DRILLING IN U.S. GETS GAS, NOT OIL

There are a lot of very good reasons to be cynical about Republican arguments that allowing more oil well drilling on protected federal lands will cut gas pump prices. Here is one of the best: Domestic drilling tends to produce natural gas discoveries, not oil discoveries.

Porter Bennett, President/CEO, Bentek Energy “You have to start with the recognition that most wells drilled in the Rockies are not oil wells — they are gas wells…There would never be an expectation of huge returns on the oil side…”

U.S. oil reserves peaked almost 4 decades ago and everybody in the oil industry knows it. So why fight for drilling rights? Because the natural gas supplies – and there are still plenty, both in protected areas and in the areas where the oil companies already have drilling rights – will be especially valuable as a carbon constrained economy looks for lower-emissions ways to generate electricity.

Dusty Horwitt, senior analyst for public lands, Environmental Working Group: “We’ve turned our Western lands into a pincushion and gasoline is $4 a gallon and the price of natural gas has gone through the roof…”

The natural gas won’t have any effect whatsoever on gas pump prices. The oil and gas industry knows that. They just need the drilling rights to get at the gas. They already own the Congressmen, so why not put them to work arguing for something the public will buy?

The realization tends to justify almost any level of cynicism, so feel free.

Whether it is ultimately advisable to allow drilling for the gas supplies to feed the grid means weighing complicated economic, energy production and environmental impact factors.

Observed environmental impacts of drilling in the Rocky Mountain west: (1) Parts of western Wyoming and western Colorado subdivided into “a rabbit warren of wellheads and roads.” (2) Winter ozone alerts from natural gas well flaring, vehicle traffic associated with drilling activities and seasonal temperature inversions. (3) Decline of one migrating mule deer herd by nearly half in 5 years. (4) Decline of Wyoming sage grouse populations by 80%+ in 7 years.

Progress means huge economic benefits to the regions where there is drilling. $20 billion of energy discovery and production money has been invested in the Rocky Mountain states over the last 6 years to get at the harder-to-get stuff that was bypassed in earlier times when more accessible supplies were available.

Marc Smith, executive director, Independent Petroleum Association of the Mountain States: “Because we are a frontier region…it’s heavier lifting to build the infrastructure to ship energy from where it’s produced to where it’s needed.”

Seeking the economic benefits on behalf of the region's citizens (as well as themselves), drilling companies make efforts at environmental protections – if the efforts do not slow progress too much.

Bennett, Bentek Energy: “If you restrict drilling…you’ll go from a situation where we’re growing one billion cubic feet in production a day to a situation where you’re flat or declining in two years...”

Difficulty and expense are the simple answers to why so little of the land already leased has yet to be drilled. (ex: 7,124 drilling permits approved (2007), 5,343 wells drilled ). The more complicated explanation has to do with how hard it is to find deposits (ex: 4.9 million acres leased in Colorado, 1.4 million acres under production).

Environmental harm and economic benefits are sort of offsetting factors. The 3rd consideration is energy production. That brings the discussion full circle because polls show quite clearly the public strongly favors breaking the tie in favor of drilling if it will up U.S. oil production and drive gas pump prices down. But, of course, it won’t.

David Alberswerth, senior policy adviser, Wilderness Society: “…opening protected areas of the coasts or public lands to new leasing is not going to lower the price of gasoline…”

Nevertheless, the oil and gas industry wants very much to keep drilling.

Richard Ranger, senior policy adviser, American Petroleum Institute: “There is obviously in the Rockies a tremendous amount of industry investment…It is reasonable to expect that surge will bear fruit with new production over the coming decade.”

Yeah, absolutely. New production will bear the fruit of natural gas. But increased drilling is being sold to the public as new production for more oil to bring pump prices down.

Comfort for the despairing: More electricity from natural gas is a temporary way to fuel the coming plug-in vehicle revolution until the nation and the world move from fossil fuels to New Energy.

click to enlarge

A Push to Wrest More Oil from Land, But Most New Wells Are for Natural Gas
Felicity Barringer, August 3, 2008 (NY Times)

WHO
The 2001 Energy Task Force (Vice President Dick Cheney, convener); The oil and gas industry; the environmental community; the people of the Rocky Mountain west

WHAT
Deciding whether drilling in protected federal lands (as advocated by the Cheney-led Energy Task Force) means weighing the economic, energy production and environmental impacts. In the Rocky Mountain west, it is possible to get a clearer understanding of those issues.

Gas prices are tracking oil prices. (click to enlarge)

WHEN
- 2001 thru 2006, Western federal land oil production: 97.9 million barrels/year
- 1992 thru 2000, Western federal land oil production: 111.5 million barrels/year
- 2001 thru 2006, Western federal land natural gas production: 2.4 billion cubic feet/year
- 1992 thru 2000, Western federal land natural gas production: 1.8 billion cubic feet/year

WHERE
- Western federal lands: The Bush administration issued 3 times more drilling permits than the Clinton administration, yet annual oil production was 12% lower in the Bush years.
- Western federal lands: Natural gas production increased 34% in the Bush years.
- U.S. oil reserves: (1) Texas, 23%; offshore, 19%; Alaska, 18%; California, 16%
- Colorado, New Mexico, Utah and Wyoming: 10% of .S. oil reserves, 30% of U.S. natural gas reserves.

WHY
- Natural gas prices are 5 times what they were in the 1990s.
- Demand/supply dynamics for natural gas to power the U.S. electricity grid keeps new discoveries from interrupting the upward trend of prices.
- The biggest new onshore discoveries (ex: Bakken field in western North Dakota and eastern Montana) are mostly not on federal lands.
- Offshore wells: 32% of U.S. oil production in the last 3 years.
- 90% of 2007 U.S. onshore drilling permits for federal lands were issued in Colorado, New Mexico, Utah and Wyoming.
- Higher prices and new technical skills make gas supplies once too expensive to get at worth drilling for.

click to enlarge

QUOTES
- Dusty Horwitt, senior analyst for public lands, Environmental Working Group: “What these data show is that conservation and renewable energy are likely to be the solution to our energy woes.”
- Dusty Horwitt, senior analyst for public lands, Environmental Working Group: “On the oil side, the data show that there’s just not that much oil out there in the West.”
- Pete Stark, energy analyst, IHS: “It takes an increasing number of wells to be drilled each year to replace lost production. The industry is running very hard just to stay in place.”