Oil: Then and Now

September 2008 and September 2011

The year is 2011 and to anyone not in denial, the industrialized nations have entered a period of great calamity:

  • 35 Million Americans on Food Stamps: 12 Percent of U.S. Population on Food Stamps, the highest since records kept in 1969, and that’s before the Obama administration announced a planned three-year budget freeze on government discretionary spending. ((My Budget 360))
  • 18 Million empty houses in the United States and 39 million Americans who are no longer working or looking for work, and that’s before Federal Reserve finishes rewriting the rules of American “capitalism” as US Housing, the Automobile Industry and the American Dream are dismantled. ((The 31-Year-Old in Charge of Dismantling G.M., David E. Sanger.))

“There are now well over 150 million Americans who feel stress over these things on a consistent basis. Over 60 percent of Americans now live paycheck to paycheck.” ((The Economic Elite vs. People of the USA, David DeGraw.))

So then, why are Exxon, Rosneft and Shell pouring out billions into potentially huge, risky prospects above the Arctic Circle? ((Arctic Riches Lure Explorers))

An economy in a state of rigor mortis doesn’t need oil to lubricate an engine that blew up on October 29, 2008, and our way of life won’t come back if the oil industry creates a handful of jobs or we reduce our dependence on foreign oil.

Exxon Mobil Corp.’s blockbuster $2.2 billion deal to drill for oil in the frigid waters north of Russia with OAO Rosneft makes no cents.

Drill, Drill, Drill hasn’t made economic sense for at least the last 20 years!

Matt Simmons, an investment banker, considered to be a mover and shaker in the oil industry (before he “apparently” drowned in his bathtub) thought he, “spent his career in the wrong kind of barrels.”

It will take 16 trillion dollars to replace the production we now have on line and add to it by 2030. Oil or another form of energy is an indispensable requisite for life as we know it. But over the past 20 years, oil has been a terrible investment. A 15% return on investment (ROI) is what one expects to get from a building. Oil’s ROI has largely been less than 15%. Scotch returns 50% ROI, wine returns 15%.

Why has oil given such a lousy return?

Because spot energy pricing, where oil is bought and sold like a commodity has destroyed long term value for the oil industry. Spot markets make all contracts short term, so no one is looking out for the future. ((From a presentation by Matt Simmons at the 2004 Offshore Technology Conference.))

“The not-so-invisible hand of JP Morgan Chase is guilty of the ongoing intentional, not accidental, great crime of manipulating the spot markets, lower, not higher as you would expect. So you could, prior to 2008, ‘save money and live better’ while at the same time pollute the environment.” ((Silver, But No Silver Lining.))

Why has Oil been a “terrible investment”?

Inexplicably, the industry picks the most expensive places on the earth to drill for oil. Chevron spent $2.7 billion over 10 years on just the first phase of a deep-water oil project in the Gulf. Other sub-salt discoveries involve drilling more than 30,000 feet, some of the most expensive wells ever drilled.

On January 7, 2010, the Wall Street Journal published, “Cramped on Land, Big Oil Bets at Sea”: “Big Oil never wanted to be here, in 4,300 feet of water far out in the Gulf of Mexico, drilling through nearly five miles of rock. It is an expensive way to look for oil.”

September 2011, Exxon Mobil announced their latest $2.2 billion blockbuster deal to drill for oil in one of the most dangerous places in the world.

Another sign that of the energy industry’s white-hot interest in exploring above the Arctic Circle despite the challenges. The company hopes to drill their first exploratory well by 2015 and, if everything goes well, could begin production in the region by early next decade. The extreme weather and ice floes during colder months could wreak havoc on oil-industry platforms. Cleaning up an oil spill would be a huge effort. The seas there don’t support the microbes that can break down oil droplets. ((Russell Gold.))

You really don’t need to know a lot about geology or oil to figure out something is wrong here: people living in homeless shelters don’t need cheap oil to go shopping and if they did, “why not go back to the old days and drill oil wells onshore?” ((Buy Oil Stocks… No Matter What, by Chris Mayer))

Or if oil companies insist on drilling offshore, why not use up the 70 million “offshore acres leases” remaining from the total of 90 million?

Drill, Drill, Drill didn’t make environmental sense in 1973 or 2008

In 1973, America’s solution to the Arab oil embargo and long gas lines wasn’t mass transit, high mileage cars or alternative energy…it was the 800-mile Trans-Alaska Pipeline through some of the most pristine country in Alaska.

Fast forward to September 2008, when the American people, against all logic, (according to the EIA) agreed to drill for oil in the ANWR and give up their last Arctic wilderness because they couldn’t stand paying $4.55 for a gallon of gas.

The U.S. Energy Information Administration (EIA), an independent statistical agency within the Department of Energy, estimated that new oil from ANWR would have only a negligible impact on the world price of oil.

The EIA projection for oil production in the ANWR would amount to 0.4 to 1.2 percent of total world oil consumption in 2030, assuming the U.S. congress approved legislation to drill, back in 2008.

Gasoline prices then and now

Last week (September 5, 2001) gas prices edged higher and are approaching levels we haven’t seen since September 2008. During the past week, prices were $1.01 higher than the same day one year ago.

A recurring controversy here in the United States revolves around the question, “should we mine the Arctic National Wildlife Refuge in Alaska?”

The debate crops up every time oil prices [and gasoline] spike and to my mind seems more appealing every time it’s broached. The region is indisputably beautiful, a pristine wilderness populated by endangered species of wildlife living peacefully in unspoiled natural splendor.” ((Oil Drilling in the Arctic.))

Could the spike in oil and gasoline prices be related to the irrational need to drill in the pristine and untouched places on the Earth?

Robert Singer is a retired information technology professional and an environmental activist living in southern California. He can be reached at: rds2301@gmail.com. Read other articles by Robert, or visit Robert's website.