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.

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

Top Ten Posts

As of May, 2012, the top ten most-visited posts on SowellsLawBlog are as follows, from most visited to least:

1.   NPRA Sues Air Resources Board Over Biofuels (Feb 9, 2010)

2.  Chemical Engineer Takes on Global Warming (Feb 9, 2009)

3.  From Man-Made Global Warmist to Skeptic, My Journey (Sept 11, 2011)

4.  Warmists Are Wrong, Cooling Is Coming (May 6, 2012)

5.  Speech On Peak Oil and US Energy Policy (April 17, 2011)

6.  Global Warming Laws at AIChE Meeting in Nashville (Nov 12, 2009)

7.  Tire Inflation Rule Causes Liability (April 2, 2009)

8.  USA Cities HadCRUT3 Temperatures (Feb 1, 2010)

9.  Lawsuit Says CO2 Is A Pollutant In Texas (Oct 10, 2009)

10. Cost Increases From AB32 (April 4, 2010)

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

Saudis to Build Nuclear Plants at $7 Billion Each

"[T]he kingdom [of Saudi Arabia] will build 16 nuclear reactors by 2030 at a cost of around $7 billion each." - source.


In an ever-growing list of countries that either are building, or plan to build, nuclear-powered electric power plants, none are building at an affordable cost.  The USA, Finland, China, now Saudi Arabia all publish numbers that indicate a new, 1,000 MW reactor costs anywhere from $7 to $11 billion.  China is building a six-reactor plant for $66 billion, or $11 billion apiece.   The recently-cancelled South Texas Nuclear Project Expansion in the USA was to cost $17 billion, but that was just a dream; no shovel had been turned and no delays had yet started, with the inevitable increase in financing costs.  Fully costed, the STNP expansion would be at least $22 billion, more likely $25 billion.  


At these price levels, electricity must be sold for at least 35 cents per kWh, just to pay for the investment and provide a reasonable return.  


The Saudis indicated that their growing economy requires a 7 percent per year increase in electric power production.  They don't want to burn oil for making power, they would rather sell the oil.  Thus, the need for nuclear power plants.  The Saudis are smart, as I've written before, but they are mistaken on this one.  No economy grows, nor can it grow, at much above 3 percent per year for very long.  A temporary growth spurt might occur of 7 or 8 percent for a year or two, but this is not sustainable.  


Thus, there is no need for the nuclear power plants. The Saudis should, instead, do what the rest of the world does where economics are important: build combined-cycle gas turbine power plants (CCGT).  The Saudis have access to natural gas in the Middle East, and could easily purchase what they don't self-produce.  These CCGT power plants are much more efficient than conventional steam-based power plants, at 59 percent compared to approximately 35 percent.  They also do not use nearly as much water, which is a huge consideration for nuclear power plants.  Where, and how, will the Saudis obtain sufficient cooling water for 16 nuclear power plants?  Nuclear plants require at least twice as much water for cooling, compared to the CCGT plants.  Of course, the nuclear power plants could be built on the coast and use seawater.  This greatly increases the cost of the plant because seawater is more corrosive than fresh water. 


Perhaps the Saudis have another motive, from watching what the Iranians have done in the past several years with their nuclear "power" program.  Perhaps, just perhaps, the Saudis are in a race for parity and do not want the Iranians to have the upper hand, even in nuclear power plants. 


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

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

Chevron Departing Bay Area - Maybe

Chevron, a major international oil company, has a refinery in Richmond and its headquarters nearby in San Ramon, California, both on the San Francisco Bay. A recent article states that Chevron may have had enough of battling California (the state) and Californians (the eco-nuts) in its quest to upgrade and modernize the Richmond refinery. Chevron may just shut it down, and perhaps import gasoline, diesel, and jet fuel that is refined somewhere else. Goodbye to the jobs, to the taxes that support the local and state economy.

Chevron might consider relocating the headquarters to more friendly areas. Exxon did when it departed New York and moved to Dallas, Texas. The difference to the bottom line between New York's tax rates and Texas' made a big difference to Exxon's bottom line (now ExxonMobil after aquiring Mobil). Chevron could use the boost to its bottom line, too.

And nothing would be more fitting than for a huge corporation, with thousands of employees in California, to move out of California. Other industries have downsized or departed entirely. Cars are no longer made in California (after the sole remaining plant shuts down, as they have stated they will.)

Some Californians will likely say goodbye and good riddance if Chevron shuts down and departs. They view the corporation as an evil on society, causing pollution that injures or sickens or kills people prematurely. These same people drive their cars to their protest meetings, heat their homes with natural gas, depend on emergency generators fueled by diesel, and fly to their vacations and holidays in jets that burn jet fuel. All made by oil and refining companies, very likely Chevron, although there are several others in the state.

I hope Chevron does shut down the Richmond refinery and use it just as an import terminal. I hope Chevron does close its doors in San Ramon and move the headquarters to another state with lower taxes and no Global Warming Solutions Act like AB 32.

On the other hand, closing the refinery may not be possible. Shell tried to shut down a refinery in the Bakersfield area recently, and was required instead to find a buyer who would keep it running. Anti-trust reasons were brought up because the supply-demand balance in California is very tight (or it was in those days, it has improved somewhat now with the economic recession). The reasoning was that prices would soar if that one (and it was very small) refinery was closed, which would be an anti-competitive practice. Shell found a buyer, sold the refinery, and the buyer soon filed for bankruptcy, proving Shell was correct in their assessment that the refinery could no longer be run profitably. Will a US Senator intervene against Chevron if Chevron wants to shut down the Richmond refinery? Why should she, if Chevron imports the fuels? No harm, no foul, just bring in ships with products rather than ships with crude oil. India has plenty of refining capacity with products for sale.

California. What a place. Fantasies are written almost daily in this state, and some are made into movies to entertain the world. Some are actually quite good, while most are junk. Yet the front page news stories are far more entertaining than the film world's products. Imagine this script, where a large state writes law after law to cripple its industries, decrease employment, enrich consultants and doom-sayers, employ armies of lawyers, drive out employers, stays eternally in massive budget deficits in the amount of roughly $24 billion each year, spends half its state budget "educating" children who cannot read or write upon graduation, then that same state advertises itself as The Golden State where everyone is free, the weather is fabulous, and business opportunities abound.

Nah, couldn't happen. No state would be that dumb.