The President's Perplexing Environmental Priorities, Part 2: Offshore Oil Development
by Mark W. Hibben
As I wrote last week, President Obama's decision to open up large swaths of U.S. coastal waters to oil exploration appears to be in contradiction to his pre-election campaign position to require oil companies to fully exploit the federal lands already made available before more would be forthcoming. This judgment may have been premature, since it could be argued that the Obama Administration has studied this issue for the past year in the process of formulating a comprehensive energy policy. In so doing, the oil industry may have convinced the Administration that existing leases had been developed as completely as current economic conditions (the worldwide oil market) would allow. After the protracted battle over health care/insurance reform, I'm sure the President has a healthy distaste for impasse, as well as a renewed desire for bipartisan support of a comprehensive energy bill to be passed before the Mid-Terms. Still, the haste with which the Administration had jettisoned environmentalism struck me as unseemly. As if to underscore the matter, a monumental environmental catastrophe erupted with exquisitely bad timing.
The President had carefully chosen the backdrop for his speech announcing the opening of the new areas of the coastal U.S. to oil exploration: Andrews Air Force Base. There was even an F-18 in the background that had been modified to run on a partial bio-fuel mixture.
In his speech, the President repeatedly linked security with energy independence, pointing to the various steps the Armed Services had taken to reduce the use of petroleum: bio-diesel vehicles, improved energy efficiency, and a goal of 50% usage of alternative fuels by the Navy within 10 years. Today however, except for nuclear powered ships, the U.S. military runs mainly on petroleum and is therefore vulnerable should another embargo by foreign oil producers like the 1972-73 Arab Oil Embargo occur. How much energy independence and security would the opening of the new coastal areas provide? Not much, given this country's current oil gluttony, but perhaps enough, if properly managed.
It's estimated that the newly opened areas contain 23 billion barrels of recoverable oil, which is enough for the petroleum needs of the U.S. for about 3 years, given that the U.S. consumes about 21 million barrels every day. Three years doesn't seem like much of a reprieve from the alternative energy future we must face anyway. Is it really worth the risk, having seen the risk first hand with the Deepwater Horizon? If it were just a matter of allowing people to drive gas-guzzling SUVs for a few more years, I would have to say no, it isn't. Granted, we could conserve domestic production and make the oil last longer, but it's still just a finite resource we would use up all too quickly. The President also has achieved progress on Corporate Average Fuel Economy (CAFE) standards, but with much of the American auto industry still on the ropes financially, there wasn't much fight in them to resist the higher standards any longer. The new standard of 35.5 mpg kicks in by 2016, four years ahead of the deadline mandated by the 2007 energy law. This will help, saving an estimated 1.3 million barrels of oil a day by 2020, but it's still just a reduction from 21 million to 19.7 million, assuming that our oil consumption won't grow in the interim.
National security is a much more compelling motivation, even if poorly served by the President's policy. In the event of war or other domestic emergency, the National Petroleum Reserve is supposed to supply critical petroleum needs, but the NPR is woefully inadequate to the task. The NPR had in storage in underground salt mines scattered around the country 726.6 million barrels of crude oil as of the end of 2009, close to its estimated capacity of 727 million. That sounds like a lot, but at current rates of consumption, it would only last about 30 days. When was the last time the U.S. fought a 30 day war? I guess, Grenada. The estimated reserves in the newly opened coastal areas would make a much more credible in-the-ground petroleum reserve, capable of sustaining the U.S. for many years, depending on the level of conservation achieved during the war or other national emergency that justified pumping oil out of these areas. Of course, the oil companies would have to be incentivized to develop the areas, which means some form of oil sharing scheme would need to be worked out. Basically, the oil companies would be allowed to pump some large fraction of the oil that was discovered, enough to reimburse expenses and provide a healthy profit, perhaps as much as 1/3 of the proven reserves. The rest would be withheld by the Federal Government as part of an expanded NPR. Equipment to pump and transport the oil would be maintained in place to be used should the need arise.
Such an expanded National Petroleum Reserve is the only way I can see to justify the risks associated with coastal oil exploration and development. It has become all too apparent that the risk can never be reduced to zero by technology or human effort. The acceptance of that risk and the potential real cost associated with environmental clean-ups cannot be justified by a frivolous desire to stave off the inevitable transition to energy sustainability, or even by a worthy but not compelling desire for economic development. This is the critical flaw in the President's current policy: the conceptual linkage to National Security has to be made a practical legal requirement to reserve the developed petroleum resources for use in a real national emergency.