source he used assumes NO additions to production infrastructure–but the growth of production infrastructure is assured IF the access is allowed. Also, much of our problem has to do with reliance on foreign production. Remember trade deficits? Every additional barrel of domestic production is that much less money shipped overseas. Nor is petroleum alone our only source of oil–we have literally trillions of barrel-equivalents available to us at roughly half current prices or less, but Congress won’t let us access them. I’m talking oil shale and coal there. We have over a trillion tons of coal, for example. We are the bleepin’ Saudi Arabia of coal, and coal can be converted at a rate of five barrels per ton for a price of about $40/bbl.

I could care less about corn ethanol. It’s always been a very limited idea for America except for those who could make their own (and for politicians in corn country) and the feds are downright uptight about you having your own still. But cellusosic ethanol is quite viable. And when I speak of “favored alt-energy” I’m speaking of everything, including solar, etc. If you think those costs are “just” maintenenace you’re dead wrong. First off, there’s initial capital investment, and THEN there’s maintenance, and that can be very expensive indeed, as you can find out by checking the operating costs of the wind farms. Not to mention that smaller-scale “renewables” have other major costs associated, such as batteries for off-grid storage use, and to scale up most enough to be useful (other than at source with battery storage) requires new infrastructure investment in grid capacity that we haven’t yet got. The sad fact is that most “renewable” sources are of limited current-usage replacement capacity, just as corn ethanol is. Diversify, sure, hellz yeah, but realism about potential is required. The goal is not just new energy production sources, but portable energy, and grid capacity infrastructure, and of course better storage tech.

BTW, my favorite desired alt-energy oil replacement in development is algal oil, which can produce a direct replacement for light sweet crude without the nasty trace elements, and without the massive feedstock requirements of either kind of ethanol. They get that down to the projected $50/bbl scaled-up cost and we can tell OPEC to take a flying. And it’s carbon-neutral to carbon-negative, meaning that it takes more carbon out of the air than burning it puts back in. What’s not to like?

MAJOR straw man there.

Now wait a second. Who says that the oil companies have done the appropriate exploration in the land that already exists? Do you know this? And if so, where’s the evidence? From everything I’ve seen and read, the oil companies haven’t explored because they’re ALREADY PUMPING PLENTY OF OIL AND MAKING RECORD PROFITS AS A RESULT. So it’s simply a matter of free market economics at this point.

Now then, if I were the oil companies and I saw an opportunity for leasable land to be opened up much, much closer to shore, would I say, “Yeah, you know…this would be a really good idea,” do you think I’d say that? Obviously it’s cheaper for them to do exploration closer. But again, there’s nothing to suggest that there’s a ton of more oil there either. I’m sure they know of a few places where oil exists that they’d like to tap, but again…the gains would be negligible.

So that brings us to the numbers of the 8 cents drop…and that doesn’t matter if it comes from a partisan site. A certain amount of oil pump will result in a certain drop…that’s just the math of the situation. If you have different numbers, please present them, but until then don’t dismiss mine as partisan.

However, since I think we can both agree that supply isn’t really the problem, it again goes back to the speculators, and therefore invalidates nearly any arguments about opening up offshore drilling.

One last response…

I also note that anti-domestic-production “progressives” totally ignore the problems and costs associated with dependence on foreign crude when it comes to talking about boosting domestic production, yet scream it to the skies when it comes to subsidizing/mandating their favored “alternative power” technologies. Likewise the MASSIVE impact on trade balances and domestic economic growth of retaining those resources in the domestic economy as compared to shipping them overseas to fund other nations.

If you’re talking about ethanol, I’m not a fan and never really have been. I understand the need for something in the interim before we can get to truly renewable sources, but I wish we could find something else. At the very least not corn-based ethanol.

However, I hope you’re not talking about renewable sources (wind, solar, geothermal, etc.) as “alternative power” technologies. Because the costs associated with those are more maintenance than anything.

MAJOR straw man there. One I’m getting really tired of hearing. Based on complete ignorance of how the oil exploration business actually works, and the assumption that every single lease taken out HAS economically recoverable oil and can be drilled and developed immediately, which is utterly laughable. Oil companies routinely lease large tracts cheaply in order to explore them looking for developable deposits, but that doesn’t mean they find anything worth sinking their scarce and expensive drilling resources into, and the amount of work and expense required to find the deposits worth drilling is also considerable and takes time. You don’t just take out a lease and start drilling.

Also, since it has been demonstrated that this would only result in a drop of 8 cents a gallon, it doesn’t even make much economic sense.

You really should read closer, and really should NOT take your “facts” on economics from highly partisan/ideological sources such as TAP citing other partisan/ideological sources such as CEPR that in turn use off-hand third-hand citations from popular media. That guesstimate you cite is hedged with more caveats than a used car contract, and should have even more. It’s a throwaway number. Baker KNOWS better–but does it anyway.

I also note that anti-domestic-production “progressives” totally ignore the problems and costs associated with dependence on foreign crude when it comes to talking about boosting domestic production, yet scream it to the skies when it comes to subsidizing/mandating their favored “alternative power” technologies. Likewise the MASSIVE impact on trade balances and domestic economic growth of retaining those resources in the domestic economy as compared to shipping them overseas to fund other nations.

Dealing from both ends of a stacked deck is dishonest–that’s as kind as I get there.

As I’ve detailed in this post and others…drilling will bring down prices, but an average of 8 cents per gallon isn’t anywhere close to what is needed…and we wouldn’t even see these gains till 10 years from now. And that doesn’t even take into account that drilling for oil is a very speculative business. Meanwhile, the oil companies have let millions of offshore acreage go untouched for years. So why open up more? There’s no reason to.

On the other side, energy speculators are buying up millions of barrels of oil and are hoarding it. This is the only way to truly explain why the price of oil has increased from $50 in January 2007 to $140 today. Nearly triple the price in a little over a year? We all know supply and demand isn’t causing that.

In fact, just look at articles about oil supply as recently as last month…

LONDON — While politicians urge crude-oil producers to increase output to cool off record-high prices, traders of physical crude oil say their market is suffering from too much supply, not too little.

Don’t kid yourselves, it’s the speculators folks…and that’s what happens when you let the free market run roughshod over an industry that produces a commodity that nobody can substitute with anything else.