'Tis the season to be joyful and grateful, but when 2012 comes to a close, the Koch brothers and their other “drill, baby, drill” cohorts will quietly be gloating about their best one-year run in quite a few decades. Recent government reports have revealed that oil production reached 6.41 million barrels a day in 2012—the highest output recorded in 15 years. There is nothing like a hefty cup of warm “Texas tea” to warm the cockles of your heart when all around you seem bent on your destruction.
An article from Bloomberg declared that the oil industry's largess is actually broader than this simple statistic would imply. The number of barrels for the year also grew by 14 percent. One has to go back to 1859, when the oil rush commenced pumping in Pennsylvania, to find more stellar figures. Futurists are already predicting that we as a nation will surpass Saudi Arabia by 2020 to become the world’s largest oil producer.
Does the Obama administration get any credit for these obvious achievements to reduce our dependency on foreign oil? Rarely, if ever, depending on where you read. Oil prices have been kept below the psychological $100-per-barrel level for the latter half of this year. There had been chaos in this market early in the year. Gas prices shot through the roof, and energy pundits projected a climb above the $125 barrier, but a slowdown in the global economy nixed these claims. Steady rises in production, however, also suppressed imports and led to lower prices as the year progressed.
Critics from the right continually blasted our president, even when these favorable results came gushing through existing pipelines to patiently waiting oil tankers. Mitt Romney’s only rebuke was that he would have done more, but even the Koch brothers pulled back on this refrain. There was no sense in drawing unnecessary attention to their highly profitable activities. Better to let BP continue to take the heat in the industry and twist slowly in the wind after its Deepwater Horizon mishap.
The dramatic rise in domestic oil production had caught many industry players flatfooted, with many rushing to regroup and rethink their respective short- and long-term strategies. What has changed to disrupt this happy band of industrialists? The “new thing,” according to Francisco Blanch, a commodities research expert for Bank of America Merrill Lynch in New York, is contained in one word—shale. “The shale oil revolution is a new, new thing. It has come out of nowhere in the last year and a half.”
Another key factor, according to the Bloomberg report, is that our brand of crude is cleaner and cheaper to refine than the “high-sulfur, sour grades pumped by Saudi Arabia and Venezuela.” As a result, OPEC for the first time in years is betwixt and between on what pricing policy to pursue in the near term. Higher prices are needed to fund government budgets during hard times, but higher revenue would only encourage US producers to turn up the volume. Lower prices might help reduce the potential supply gut, but open rebellions from an irate citizenry would be the likely consequences of these actions.
In 2005, it was none other than President peak oil is dead,” our grandchildren’s legacy will be to come to grips with the looming energy crisis on the distant horizon.who declared, “America is addicted to oil, much of which is imported from unstable parts of the world.” Today we are uniquely positioned, whether through foresight or fortuitous events, to influence global energy policy without being the “bad guy” in the room. Shale and natural gas may have given us a temporary leg up on the competition, but, despite fervent cries that “
Our dependence on fossil fuels is deeply entrenched and enjoys the benefits of scale from an economic standpoint. Alternative energy sources—wind, solar, nuclear and biomass—are all in their infancy period, perhaps with the exception of nuclear technology. Scale is a long way down the road, requiring government subsidies every step of the way until a viable beachhead is secured and maintained. These new initiatives will need, by necessity, billions in new investment capital, but that market only reacts when oil prices spike over the mystical $100 a barrel level.
Why are the Koch brothers grinning about their newfound abundance? Alternative energy is not their bread and butter. Despite highly publicized events such as when Exxon Mobil invested $600 million in algae-based research in 2009, the oil industry has done little to diversify into these new fields of endeavor. Most research grants or efforts in the alternative genre have more to do with hedging future bets than with truly developing what the world really needs. Their strategy will remain a waiting game, unless something on the order of a similar “shale revolution” takes place to reshape the playing field.
Not all is sweet about these new developments in shale oil and gas technology. The process of “fracking” has many environmentalists up in arms. Industry advocates insist that the practice is safe, a process that has already had a few decades to smooth out the rough spots. Government policymakers, however, are being asked to look the other way and postpone any measures that might curb the industry’s momentum at such an early stage. Many cries for less regulation are focused clearly on this new “golden goose.”
The energy industry is our mother of all markets, accounting for more than $6 trillion in global GDP. A full frontal attack to reduce entitlements for the oil and gas industry has been rebutted time and time again, forcing trade-offs in other significant priorities while excessive profits are the rule. Our president said it best: “If we choose to keep tax breaks for oil and gas companies that are making hundreds of billions of dollars, then that means we've got to cut some kids off from getting a college scholarship.”
Where do we go from here? If our wealthy refuse to pay their fair share and the wealthiest corporations in our midst, those other “people,” follow their lead, but with lower profiles, then is the middle class to be held once more to the whipping post?once quipped, “Moderation is a virtue only in those who are thought to have an alternative.” We do have alternatives, as do the Koch brothers, but do we have the will to fight for moderation? Time will tell. Lean forward!
References: Embedded links provided, but points made are primarily the opinion of the author.