Some Oil Information

In June 2008, the Committee on Natural Resources Majority Staff released a "report" entitled "The Truth About America's Energy: Big Oil Stockpiles Supplies and Pockets Profits."

They go through a number of sections, and I am going to attempt to comment on those.

(Note: copying and pasting may have altered some of the formatting of the report and some of the symbols. For example, I noticed while pasting that it replaced a double quote with an '@' sign. To read the report in its entirety as it was released, visit here.)

(Note #2: I'm not claiming to be non-partisan, and some of my language may or may not come off as "harsh;" I apologize if I offend anyone, but I probably won't change my post. I am taking a side on this issue.)

(Note #3: I am aware that the president of one of my sources, the Institute for Energy Research, used to be the speechwriter for the former CEO Kenneth Lay of Enron. I am also aware that although the IER is non-profit, it tends to take positions in support of industry. I don't care. The data they supply is data, and not guaranteed to be flawed just because they used to write speeches for a corrupt CEO or happen to support industry. Industry which, for the record, is just businesses trying to make a profit. There are plenty of businesses of all types, and occasionally there are bad apples, but do you assume every restaurant or store you visit is corrupt and trying to swindle you? Then why do so many people assume oil companies and those who happen to come up with data supporting them are swindlers? Attack the data, not the people behind the data. Anyway, I have an open mind. If you have reports or data to contradict what I have below, please do send it to me. Just telling me my data is "wrong" because it came from oil companies or people who support oil companies doesn't mean anything.)

(Note #4: I know I'm citing the American Petroleum Institute, which represents all of the United States' oil and natural gas industry. This goes along with note #3. I would like to assume the API knows what is involved in finding and obtaining oil and gas. Of course, feel free to send contradictory information to me for my own knowledge.)

Part 1 of the report:

Increased Domestic Drilling Activity Has Not Led To Lower Gasoline Prices

Since the 1990s, the federal government has consistently encouraged the development of its oil and gas resources and the amount of drilling on federal lands has steadily increased during this time. The number of drilling permits has exploded in recent years, going from 3,802 five years ago to 7,561 in 2007.

Between 1999 and 2007, the number of drilling permits issued for development of public lands increased by more than 361%, yet gasoline prices have also risen dramatically (Figure 1) contradicting the argument that more drilling means lower gasoline prices. There is simply no correlation between the two.

There's a lot of talk about "drilling" in those two paragraphs. Main issue: there is a difference between drilling and production. While drilling of exploratory and development wells has increased from 2000 to 2007, the actual production levels of US crude oil has decreased. So is it that much of a shock to see gasoline prices rise when our own production of crude oil decreases, forcing us to import more crude oil? (for specific percentages, see here)

Don't the laws of supply and demand say that if more of an item is produced, the cost of that item goes down? We need to open new areas so we can produce more.

Part 2 of the report:

Energy Companies Not Using Federal Lands Already Open to Energy Development

Even if increased domestic drilling activity could affect the price of gasoline, there is yet no justification to open additional federal lands because oil and gas companies have shown that they cannot keep pace with the rate of drilling permits that the federal government is handing out.

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.

Further, despite the federal government's willingness to make public lands and waters available to energy developers, of the 47.5 million acres of on-shore federal lands that are currently being leased by oil and gas companies, only about 13 million acres are actually "in production", or producing oil and gas (Figure 2). Similar trends are evident offshore as well (Figure 3), where only 10.5 million of the 44 million leased acres are currently producing oil or gas.

Combined, oil and gas companies hold leases to nearly 68 million acres of federal land and waters that they are not producing oil and gas (Figure 4). Oil and gas companies would not buy leases to this land without believing oil and gas can be produced there, yet these same companies are not producing oil or gas from these areas already under their control.

If we extrapolate from today's production rates on federal land and waters, we can estimate that the 68 million acres of leased but currently inactive federal land and waters could produce an additional 4.8 million barrels of oil and 44.7 billion cubic feet of natural gas each day.

That would nearly double total U.S. oil production, and increase natural gas production by 75%. It would also cut U.S. oil imports by more than a third, and be more than six times the estimated peak production from the Arctic National Wildlife Refuge (ANWR).

Unless they used some other method I'm unaware of, they "extrapolated" as follows: the approximately 23 million acres currently producing supply a total of 1.6 million barrels each day. There are 68 million "unused" acres, which is almost three times as much. Multiply 1.6 by 3 and you get 4.8 million barrels per day more. Unfortunately, that doesn't reflect reality. (Link about "extrapolation" of numbers.)

Basically, from what I've read this is the main point: not every acre of land holds the same amount of oil. I read an Op-Ed in the Wall Street Journal by Red Cavaney, president and CEO of the American Petroleum Institute, here. The idea that oil companies buy leases and then don't use them to drive up oil prices is bunk. This webpage also had interesting information (despite the URL, it is a site run by the API... I think). Most of those "non-producing" leases are either in the process of being determined if there is oil and gas in them, or they have been determined to not have any or not have enough to make it economically feasible for the oil company to set up a rig or whatever equipment is needed to get the oil and gas to the surface.

Edit before posting: A friend pointed out to me that what really needs to be done is each tract of land that has been leased by an oil company should be checked to see what is being done with it, and to hear an explanation of why no drilling/production is going on if that is the case. That seems logical; however, I have no idea if records of that are easily available. I am not going to look that up. I will say that my gut instinct says oil companies are NOT simply holding onto leases while waiting for prices to go up. They (oil companies) claim that the exploration and setting up to produce takes years (I will assume this is true for my next few statements). As such, it would be absurd to sit on a lease without having explored it. The only "sitting" will take place after exploration. If a lease IS capable of being productive, after having gone through the whole process of exploring for oil, the companies would have at most a couple of years to "sit" on the lease (for they lose the lease if it is not producing at the 10 year mark).

You know what a direct result of this committee "report" and "68 million acre" claim was? Two new bills proposed in the House.

H.R. 6251, The Responsible Federal Oil and Gas Lease Act

H.R. 6251 would prohibit the Secretary of the Interior from issuing new Federal oil and gas leases to holders of existing leases who do not diligently develop the lands subject to such existing leases or relinquish such leases.

H.R. 6256, The Responsible Ownership of Public Lands Act

H.R. 6256 would direct the Secretary of the Interior to establish an annual production incentive fee with respect to Federal onshore and offshore lands that are subject to a lease for production of oil or natural gas under which production is not occurring, to authorize use of amounts received as such fee for energy efficiency and renewable energy projects.

Oil companies already pay a lot of money to lease the land, and then pay a yearly rental fee (although I will admit the yearly fee is a pittance). They have to invest heavily in exploring the land to see if there even is oil and gas, and then if it is economically feasible to extract the oil and gas (which will then cost more money to build and install the appropriate equipment). If it isn't feasible, they hold on to the land in the hopes that advances in technology or increases in demand will make it economically feasible to produce oil. However, after 10 years of not producing oil, the companies have to give up the lease (and thus all the money they have invested into that land). H.R. 6256 just imposes even more fees on the oil companies. H.R. 6251 is a problem because it prevents the companies from exploring, finding, and producing oil from new leases as long as they are holding onto leases that they are currently not producing (which may be, for example, due to it being economically unfeasible). In essence, H.R. 6251 has the potential to force companies to start producing oil and gas from a lease even though at the present time they may lose money. That or force them to lose the lease to cut losses (and thus lose the money they paid for it) without a chance to hopefully remake the money if technology advances or it becomes economically feasible.

Part 3 of the report:

Vast Majority of Federal Oil and Gas Resources Already Available for Development

Proponents of opening additional lands to oil and gas leasing assert that vast quantities of oil and gas are closed to energy development. In fact, according to the Minerals Management Service, of all the oil and gas believed to exist on the Outer Continental Shelf, 82% of the natural gas and 79% of the oil is located in areas that are currently open for leasing.

The Department of the Interior recently released a report2 that the Administration is using to delude Americans into believing that vast tracts of federal land with large concentrations of oil and gas are off-limits to oil and gas development. In actuality, the report shows that only 38% of the oil and 16% of the natural gas are excluded from leasing - largely because those resources are underneath National Parks and wilderness areas that have significant scenic, recreational, and wildlife values. The rest is either fully accessible under standard lease stipulations designed to protect lands and wildlife, or will be accessible pending the completion of land-use planning or environmental reviews.

I could almost forgive some of the errors in the previous two sections, but this one takes the cake (which is a lie, by the way). I honestly do NOT know where they pulled these numbers from. If you look at the "report" in its original form, they provide a footnote giving the name of the other government report they take these figures from. Well, I pulled up that report (read it here), and I can't find those numbers. From the report they used (emphasis mine):

• Federal lands with potential for oil or natural gas resources, including split-estate minerals, total 279.0 million acres.
  

• Undeveloped oil resources under these Federal lands total 30.5 billion barrels, comprising 24.2 billion barrels of undiscovered technically recoverable resourcesand 6.3 billion barrels of reserves growth.
  

• Undeveloped gas resources under these Federal lands total 231.0 trillion cubic feet, comprising 214.1 trillion cubic feet of undiscovered technically recoverable resources and 16.9 trillion cubic feet of reserves growth.
  

• Total proved reserves under these Federal lands total 5.3 billion barrels of oil and 68.8 trillion cubic feet of natural gas.
  

• Approximately 60 percent (165.9 million acres) of the Federal land is inaccessible. Based on resource estimates, these lands contain about 62 percent of the oil (19.0 billion barrels) and 41 percent of the natural gas (94.5 trillion cubic feet).
  

• Approximately 23 percent (65.2 million acres) of the Federal land is accessible with restrictions on oil and gas operations beyond standard stipulations. Based on resource estimates, these lands contain 30 percent of the oil (9.3 billion barrels) and 49 percent of the gas (112.9 trillion cubic feet).
  

• Approximately 17 percent of the Federal land in these areas (48.0 million acres) is accessible under standard lease terms. Based on resource estimates, these lands contain 8 percent of the oil (2.3 billion barrels) and 10 percent of the gas (23.6 trillion cubic feet).

The only way I can come up with "only 38% of the oil is excluded from leasing" is to add together the 8% that IS available, and the 30% that is available with EXTRA restrictions beyond the standard ones. The report clearly states that 62% of the oil on Federal land is NOT available for leasing. I am unable to come up with some mathematical way to derive "16%" for natural gas.

Granted, this report does have to be taken with a grain of salt. I did find a complaint/report from an environmental group about this report giving percentages of oil available and whatnot. They claim that some of the oil on "unavailable" land can still be reached without leasing that land due to today's technology such as directional drilling. (I'm assuming that means they can lease nearby land and drill horizontally to reach the oil under the "unleasable" land.) I highly doubt that these discrepancies would alter the percentages so much, however, that the 60% unavailable for leasing would drop to 38%.

Part 4 of the report:

Alaska

Proponents of drilling in Alaska are most often focused on a 1.5 million acre area in the 19.2 million acre Arctic National Wildlife Refuge (ANWR). Established in 1960 and expanded in 1980, ANWR includes a 1.5 million acre area of the coastal plain known as the A1002 area@ which requires Congressional authorization before oil drilling may proceed there.

However, in addition to ANWR, there are another nearly 91 million acres currently open to leasing in the Arctic region of Alaska, including onshore and offshore lands. Oil and gas companies have leased only 11.8 million of the 91 million acres.

Within the National Petroleum Reserve-Alaska (NPR-A), oil companies have leased 3 million acres of 22.6 million acres available to lease. No production has occurred on any of those lands and industry has drilled only 25 exploratory wells there since 2000.

The Energy Information Administration (EIA) estimates that it will require 8 to 10 years after opening ANWR before oil is produced from any new leases. Furthermore, it would be 20 years after opening ANWR before oil production reached its peak of only 780,000 barrels per day. Production at that level would start to drop within a short time.

According to the EIA, opening ANWR would reduce U.S. crude oil imports, but not until 2022-2026 and only by a few percentage points. Further, it would not significantly increase total world oil production, nor would it significantly affect world oil prices.

I don't have much to say on this one. The subject of ANWR is for another post (that may not happen for a long time). But a few comments...

First, here is the EIA report that they mention. Take a moment to read through all of it if you will.

Second, the fourth paragraph: yes, it will take many years before ANWR begins producing. ANY newly leased land takes several years before you see production begin. And once again, ALL oil leases take many years to reach a peak production level, and ALL oil leases then continually drop in production levels after that peak. Essentially the fourth paragraph is merely stating that "opening ANWR to oil drilling would cause ANWR to behave as... an oil field." Gee, imagine that.

Third, the fifth paragraph: yes, what they say is true. But we need to open up more than just ANWR for more production. But even a few percentage points is still useful. In the mean case (the report consistently reported a low, mean, and high case for output from ANWR), over the period from 2015 to 2030, ANWR would save us $202 billion on imports. This is approximately $13.4 billion per year (although it probably wouldn't be spread equally over every year). Yeah, I know we are currently spending about $10 billion per month in Iraq. But you don't completely ignore one way to save money just because cutting another would save a lot more. You do everything you can to save money.

But I'm getting too much into ANWR. I'll save that for later.


I'll end with something I heard from a relative. It had been from a TV (or radio - I've forgotten which) interview with someone who works in the oil industry. When asked what the US should do about high gas prices and energy (I could be way off on what question really was asked), he replied with something similar to "everything you can." He went on to explain how the US should be investing in alternative energies AS WELL AS increasing our own domestic oil supply. You do everything within your own power. You don't do one at the expense of the other. (I'm saying this in case someone has the mistaken impression that I don't support research of alternative energy sources.)


This has by far been my longest blog post. I worked on most of it over one day, and then about a week or two later finished it up. I've recently become a fan of www.factcheck.org; they are what inspired me to "fact check" this government "report." Please, send me corrections, data, and links for anything that seems to be wrong. I'll try to edit my post to reflect these (in the style of FactCheck.org).