Friday, July 18, 2008

Shall We Drill?

Debate now rages amongst the Congerscritters as to whether we should expand domestic petroleum production - offshore, in ANWR, and western oilshales. The answer one reaches depends on the ultimate goal of an energy strategy. If it is to eliminate our dependence on foreign oil, no amount of drilling is going to accomplish that goal. But there is an immediate need to halt the growth in the flow of cash used to buy foreign oil, and possibly reduce it. So expanding our drilling is likely to be an essential component of a short-term strategy to buy us some time - say, twenty years - to develop other energy sources, particularly for transportation fuels.

Let's look at the likely reserves and production rates for ANWR, offshore, and new oilshales, and when their production could begin:

  • ANWR. The Energy Information Agency states a mean estimate for technically recoverable oil in the ANWR "1002 Area" (the most promising region of ANWR and constituting about 20% of its total acreage) of 10.3 billion barrels. A USGS assessment from 1998 states that the mean amount of economically recoverable oil from the 1002 Area is 7.7 billion barrels. Peak production from the region is estimated by the EIA to be about a million barrels a day, about 5% of our current total daily petroleum consumption. Using the smaller mean reserve estimate, this means ANWR oil would last at least twenty years. Production could not begin for 7-12 years, primarily because of the time required for lease sales, permitting and environmental reviews. These steps could be accelerated.
  • Outer Continental Shelves (OCS). The Department of Interior's Minerals Management Service estimates the mean total OCS oil resources to be 85.9 billion barrels (technically recoverable) for the Atlantic, Pacific, Alaskan, and Gulf of Mexico Shelves. The GOM and Alaskan Shelves constitute about 41 and 27 billion barrels, respectively, of this total estimate. The total OCS reserves that are currently unavailable to production because of state or federal moratoria is 18 billion barrels (Eastern GOM, Atlantic and Pacific). So most of the OCS is open to development. The GOM OCS is developed, with nearly 1600 leases producing 1.4 million barrels per day. If one prorates a potential Alaskan OCS production rate based on this number and the relative size of the Alaskan OCS resource, this yields a production of 0.9 million barrels per day, another 4% of our current daily consumption. If the GOM and the Alaskan OCS production rates were 150% of their current (or estimated) rates, it would add an additional 2 million barrels per day to current production, or 10% of our current consumption. Studies for Alaskan OCS development uses a target peak production year of 2030; perhaps this development could be accelerated.
  • Continental Oilshales. A study by the RAND Corporation in 2005 estimated a lower limit to the amount of technically recoverable oil from western oilshales to be 500 billion barrels. RAND estimates the timescale for development to production of 1 million barrels per day may be twenty years or longer. The production rate could be as high as three million barrels per day, or 15% of our current consumption. The lifetime of continental oilshale production is very long, perhaps hundreds of years.

Here is what we can "take away" from the discussion above:

  1. Assuming all of the three petroleum resources described are developed to peak production, they would probably add no more production than 30% of our current oil consumption. We cannot solve our dependence on foreign oil solely on increased domestic drilling.
  2. Nevertheless, this increased production could nearly halve our current imports of foreign oil, ultimately keeping an additional $300B per year in the United States.
  3. A controlling factor is the production that can come from each of these sources; apparently no more than 1-3 million barrels per day is likely to be the peak production from these sources. If we commit to increased drilling as a transitional step to alternate transportation fuels, finding solutions to increase production from oilfields will be essential.
  4. The development of ANWR and the Alaskan OCS, and the expansion of production from the GOM OCS is likely to reduce our dependence on foreign oil by 10-15% within ten years, if the rate of leasing, permitting, and production can be accelerated.
  5. Continental oilshales may provide a tremendous supply, and may be produced at a rate of 15% of our current consumption, but the timescale for development is long, perhaps twenty years. This resource should be developed, however, because it is likely we will still need a substantial amount of petroleum in 20-30 years.

Will the price of oil drop with this increased production? Perhaps, but not precipitously. But a good chunk of change that leaves the U.S. could be retained if increase our domestic production.

Marge, get me Halliburton on the phone!