Will More Drilling Increase U.S. Energy Security?

Will More Drilling Increase U.S. Energy Security?

Debate in Council on Foreign Relations
September 30, 2008

Iain Murray

Mr. Abraham’s Parthian shot in this debate is
a precise example of why I feared it would disappear in ever decreasing
circles. I have stressed repeatedly that “drill, baby, drill” is a
slogan, not a comprehensive energy security policy, yet Mr. Abraham
insists on treating it as such. A comprehensive policy must include
increased investment in infrastructure, alternative sources of
electricity to meet the demand for electric cars that will help ensure
that we do not need any more than 8 million barrels per day by 2030,
and so on. Yet increased domestic oil drilling must form a part of such
a comprehensive policy, to help reduce the effects of hostile
governments cutting off supply and to provide increased resilience to
price volatility caused by natural disasters. The rest of the world
recognizes this, with even the European Union energy commissioner
backing drilling in the Arctic.

Eliminating such an
important source of energy security from the comprehensive policy is
what is truly short-sighted. What would Mr. Abraham have us do instead?
Wind power, as suggested by T Boone Pickens, is the least reliable of
all energy sources, so cannot be described as secure by any meaningful
definition. Natural gas is a plausible alternative, although automotive
CNG [compressed natural gas] technology is
nowhere near ready to replace gasoline, and most of the nation’s
natural gas reserves are subject to the same restrictions as oil. We
could be having this same debate about natural gas exploration and
drilling. Biofuels are subject to the volatility of the weather-a
severe drought or significant floods like we saw this year in a nation
powered mainly by biofuels would indeed cause an energy crisis. The
only secure alternatives to oil (for a vastly increased electric car
fleet) are nuclear and coal-powered electricity, which are opposed by
environmentalists; their history of objecting to new power plants and
transmission lines suggests that there is little security in that plan
either.

As for the assertion that the United States needs to
demonstrate leadership in alternative technologies, it has. By the
usual metrics of dollars spent and technologies deployed, the United
States is a global leader in alternative energies and will remain so.

Talking
of environmentalism, having previously excluded the general economic
benefits of drilling from any definition of energy security, Mr.
Abraham now redefines it to include the risk of environmental
degradation. Yet, as a recent study by the American Enterprise
Institute makes clear, the massive economic benefits that accrue from
domestic drilling-some $1 trillion from the Outer Continental Shelf and
$668 billion from ANWR alone-could and
should easily help pay for substantial environmental improvement.
Increased economic activity and environmental improvement actually go
together, as the literature demonstrates.

In fact, I wonder
whether Mr. Abraham’s main point isn’t about actual energy security but
about “our lifestyle of consumption.” He worries about the “perilous
example” of putting the economy ahead of the environment. Yet putting
the environment “ahead” of the economy, as Mr. Abraham seemingly wants
to do, is actually a recipe for continuing environmental degradation. I
am concerned about neither abstract concept, but about human welfare.
By recognizing the contribution affordable energy makes to human
welfare, we can see why China and Europe would want us to show
leadership on real, affordable energy sources while at the same time
encouraging future energy sources, rather than concentrating on one at
the expense of the other. Domestic drilling is essential.

Let
me end by agreeing with Mr. Abraham on his final point. Policy is not
an end in itself. That certainly applies to those who myopically refuse
to accept the fundamental role of domestic drilling in a comprehensive
energy security policy.

————————————————————————————————————————

September 29, 2008

David Abraham

We
are in agreement that the United States needs oil and should take steps
to reduce our reliance on fossil fuels. However, Mr. Murray narrowly
defines energy security as dependence on certain countries for imports.
That definition is incomplete. Threats to our energy security abound,
from natural disasters and domestic terrorist attacks, to inefficient
infrastructure and reliance on fuel sources that add to environmental
degradation. Moreover, the international marketplace determines supply
and demand, so even if we reduce our dependence on oil from the Middle
East, a supply disruption in that region affects the quantity of U.S.
imports. In fact, disruption in output anywhere-an attack on a pipeline
in the Niger Delta to a hurricane in the Gulf-affects oil supplies
everywhere.

In his last posting, Mr. Murray also points to
Energy Department analysis that shows our need for oil will increase
under current assumptions. He believes drilling in new areas hedges our
energy security against terrorist risk, pointing to an oil
industry-funded study which shows the United States may have up to 116
billion barrels. Most of it, however, is already available, even
offshore. We must change current assumptions by using regulations and
tax policy to create incentives and provide government assistance for
greener and more sustainable alternatives. Since we can’t meet the
country’s growing need from domestic sources, we will become less
secure by relying on foreign sources for substantial portions of our
supplies, regardless of our drilling stance.

The Unites
States needs to take the lead, or at least be one of the lead nations,
in searching for energy alternatives. Our lifestyle of consumption is
now creating a race for traditional resources; one we cannot win. Over
five-million new petrol-powered cars hit the road in China last year,
more than four million to new owners. And with India offering a $2,500
car that would likely fail emission standards here, India is not far
behind. These countries are modeling their consumption patterns after
the United States. Although we must access available resources,
allowing exploration in environmentally sensitive areas, such as ANWR,
shows poor global leadership. It indicates that the economy takes
precedent over the environment, a perilous example to a country in
which our Olympic athletes wore masks as a precaution against dangerous
air quality.

Here’s the rub: continued exploration is
necessary, but it does little to solve our energy security problem.
“Drill baby drill” is a myopic and counter-productive rallying call
that focuses solely on a policy prescription, like cutting taxes,
without outlining any type of vision of an end state. Moreover, in
Congress, where policy positions are often more important than crafting
actual solutions, many lawmakers see access to areas for additional
drilling as a victory in itself; therefore delaying the impetus to make
harder decisions that involve sacrifice and that truly improve U.S.
energy security.

————————————————————————————————————————

September 26, 2008

Iain Murray

Mr.
Abraham treads some well-trodden ground in responding to my points.
Rather than disappearing in ever decreasing circles, let’s focus
instead on what we seem to agree on-that we do not know how much oil
America has and that America will continue to need large amounts of oil
for some time to come. I think the debate will be best served if we try
to quantify that latter number and ask what that tells us about the
first point, and how it relates to energy security. All the information
that follows, except where noted, comes from the Energy Information
Administration (EIA).

America currently imports about 13
million barrels per day of oil, and produces about 5 million barrels
per day domestically. In turn, we use about 18 million barrels of
petroleum products each day, of which about 9 million barrels per day
is gasoline. Now, assuming the sort of heroic adoption of new motor
vehicle technologies that I am wildly optimistic about, the EIA
estimates that we will still need about 8 million barrels of gasoline
per day even as far away as 2030 (although we should be travelling much
further on it). So we will continue to need large amounts of oil even
after 2018, which is when Mr. Abraham admits new drilling will come on
line.

Now, as it happens most of our oil imports are secure.
Our two biggest suppliers of oil are Canada and Mexico, who supply
about a third of all our imports together. Canada alone supplies more
than we get from the Persian Gulf in total. Other friendly nations like
my native Great Britain supply substantial amounts of oil too. So it
does not make sense to characterize all our oil imports as a whole as a
source of insecurity as people like T. Boone Pickens or John McCain
have. That is why I am glad that this debate is not about the red
herring of “energy independence.”

As we are talking about
security, we should therefore instead look at unfriendly or unstable
nations whose supply might be disrupted by design or by virtue of their
instability. I would therefore suggest that only the imports from Saudi
Arabia, Venezuela, and Russia could be termed as a source of energy
insecurity. By my calculation from EIA
figures, those countries supply us with about 3 million barrels per
day. That is the size of the energy security problem as it relates to
oil-about one sixth of our total oil use.

Now, could
domestic drilling help alleviate that problem? According to the
American Petroleum Institute, federal lands and waters have the
realistic potential to hold about 116 billion barrels of oil, a figure
that needs to be verified by exploration currently banned. In other
words, there’s a good chance that federal lands and waters could
alleviate that energy security problem for about a century, assuming no
further technological development beyond the ones I have already
described. It is clear that we need to start exploration now to bring
these resources online to meet our medium-long term oil energy needs.

Ramping
up energy production in any of the other areas Mr. Abraham talks about,
and converting the nation’s transportation system accordingly would
take at least ten years, so the argument about timing is irrelevant. In
the short-term there are other things we can do, some not immediately
apparent; reform of the Air Traffic Control system, for example, could
lower U.S. oil demand by 0.4 million barrels per day-about the same as
our imports from Russia. In the end, however, in an uncertain world and
with foreseeable technology, any reasonable definition of energy
security has to include exploring for and drilling for those 116
billion barrels currently off-limits by law.

————————————————————————————————————————

September 25, 2008

David Abraham

Mr.
Murray raises some thought-provoking, albeit misguided and
short-sighted points. More importantly, he fails to show how drilling
will enhance U.S. energy security.

First, drilling in new
areas will not produce enough oil to make us secure. His analogy-we
can’t drill our way out of our oil shortage is like saying one cannot
feed a person out of hunger-assumes we have abundant oil resources. But
the U.S. doesn’t. Additional drilling for the U.S. is more analogous to
giving a starving man a cracker: it does little to improve his dire
situation. He then attacks industry and government sources suggesting
they understate the country’s share of global reserves. But for the
U.S. to have a greater share of global resources, they must only
underestimate total global resources. This seems unlikely. Even if we
took his premise that U.S. resources are 50 percent more than most
reputable sources, we would only have 3 percent of global reserves-that
still makes little difference to our energy security. I am not
suggesting that we shouldn’t accurately assess the country’s resources
or consider opening certain new areas for exploration, but extracting
those reserves won’t make us more secure.

Second, drilling
will not produce results quickly enough to increase energy security.
Mr. Murray’s right: “we will need significant amounts of oil for the
next decade.” But drilling does not affect immediate supply. According
to the Energy Department, even if we allowed production in restricted
areas, only 200,000 barrels a day would reach the market, but only
after ten years. By then our energy demand would have grown by 5
million barrels a day. Even in his wildly optimistic scenarios, our
reliance on foreign oil is set to increase while our energy security
decreases.

Third, the price of oil has little bearing on
U.S. energy security. Mr. Murray states that oil prices are set at the
margin and any drilling will bring them down. But so are all
commodities and many other goods. That’s irrelevant. Our security
hinges on the resilience of oil markets, especially in a crisis, not on
whether we can reduce the price at the pump by $0.25.

Fourth, Mr. Murray argues that drilling brings about economic benefits, as if GDP
growth made a country more energy secure. If it did, nations like China
would have the energy security equivalent of Fort Knox; but it doesn’t.
He adds that expanding the oil industry would create more high paying
jobs. So would the legalization of the drug trade. Neither, however,
makes the country energy secure. Developing incentives for and funding
research in alternative technology, however, would be more productive
in enhancing security. It would also spur jobs in the high-tech
industry – certainly a field with high paying jobs.

Finally,
our reliance on oil contributes to a worsening global environment.
Drilling scars the landscape as anyone who has been to Pinedale,
Wyoming or Baku, Azerbaijan can attest. In fact, environmental damage
is the reason coastal states receive billions from the federal
government for oil and gas drilling in federal waters. Such
environmental concerns must be considered. As Mr. Murray points out
ignorance is not a good basis for energy policy. He’s right. But
neither are stasis and short-sighted solutions to meet long-term energy
security concerns.

————————————————————————————————————————

September 24, 2008

Iain Murray

It
should not need to be said that “Drill, baby, drill” is a slogan, not a
comprehensive energy policy. Yet the fact remains that exploration of
the nation’s potential oil and gas resources must form part of any
comprehensive energy policy. The fact is that most of the U.S. lands
and offshore assets have been off-limits to even exploration for so
long that we simply do not know how much oil we have. The much-touted
figure of just 2 percent of proven global reserves is very much a
bottom limit. We almost certainly have a lot more than that, but we
don’t know precisely how much. Until we allow exploration, we cannot
judge exactly what effect drilling would have, and we certainly cannot
say how much additional consumption it would afford us. We are the only
country in the world to constrain ourselves like this; ignorance is not
a good basis for public policy decisions.

As for the
argument that opening production in offshore areas would have an
“insignificant effect,” once again its basis is shaky. The price of oil
is set at the margin. A small change in supply or demand can produce
large price swings. Yet there are many other arguments as to why
domestic drilling would be beneficial to national security. These
include much lower trade deficits, huge numbers of high-paying jobs
(the oil industry is the highest-paid profession in the United States),
and more secure supply that cannot be turned off at the whim of a
dictator -surely an essential part of the very definition of energy
security. An additional 500 million barrels of domestic production
annually at one hundred dollars a barrel represents a lot of additional
GDP: $50 billion. Moreover, that figure is extremely conservative, given the ignorance we have already examined.

Then
there is the argument that we cannot drill our way out of the problem.
I have always felt that this is like saying one cannot earn one’s way
out of poverty or feed a person out of hunger. Of course oil cannot
supply all of the nation’s energy needs. Yet the same argument applies
to every other energy source that is advanced as an alternative.

This
is not to say that oil is here to stay in the long-term. Given the way
electric car technology is going, I suspect that a majority of cars
sold in this country by the end of the next decade could be
electric-powered, yet providing the same performance and size that
American consumers want. In the meantime, we will need significant
amounts of oil for the next decade at least. If there are domestic
resources available, less vulnerable to natural or man-made disasters,
then it is prudent to utilize them now. First, however, we need to know
what they are. Drilling test wells is essential for that.

————————————————————————————————————————

September 24, 2008

David Abraham

The
slogan “Drill, baby, drill” on the presidential campaign trail serves
as a rallying cry to remove a congressional moratorium on drilling in
certain federal areas. It makes great political theater, but belittles
our country’s energy security problems by propagating the myth that we
can drill our way toward oil independence and by focusing security
policy on the simplistic supply and demand paradigm of one energy
resource, oil. In fact, opening new areas to drilling will do little to
address our fundamental energy and national security needs: to protect
energy infrastructure, to diversify our energy resource base, to
improve international relations, and to conserve. For the United States
to have energy security we must create a reliable, sustainable energy
network that recognizes the interdependence of the global energy
market, rather than narrowly focusing on the production of more oil.

Allowing
exploration in currently restricted areas has the potential to buy
months or at most a few years of consumption on aggregate. However,
doing so will provide little long-term security and delays the
inevitable, that the United States needs to develop a more sustainable,
comprehensive energy network. With less than approximately 2 percent of
global oil reserves, the United States will never drill its way to
enhanced security, no matter where we drill.

Moreover, the
Department of Energy reports that opening production in all offshore
areas will have an “insignificant” effect on oil price as price is
determined by the global market. If such a small amount won’t effect
price, it surely won’t improve our national security.

Drilling
distracts the nation from taking meaningful steps to create a
diversified, secure energy infrastructure, especially for a
transportation system that is less reliant on oil. Companies that have
the option to expand in newly opened areas, may find it more profitable
to drill than to invest in protecting the supply chain from natural or
man-made disasters or upgrading refining capacity, which are more
important steps to increase national energy security.

We can
follow the lead of other countries. For example, after the Arab oil
crisis in 1973, Japan made a strategic decision to wean itself from
reliance on oil by striving for energy efficiency, promoting national
gas and improving its mass transportation system. It now imports less
oil than it did in the 1970s while the US has increased its reliance on
imported oil from 30 percent to over 60 percent over the same time
period. Although much less endowed with resources than the US, Japan
did not improve its energy security by focusing on ways to produce more
oil and neither will we.