President Trump and the Future of American Oil

Much to the delight of millions, and the utter dismay of millions more, Donald J. Trump is the President-elect President of the United States.  The likely implications for many areas of the country's economy require much exploration. 

As my two regular readers have noted, Sowell's Law Blog has favorite themes, including Global Warming (it is a non-issue), Nuclear Power (they are all uneconomic and unsafe), Energy Supplies (renewables are growing fast), Fresh Water (too much in many places, not enough in others), Legal Issues (science, technology, First Amendment, engineering, energy, and many others).  There are others, of course.   President Trump already has announced policies that will impact many of these. 

This article discusses one of the important areas of a Trump presidency: the use of a huge oil discovery in West Texas, the Wolfcamp shale oil, and domestic and foreign policy.  

(A big note up front:  Wolfcamp oil was discovered decades ago.  The technology for economically extracting the oil is fairly recent, with precision directional drilling (PDD) and hydraulic fracturing.   In fact, in 2013 an excellent article appeared in Oil and Gas Journal.  This means that President Obama must have known of the huge oil reserves at Wolfcamp, and did nothing with that information.) see link to OGJ article "Wolfcamp shale graduates to 'world class' play"

The oil in Wolfcamp is estimated at 20 billion to 50 billion barrels.   USGS announced last week that 20 billion barrels of oil exist in the "new" Wolfcamp reservoir.  

President-elect President Trump has stated that he will have more drilling and production of domestic oil, part of his plan to make the US energy-independent.   He also requires Mexico to stop illegal immigration and for Mexico to build a border wall on its northern border.   The Wolfcamp oil has a role in each of these.  

The US imports less oil now than in years past, with approximately 8 million BPD at present compared to 11 million BPD in 2005.  (US EIA weekly petroleum status report).   Total crude runs to refineries today is approximately double that, at 16.1 million BPD.   However, the recent imports from Middle Eastern countries were approximately 2 million BPD.   Mexico provides approximately 0.6 million BPD.  

It would not be difficult to stop imports from the Middle East, and produce that oil from Wolfcamp.  That would require 2 million BPD of Wolfcamp production above and beyond its present production.   The Wolfcamp oil would flow for more than 50 years at that rate.   However, stopping imports from Middle East region would have a significant impact on the world energy market.  The first result would be a large drop in crude oil price.   Oil producing nations would be most unhappy, if not furious.  Russia would be one of the furious ones.   However, oil importing nations would be very happy, if not ecstatic.  Those countries would include Japan, South Korea, China, India, Italy, France, and (soon) UK.  

As to Mexico, it would not be difficult to stop imports of Mexican oil (600,000 BPD as above) and use Wolfcamp oil instead.   The impact on Mexico's economy would be severe, potentially resulting in economic collapse and chaos.   President Trump could very easily require Mexico to build a wall in exchange for continued oil imports.  

The implications are numerous for having a huge oil reserve that the US could easily exploit.  Furthermore, the Wolfcamp oil is not the only such oil field in the US.  

These are very interesting times in which we live.   Very interesting. 

Roger E. Sowell, Esq.
Marina del Rey, California

copyright (c) 2016 by Roger Sowell, all rights reserved.

Most Important Event of 2015

Subtitle: US Temperatures in Pristine Areas Show Massive Cooling

As the year 2016 has arrived and 2015 is gone, once again I take keyboard under fingers and review what, to me, were the important events of the year just past.  As I wrote at this time a year ago, (see link)  many other writers have already discussed what they view as the most important event or events of 2015.  This is a very common thing, reviewing the old year as the new year arrives.    The big event of 2014, in my opinion, was the weak peak of the solar cycle 24.  The implications for a much colder future are indeed grim.  

This article addresses briefly a half-dozen events (more or less) that made the news in 2015, in no particular order, then discusses the most important event of the year: Pristine areas in the US show a pronounced cooling - not a warming - over the past decade (see graph at right).  

Oil Price Collapse - this was on last year's review also; late in 2015 the price dropped to $35 per barrel, and OPEC could not agree on a production ceiling in 2015; unregulated production will create further glut of oil and price declines.   Energy-related industries will see reduced profits, and declines in employment, the further effects will see declines in real estate prices.  However, increased consumer spending and reduced operating costs for many industries that consume oil products will boost the economy.  

El Niño Begins - and skews the surface temperature record upward; the beginning of a strong El Niño event, perhaps the strongest such event on record, (Noting that "on record" is highly subjective, as it usually refers to modern scientists and their modern instruments that measure things like ocean surface temperatures in many places around the globe.  However, it is certainly true that local fishermen have longer records of the El Niño events, particularly along the fishing waters offshore western South America.)  Previous El Niño events produced a sudden increase, or step-change, in surface temperature records.  Scientists have a difficult (impossible?) time explaining how that is consistent with their insistence that carbon dioxide, CO2, is slowly but inexorably warming the planet.   The good news from an El Niño is the rain and snow that falls in the parched desert Southwest in North America.  Drought conditions will end.   The bad news is the severe flooding and storms, including tornadoes in other parts of the US.  World-wide, a big El Niño also creates droughts and crop failures, with the accompanying misery.  

Look for some, especially the false-alarmists, to claim that "the pause" is over now that El Niño is here and has increased the surface temperatures.    (Note, "false-alarmists" is my term of choice for describing those who fervently insist that global warming is man-made, is due to fossil-fuel burning, and will create catastrophes in the very near future.  The only "man-made" aspect of global warming is the man-adjusted data that the false-alarmists use to prove their point.)  

Coal Power Plants to Shut Down in US - coal-fired power plants in the US are now subject to the MATS rule from the US EPA, the Mercury and Air Toxics Standards.  The legal wrangling, while not finished, is sufficiently complete so that the timeframe has arrived at which the coal-fired plants must either comply, or shut down.   The EPA, though, has new proposed rules that are being challenged in court, this time to limit the CO2 produced from coal-burning power plants.   see link to my recent post on "Energy Supply in Post-Coal America."  The US is running out of domestic coal anyway, so it might as well begin the economic and development aspects of renewable energy with appropriate storage.  

Nuclear Plants Continue to Shut Down, and New Construction Woes - a favorite and frequent topic on SLB, nuclear power plants in the US continue the parade of shut-downs, while the feeble efforts at building new reactors continue to see set back upon set back, both in cost increases and schedules running longer and longer.   Despite all the clams of the nuclear advocates, some of whom clearly have no idea what they are talking about, nuclear power via the current best available technology, Pressurized Water Reactors (PWR), is too costly and takes too long to build to be economic in the US.  Overseas, where labor rates are far less, concerns over safety are far less, and there is great insecurity of alternate fuels such as coal and natural gas, nuclear plants are still being planned and built.  Woe to them, though, when the plants begin spewing forth the deadly radioactivity.  Woe to all of us who are in the downwind path of such deadly radiation.  

California Grid Is Fine at 31 Percent Wind, Solar - see link   Renewable energy supplies into a grid are not supposed to exceed 30 percent, however it is clear from the recent California experience that 30 percent is not a problem at all.  Grids that have substantial amounts of nuclear power, inflexible and stubbornly refusing to reduce output, will have the greatest problems.  California, though, now has only two nuclear reactors operating as two more reactors shut down a few years ago due to a completely botched steam generator replacement project (see link).   California's grid now must deal with nuclear baseload power at only 2,100 MWe, or just under 10 percent of the load at the lowest point each night.  During the peak loads in the summer of 50,000 MW, nuclear now is less than 5 percent of the load.  Economic, flexible gas-fired plants on the California grid make the integration of wind and solar, with their intermittent characteristics, much easier than on a grid that is supplied primarily by coal and nuclear.  

Off-shore Wind Turbines Under Construction - see link  construction began on the US' first off-shore wind turbine installation with 5 turbines, off the coast of Rhode Island.  Startup is expected in late 2016.  The project has 5 wind turbines of 6 MW each, for 30 MW maximum output.  It is a good first step, with many hundreds of similar, or even larger, turbines to follow.  Advantages of building off-shore include much stronger wind, more consistent wind, and no angry neighbors complaining about noise. 

On-shore Wind Turbines Height Increased - see link concrete towers instead of steel allows much higher wind turbines, making wind energy more economic and producing much more energy over a wider area.   Taller is better in the wind energy world, as the wind at greater heights is stronger, and more consistent. 

The most important event of 2015:

US Temperatures in Pristine Areas Show Great Cooling - see link  to the SLB article "US In A Cooling Trend - Winters Much Colder;"  2015 marked ten years of data collection from the USCRN, United States Climate Reference Network, of temperature measuring stations located in pristine areas of the US where man-made influences are zero, or very close to zero.  These stations require no adjustments for any of the usual reasons that allow the false-alarmists to manipulate the data and create a warming trend where none exists.  The results from the first 10 years of data show zero warming.  The US trend is minus 2.68 degrees C per century.    Only in the drought-stricken regions of the far West is there a slight warming trend.  However, all the winter seasons show a very rapid cooling.  The winter season cooling is at a rate of minus 10.9 degrees C per century.   

In the upcoming weeks, the data for all of 2015 will be available so the annual trend can be extended to 11 years.   By March, another winter can be added to the winter trend.   The El Niño will likely create a slightly warmer winter across the northern and eastern tier, but that will be but a small blip in the long-term.   It's very tough to show a warming without the influence of artificial structures, asphalt parking lots, air conditioner exhausts, and all the other issues that created a warming trend.   The false-alarmists no longer have a credible story on man-made global warming due to fossil fuel use.  

Indeed, the great concern for all of man-kind should be what to do about the entire Earth running out of coal, country by country, in 10 years, 20 years, and ultimately by 50 years from now.  

Roger E. Sowell, Esq.
Marina del Rey, California
copyright (c) 2016 all rights reserved

OPEC In Disarray in 2015

Subtitle: A Big Move In The Grand Game

Organization of Oil Exporting Countries, OPEC, met this week and essentially left member states' production levels to their own discretion.  Many articles in the media covered this.  

This is as I predicted in 2011, almost 5 years ago in my speech to Tulane Law School at their Energy Conference  (see link).   Competition from shale oil producers, and political instability in the Middle East have each contributed to the disarray in OPEC.   In my speech, I predicted oil price would drop to $20 or even $10 per barrel. 

The fallout from this will be good in some sectors, and grim in others.   The good news is for auto makers, and consumers who purchase gasoline and diesel, also industrial diesel customers, and airlines that purchase jet fuel.   Gasoline at under $1 per gallon will be a boon to the consumer.  

However, those industries that depend on oil for success will suffer.  Texas, for example, had a regional recession when a significant price decline occurred almost 30 years ago in the late 1980s.   Real estate prices dropped, many businesses closed, and people moved away from the state seeking better fortune elsewhere.   

The key question is who can sustain their output with low oil prices, will it be US shale oil producers, OPEC members, or non-OPEC producers such as Russia?   In previous meetings of OPEC, production was held constant on the belief that China would continue to grow economically and purchase crude oil.  However, China's growth has slowed and not continued on its rapid double-digit growth rate.  The anticipated demand for the oil is not there.  

This has to be frustrating for the Obama administration, who recited early in their administration that the price of gasoline must increase to approximately $9 or $10 per gallon.   Instead, declining demand due to cars that achieve better fuel economy, and world events have sent prices downward.  

Roger E. Sowell, Esq.
Marina del Rey, California
copyright (c) 2015 by Roger Sowell, all rights reserved

Most Important Event of 2014

Subtitle: Weak Sunspot Cycle - Most Important Event was Not On The Radar

Cycle 24 - weakest, at bottom.  Source: solen.info

As the year 2015 has arrived and 2014 is gone, many writers have already discussed what they view as the most important event or events of 2014.  This is a very common thing, reviewing the old year as the new year arrives.  

This article addresses briefly a half-dozen events (more or less) that made the news in 2014, in no particular order, then discusses the most important event of the year: Sunspot Cycle 24 (the current cycle) peaked right on schedule, but far below most previous cycles.   The world-wide climate implications are grim. (see chart showing the relative activity of the four most recent solar cycles, 21, 22, 23, and 24)

1.  US midterm elections - resulting in conservative majorities in House and Senate for the remaining 2 years of Liberal Obama presidency.   Many of Obama's presidential accomplishments will be criticized, and a few will be reversed.   The defection of some Democrat legislators to vote with conservatives will be required.  However, the defection will likely save their electoral lives as they can show increasing distance from a wildly unpopular president.  

2.  Ebola outbreak, treatments improved, vaccines tested.   The deadly virus spread to many countries with this most recent outbreak, including the US and some in Europe.  Treatment systems and protocols work, at least for those who seek early treatment and are correctly diagnosed.  

3.  Space - first landing on a comet, successful test blastoff and return to Earth of Orion system.   The comet-lander bounced a bit and landed in a shadow, which is unfortunate because the batteries are solar-powered.  The solar panels are essentially useless in the shade.  We may never receive data from the lander again.  

Meanwhile, the Orion spacecraft was a huge success.    The Orion may be the technology that carries men to other moons and planets in the solar system, and perhaps asteroids.  SLB soon will carry an original article on the idiocy of a Mars manned colony.  As a preview, the hard reality is that Mars has strong radiation, very little protection from meteors, an unbreathable atmosphere, and is very cold, to mention only a few deadly issues.   

4.  China passed the US as the world's largest economy.  The diplomatic implications are staggering, as China can, and probably will, either threaten or impose economic sanctions on the US to achieve their goals.   

5.  OPEC caused the world price of oil to decline more than 50 percent by maintaining cartel output.  Gasoline prices have dropped to under US $2 per gallon, although California in its infinite wisdom increased state gasoline sales tax as part of the futile effort to combat global warming under state law AB 32, "The Global Warming Solutions Act of 2006."   Worldwide, the lower oil price has many important implications.  Russia, a major oil exporter, will have greatly reduced revenues.  OPEC members will also see reduced revenues.  As SLB predicted years ago, this will very likely see OPEC fractured and member nations withdraw so they can pump all the oil they want.  Natural gas prices in many countries will also decrease, which will make electricity prices also decrease.  Consumers will have more disposable income, which will boost economic activity. 

6.  Nuclear power - Another US plant shutdown, Vermont Yankee; Sowell published 30 articles on SLB on Truth About Nuclear Power showing the futility of building and operating nuclear power plants, as not economic, not safe, and not sustainable long-term; as predicted, plants under construction are hopelessly delayed and have escalating construction costs; French plants are aging and are not reliable.   Providers of small, modular nuclear plants failed to attract investment or orders, completely as predicted - the small plants cannot possibly hope to be economic.   

7.  CO2 capture plant started operating in San Antonio, Texas - a commercial scale and economically viable plant designed and operated by Skyonic, Inc. of Austin, Texas.   This falsifies the statements made by many (ill-informed?  Deliberately misleading?) who maintain that there is no viable technology to reduce atmospheric CO2, therefore draconian reductions in fossil fuel use are required.    

8.  World coal consumption passed 9 billion tons annually, further decreasing the remaining years of economically viable coal.   An economically viable, and long-lasting (sustainable) source of 40 percent of the world's electricity production must be found and proven, long before the coal runs out.  This should be a strong priority for planners and policy makers around the world.  Economically produced coal is expected to run out in approximately 50 years.  

9.  Sunspot Cycle 24 had a weak peak and is now declining.   This is the single most important fact of the year 2014.   The sun's magnetic poles reversed, indicating the maximum has occurred.  The long, slow decline in sunspot number is now underway.   The Cycle 24 peak was approximately 80, compared to 120 (cycle 23), and 160 (both cycles 22 and 21)  (see graph at top of post).  

Some prominent solar physicists are on record calling for awareness that the weak solar activity is strongly associated with cold, sometimes bitterly cold, temperatures on Earth.   They also predict a return of the cold based on the very weak Cycle 24.   The winter of 2014-2015 has already started, with unusually cold events across the northern hemisphere.  As just one indication, winter ice appeared on the US Great Lakes far earlier than normal.   As another, Heating Degree Days for November in the US, per EIA, were 13 percent above average, however some regions experienced 30 and 36 percent greater than normal HDD.   Data for HDD for December will be published by EIA soon.   And yet another, the NOAA-predicted El Niño did not occur.   Finally, a new media term emerged: Polar Vortex, to describe vast areas of bitterly cold air plunging southward from Arctic regions and causing ice storms, heavy snow, and cold temperatures.  

As stated in other posts on SLB, there is no man-made global warming from burning fossil fuels.   Tiny increases in CO2 concentration in the atmosphere have no measurable effect on Earth's temperatures, as stated (paraphrased) by the imminent climate scientist Dr. Richard Lindzen (professor emeritus at Massachusetts Institute of Technology, MIT).  

The area of grave concern, however, is the sudden and dramatic decrease in solar activity and the associated cold weather.   More detail on the implications are at an earlier post, Warmists are Wrong - Cooling is Coming (see part II), see link. 

There is no doubt about it:  the sun is weaker than it has been in the past 60 years.  Winter weather is earlier and colder.   The implications of prolonged and bitter cold are grim.   The most important event of 2014 was the weak peak of Sunspot Cycle 24.  

Roger E. Sowell, Esq. 
Marina del Rey, California
Copyright (c) 2015 by Roger Sowell

OPEC Maintains Output - Prices Decline

In an earlier post, see link, the disarray in the world energy markets was discussed in view of OPEC's upcoming meeting in November, 2014.  

That meeting is now over, and OPEC chose to maintain oil output.  The effect will be for world crude oil prices to continue their fall.  Today's stock prices fell for major energy companies.   

Much has already been written about the likely effects of the lower oil prices.   Transportation costs for many will decrease as the crude oil prices work their way through the refining and marketing systems.  Consumers will have more disposable income, and will likely spend that rather than save. Some, though, will pay down debt.  

Oil-based chemicals and derivatives will also see price reductions, which will also benefit consumers.  

The long-term impact on nuclear power plants, both new and existing, will be to make them more and more un-economic.  Natural gas price, in many countries, is tied at least loosely to the price of oil.  Falling oil prices mean falling natural gas price, and a nuclear plant will have ever more difficulty competing with the power price from the natural gas-fired plants.  This is especially true of the combined-cycle gas turbine plants with the highest efficiencies.  see link  

Roger E. Sowell, Esq.
Marina del Rey, California
copyright (c) 2014 Roger Sowell

The Grand Game - Oil in Disarray

Subtitle: Precision Directional Drilling Causes Oil Price Decrease

It has been a while (four years) since I last wrote on the Grand Game, where renewable energy, nuclear power, oil, coal, and natural gas all compete for shares of the world's energy needs.  Previous articles on the Grand Game may be found here (see link).   This week has seen a flurry of articles on the weakness of OPEC, and the looming oil price collapse.   (see link for one of many such articles)

The reasons for the impending oil price reduction, or collapse as it may turn out, are fundamental economics of supply and demand.  Demand is stable or slightly falling, while world supply is increasing as US domestic oil production due to precision directional drilling and hydraulic fracturing brings more oil to the surface.   On a side note: hydraulic fracturing, or "fracking" as the media terms it, is not the key.  It does little good to fracture an oil-bearing formation if the oil well is vertical and pierces only a small part of the oil-bearing rock.  The key to the recent increased oil production is precision directional drilling, in which the oil well travels horizontally through the oil-bearing rock.   

Meanwhile, new cars are achieving ever-increasing miles-per-gallon ratings.  In the commercial aviation field, more and more ultra-efficient aircraft are flying, including Airbus' A380 and the Boeing 787.   However, the biggest influence is the increased oil production in the US.  

World oil price hit a low point this week, with the benchmark crude reaching $90 per barrel, representing approximately 10 percent decrease from recent prices.   It will be very interesting to see if OPEC members can reach some agreement on reduced production levels in an effort to increase or maintain price.  Or, perhaps the member countries will splinter and engage in a production war, each trying to sell as much as possible while prices plummet. 

On an editorial note, the price of oil has many ramifications.   The primary impact is on the cost of delivered goods since most goods move to their destination by petroleum-powered transport.  The transport usually takes the form of diesel-powered trucks and trains.  Also, ships and barges burn fuel oil.   Consumers who drive cars also enjoy reduced prices at the gasoline pump, leaving more disposable income in their wallets.   Industries do not burn much oil in modern times, and very little electricity is produced from oil so there is not much benefit for them.   

One of the major benefits is the price of natural gas, which in some instances is tied to the price of oil.  For example, Russia recently contracted to supply China with great quantities of natural gas, with the price of the gas being tied to the price of oil.    Since natural gas is used for electric power production, lower oil prices will have some impact on electricity prices. 

Long-term, OPEC has warned that low oil prices will create an oil shortage.  OPEC insists that few, if any, investments will be made into new production unless the price is obtainable to justify the spending.  

OPEC will meet again in November, 2014.   The results of that meeting should be interesting. 

Roger E. Sowell, Esq. 
Marina del Rey, California

copyright (c) 2014 by Roger Sowell -- all rights reserved

Speech on Peak Oil and US Energy Policy

UPDATE 2: June 11, 2011, I wrote below that OPEC took steps to bring the price of oil down to $80 per barrel to prevent the US from building coal-to-liquids plants and thus reduce imported oil quantities. However, it appears that OPEC now considers $100 per barrel an acceptable price for crude oil. This is approximately 25 percent greater than $80 that was their previous mark. This is likely due to 1) the USA's threat of a "Carbon tax" on new coal-fired power plants, or 2) new EPA requirements for mercury emissions on coal-fired power plants, or 3) any of the other costly environmental restrictions on coal-fired processes, or 4) the devaluation of the US dollar due to Obama's inflationary spending during his term of office ($800 billion stimulus spending, Quantitative Easing, huge budget deficits). Compared to 1980, a coal-to-liquids plant built in 2012 would very likely cost 25 percent more in real terms. This would allow OPEC to increase crude oil prices from $80 to $100, a 25 percent increase. OPEC met this week and held production steady, indicating the present prices are acceptable. -- RES

UPDATE 1: April 24, 2011, key slides from the presentation are now included. -- RES

On April 2, 2011, I was honored to speak at Tulane Law School in New Orleans, Louisiana, as one of three panelists discussing US Energy Policy and Peak Oil. While I don't have a recording of the speech, I have included below the prepared remarks. I will post the presentation slides showing the various graphs, soon. This was an excellent event, well-attended, and run extremely well. I enjoyed meeting everyone, and having discussions on many points. I want to extend a special thank you to Mr. Wesley Rosenfeld, Tulane second-year law student for inviting me and acting as my host, also Ms. Sarah Dawkins, Tulane law student and Treasurer of the Environmental Law Society. It was a pleasure to meet and talk to Professor Oliver Houck, who had many kind things to say about the Peak Oil session. It was also a pleasure to meet and exchange views with the other panelists, Mr. John Kaufman and Professor of Law Joshua Fershee. Finally, it was a pleasure to meet our panel's moderator, Dr. Geoffrey Parker, Professor of Economic Sciences and Director of Energy Policy at Tulane University. Thank you to all for making the Tulane Environmenal Law Summit a great success.

Figure 1

Speaking on 4-2-2011 at Tulane Law School, New Orleans

Prepared remarks:

Thank you, Mr. Rosenfeld for inviting me to speak today at the Tulane Law School Environmental Law Summit here in New Orleans. It’s a pleasure for me to return to New Orleans, where I worked some 30 years ago just up the river doing consulting engineering for Kaiser at the Gramercy plant.

Today, I want to address a very serious issue, the US Energy Policy with respect to Peak Oil. This speech today is but a small portion, an overview, of a much longer speech I give on the topic so I’ll just hit the high points.

The main points are divided into two sections, Peak Oil, and Energy Policy. Under Peak Oil, I will discuss why Peak Oil predictions fail and the false model used; Oil demand is not increasing at a compound growth rate; Oil Reserves are increasing; Oil price shocks are not catastrophic; and Many more options exist today.

Under Energy Policy, the main points are Take the Long View; Preserve our domestic resources; Maintain a vital oil industry; Develop Coal-to Liquids; Policy options to increase supply and decrease demand; and finally, OPEC’s new role.

First, Peak Oil has always been a false prediction. I first heard the term Peak Oil in 1972 as a freshman in engineering school. It has been predicted many times since the mid-1950s yet never comes true. The reason is that the model that is used to forecast peak oil is false; it is wrong. To paraphrase one of the US’s most brilliant scientists, Dr. Richard Feynman, when the predictions are wrong, you must get a new model. Dr. Feynman won the Nobel prize in physics for his work in QED, quantum electro-dynamics.

Second, Peak Oil proponents state that the world consumption of oil grows at an ever-increasing, compound annual growth rate or 2 or 3 percent per year. This is false, as the graph clearly shows (Figure 2). During the past 20 years or so, oil growth has been linear, at 1 million barrels per day per year. This chart shows world oil consumption by year, with two prominent peaks that coincide with OPEC oil supply disruptions in 1973 and again in 1979. The growth since 1985 has been very close to linear.

Figure 2: World Oil Production

(Click image for enlarged view)

This next chart (Figure 3) shows a closer view of just the data since 1985, with a linear trend line shown in black. The correlation coefficient is 0.98. The data is taken from BP Statistical Review of World Energy 2010, and is available on their website. Other sources show similar results.Thus, we can see that there is no escalating growth in oil consumption, indeed, the past 5 years have shown a flat or zero growth rate. This is very odd, considering the growing economies and oil demand in China and India.

Figure 3: World Oil Production since 1985

(Click image for enlarged view)

Next, looking only at the US oil consumption data (Figure 4), we see that oil use has stabilized and is steadily decreasing since 2004. Therefore, the Peak Oil claim of ever-increasing oil use is simply not true.

Figure 4: US Oil Consumption

(Click image for enlarged view)

Third, Oil reserves are increasing, not decreasing. Proven oil reserves are the most-cited number, and we must recognize that these numbers are very uncertain. No one knows how much oil is in the ground. We make our best estimates and that is all we can do. But, making those best estimates, we can see from this chart (Figure 5) that proven oil reserves are increasing each year at the rate of 20 billion barrels per year. How can that be? Mostly it is due to improved oil production technologies, which I really don’t have the time to explore in detail today.

Figure 5: World Oil Proved Reserves

(Click image for enlarged view)

Fourth, Oil price shocks are not catastrophic. The Peak Oil theory holds that all manner of calamity will occur when Peak Oil happens: economic ruin, depressions, rampant unemployment, starvation, wars for oil, etc. The price of oil is predicted to double, or triple, or go even higher.Yet, the reality is that none of those terrible things happened even though the price of oil went up 10-fold in less than a decade, in the 1970s. I lived through it, and many of you did, too. This chart (Figure 6) shows the oil price went from $3.50 per barrel to $35 between 1973 and 1980.We coped. We survived. We built better cars and conserved.

It is very instructive to examine this price chart, and while I can’t go into all the details, I can say that $32 was the price Saudi Arabia chose for oil in 1980. That was the highest price they could get without triggering the USA building our coal-to-liquids plants.

However, it is a fact that today, $80 per barrel is the same as that $32 in 1980, adjusted for inflation. Saudis maintain the price by adjusting production, and bring the price down to $80 as soon as possible. This happened in 2008, most recently. If the price of oil gets much above $80, we will drill for and produce much more oil, just like we did the last time that oil price shot up.We found oil in Alaska, the North Sea, Indonesia, and other places. Therefore, we will not see a doubling of oil price ever again. The threat of converting US coal to oil is simply too real. We know how. And, we could do it.

Figure 6: World Crude Oil Price

(Nominal dollars, not adjusted for inflation)

(Click image for enlarged view)

Fifth, many more options exist today compared to 1980. Among these are Hybrid vehicles, algae-to-oil, CTL, GTL, CNG vehicles, directional drilling, 3D seismic. [note, CTL is Coal-to-Liquids, GTL is Gas-to-Liquids, CNG is Compressed Natural Gas, 3D is Three-Dimensional imaging -- RES]

In summary, Peak Oil is not a problem. Demand is decreasing, supply is increasing, and there are far more options today.

Turning next to Energy Policy, the absolutely most important point is that we must take the long view and not be short-sighted. It is critical that the US be prepared for that day when we will desperately need our domestic oil. That day when our foreign supplies are cut off yet again, and this time we are in a prolonged world war, similar to World War II. To meet that day, we must have oil in our own lands. Every president since Truman has known this to be true, and therefore have made so much of the USA offshore off-limits to drilling. The West Coast, East Coast, and eastern Gulf of Mexico are off-limits to drilling. Much of the on-shore lands are also off-limits, including the ANWR. We know the oil is there. We don’t need that oil right now. Preserving that oil for the future is critical, and that is why Drill, Baby, Drill is Dumb, Baby, Dumb. (as an aside, this phrase drew spontaneous applause, much to my great surprise. – RES)

Next we must maintain a vital oil industry. It is critical that the US maintain the ability to drill, produce, refine, and transport oil and oil products to meet that dreaded day. We must attract and retain highly qualified and motivated personnel in the entire oil industry.

Next, we must develop 1 million barrels per day of Coal-to Liquids production using our domestic coal reserves. The Canadians have done something similar with their oil sands, even though they lost money for the first few decades. They went up the learning curve, reduced their operating costs and now are somewhat profitable. We must do the same with our coal.

Next, there are many policy options to increase supply and decrease demand. National speed limits will decrease demand by as much as 20 percent. Raising gasoline taxes are politically unpopular but will decrease demand. Mandating higher CAFÉ standards and government rebates for hybrid vehicles also decrease demand. There are many, many other policy options we could employ. By the way, the US already has more than two dozen federal laws regarding energy policy.

But, the most important supply-side policy choice is to promote recycling of CO2 by assisting the algae-to-oil processes. Here are a few photos of this technology. It works. This makes oil a renewable resource. [photo not included in this blog, due to copyright violation. Readers are encouraged to do an Internet search on images for "algae to oil." -- RES]

Another policy option is bio-ethanol. Mandating Corn-based ethanol is one of the dumbest things our government has ever done and should be repealed as soon as possible. (more applause at this statement. – RES)

Finally, all of the above has been based on OPEC maintaining their hold over world oil price. That is likely to change. OPEC’s new role is uncertain due to the recent events in the Middle East, particularly the change in governments in oil-producing countries. No one knows how this will all turn out, but it is very likely that the new governments will break away from OPEC and produce all the oil they can. That will decrease oil prices, in fact, we may see prices drop all the way to $20 or even $10 per barrel.

To conclude, we see that the data simply does not support the Peak Oil theory. Furthermore, even if oil were someday to be in short supply, there are many policy options to reduce oil consumption and increase oil supply. The most critical point is to not use up our domestic reserves but keep the oil in the ground as security against that day when we will need it most.

Thank you, and I’ll be happy to answer any questions. -- End prepared remarks.

Roger E. Sowell, Esq.
Marina del Rey, California