Tuesday, August 12, 2008

Oil exploration: three "convenient truths" in the Post today

Once again, it’s time that the politicians, particularly the Democrats and Obama, stop confusing the public on energy. Gasoline prices have slipped, as has crude oil. Actually, today its back “up” to $115 because of the Georgian crisis, which in the grand scheme of things is probably a relatively trivial matter.

Some liberals want to expropriate the windfall profits of oil companies and give them to “working families.” ExxonMobil is a particularly attractive mark. We know how left-wing moralism gets going. In fact, XOM has been down recently, because its earnings, as large as they are in “absolute value” quantity, are not great relative to the size of the company. This sounds like your typical Algebra I problem, where the public doesn’t get the relative significance of “numbers.” (How many teachers know how to convey this?_ Another problem is that oil companies don’t own many of the reserves and take enormous business risks in drilling. I was just in a meeting this morning with some financial types at an investment bank, and this is they think it all comes to, particularly with oil stocks.

McCain, to his credit, has jumped on this and preached that we need to drill if we are not to lower our standard of living. He admits (here like Obama) that we also need to do everything else, including developing renewable energy, whether the Pickens Plan or something else. I’m going astray here perhaps, but what then happens with some of the Republicans is to take the “fairness” debate down to individual morality and family values in a way that keeps society polarized and that misses many of the main moral points. Who can be “social liberal” but innovative and fiscally conservative? Libertarians?

The Washington Post today (August 12) has an editorial on p A12, “Snake Oil: Debunking three ‘truths’ about offshore drilling.” The link is here.

The Post points out that we really don’t know what percentage of the World’s reserves we have. It’s likely to be a lot more than 3%. Look at the enormous field in North Dakota. Look at off-limits places in Alaska like Gull Island.

Another problem is that industry reporting doesn’t show how oil companies use the leases they already have. Accounting in the oil business is tremendously complicated (remember the show “Dallas”?) and does keep some IT people employed, even today.

Still another is that the public doesn’t have the proper perception of the environmental risks here relative to the fact that they are just as important in other parts of the world, including Africa. The Post maintains that spills became a volatile issue after a Santa Barbara blowback in 1971, followed, of course, by the Exxon-Valdez incident in Alaska in 1989.

At least some of the recent deflation of the oil price “bubble” must stem, not only from the talk of regulating speculation, but also from the perception that the public is accepting the idea of more drilling. It may take a few years for the drilling to become productive, but technology, such as magnetic signatures, has advanced rapidly, and already production is increasing in the Great Plains and Canada.

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