An Energy Policy Designed to Fail

Rich Trzupek is a veteran environmental consultant and senior advisor to the Heartland Institute. He is the author of the new book Regulators Gone Wild: How the EPA is Ruining American Industry (Encounter Books).


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Here’s the way the industry actually works, written from the perspective of a fellow who has been working with energy companies for about three decades: When federal lands go up for lease, companies bid on them with an eye toward possible long-term production. There’s no guarantee that a particular area will yield enough oil or gas to generate a profit, so every lease involves what is more or less an educated gamble.

It should be noted that Outer Continental Shelf (OCS) lease areas are, in the scheme of things, pretty small. (These are the deepwater areas in the Gulf and along the Atlantic coast). Accordingly, it’s common for bidders to secure leases to multiple leases covering contiguous areas. The flip side of that strategy is that if the lease-holder performs some further exploration and determines that one lease area isn’t profitable, then he will not pursue contiguous lease areas. This means large swaths of potential production areas will ultimately go untapped.

It should also be understood that energy companies don’t bid on a lease because they know that they’ll find oil or gas — they bid because they believe there’s a possibility that they might find oil or gas. When Reid, Salazar, Menendez and the rest of the left tries to paint a picture that suggests energy companies are deliberately sitting on known reserves, they’re being intentionally disingenuous or willfully ignorant. No one outside of OPEC is going to sit on proven, profitable reserves in this market.

Once an energy company secures a lease, the next step is conducting a seismic survey. This provides the company with a much greater level of surety that it can make a profit. Before it can conduct a seismic survey, the company must first obtain a permit. If the seismic survey looks promising, the company then must obtain an additional permit to drill exploratory wells. The farther along in this process the company goes, the more money it expends.

Right now, the Obama administration is severely restricting the issuance of permits to conduct seismic studies and to drill exploratory wells. The policy is commonly referred to as “permit-torium” within the energy industry. That is: while the Obama administration has not officially declared a moratorium on drilling, the fact that it has basically refused to issue permits for seismic studies and new drilling in all but a few cases effectively amounts to a moratorium.

But, let’s ignore all of the facts detailed above. Let’s pretend that energy companies are actually knowingly sitting atop of vast oil reserves that they stubbornly refuse to tap. Would we then need a “use it or lose it” law? The answer is no, because “use it or lose it” already exists. Public land energy leases have five to ten year terms (depending on the lease). If the lease-holder can’t produce oil or gas within that time, the lease expires.

And so the bottom line is this: not only does “use it or lose it” ignore the realities of energy production, it’s a superfluous concept. Energy companies are already subject to “use it or lose it.”  The only thing standing in their way is an administration that demands the latter, without allowing the former.

 

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  • http://www.hotexchangerates.com/ exchangerates

    A "terrible waste of money" is hugely subjective, everybody has their own opinion on what something is worth (product or service). Also, you only mention one advantage of front loaders (energy/water savings), not exactly a fair argument.

  • spinoneone

    Reid is just spewing more nonsense. Both Chu and 0 have said repeatedly that they want the cost of all carbon based fuels to be, "higher, much higher." Reason one is to make it easier to ram "renewable" energy sources down the throats of a very skeptical public. Reason two is to make that selfsame public more dependent on the government.

    0 and company are refusing to grant or renew drilling permits for the Gulf of Mexico. ANWAR? Not on your life…and it may come to that. So take Reid and the administration's posturing for what it is, a load of political drivel.

    • truthin

      I love the silliness of this post: 'to ram renewable's down the throats'… As if Big Oil hasn't been ramming their product up your a** for the last 100 years.

  • geez

    For starters, get the Muslim Brotherhood out of the White House in 2012.

    • truthin

      OK, so we know from this post that 'geez' is an idiot.

  • Steve Chavez

    A Santa Fe New Mexican newspaper editorial wants prices to go even higher and Congress should impose a $1 increase in the gas tax to bring in monies to help the debt! This newspaper, which would make the CPUSA'S, People's World Weekly, PROUD as they always follow their Party line including a daily bombarding of extreme Leftist Letters to the Editor. Their reasoning is that the public must be forced into mass transit. Bill Richardson, our former Governor, built a train that only travels under a hundred miles length and the cost overruns to build it were $400 MILLION over budget. It loses money every route as the tickets are kept around $5 while the actual costs are $75 according to former Gov. Gary Johnson who is eying a run for President. LIBERALS DON'T CARE even when there is no LOGICAL alternative on the horizon! Electric cars are a fraud so far and the Prius still uses the gas that they hate! I always wonder how they get to the protests against oil and gas!

  • Wesley69

    This article, by Mr. Trzupek, makes some EXCELLENT points. The Community Organizer-in-Chief LIED about energy and oil during his news (propaganda) conference. Obama and his minions continue to feed us the same WORN OUT EXCUSES, that the oil companies are sitting on enough leases to produce more oil; that it will take 10 years to bring these reserves on line or any others, such as off the coast of Alaska or in the Gulf. If we never get starting drilling, naturally, it will take time to bring these supplies on line, but one must maneuver through the minefield of bureaucratic red tape.. But, that's just it, WE NEED TO START.

    HOW LONG MR. COMMUNITY ORGANIZER ARE YOU GOING TO PEDDLE THESE WORN OUT EXCUSES. WHY IS YOUR ADMINISTRATION MAKING IT MORE DIFFICULT WITH ADDITIONAL REGUALTIONS TO TAP INTO ONSHORE AND OFFSHORE OIL? IF NOT OIL, WE HAVE MORE NATURAL GAS, SHALE OIL, COAL. WHY CAN’T THESE BE USED?

    HOW LONG MR. ORGANIZER WILL IT TAKE TO GET YOUR MASS TRANSIT BULLET TRAINS ON LINE? HOW LONG WILL IT TAKE TO GET YOUR GREEN ENERGY PROJECTS – WIND & SOLAR ON LINE? HOW LONG WILL IT TAKE TO GET OUR AUTOMOBILES TOTALLY CONVERTED TO ELECTRIC?

    HOW LONG WILL IT TAKE, MR. ORGANIZER, TO ACHIEVE ANY MEANINGFUL REDUCTIONS IN GREENHOUSE GASES AS YOUR EPA IS DETERMINED TO GET, PARTICULARLY IF INDIA & CHINA ARE DOING LITTLE TO REDUCE THEIRS? BUT, MR. ORGANIZER, TO ACHIEVE THIS YOU WILL BE WILLING TO WRECK THE ECONOMY?

    AND LASTLY, MR. ALL-KNOWING ORGANIZER, WHILE YOU SHUT DOWN ALL DRILLING IN THE GULF, YOU SIGNED A BILL TO GIVE BRAZIL $2 BILLION TO DRILL IN WATERS DEEPER THAN WHAT YOU & YOUR STOOGE SALAZAR BANNED? WHY? IF THE OIL SPILL IN THE GULF WAS SUCH AN ENVIRONMENTAL DISASTER, WHY TAKE A CHANCE IN THE WATERS OFF BRAZIL???

    We, Americans, need to start asking why the Organizer-in-Chief is pursuing these destructive policies? This administration talks a good game. As with other things, that is all is does. As Nero fiddled Rome burned. I will leave it to you to complete the analogy.

    • truthin

      You act like oil produced here would be 'our oil'. Even Rich's biased contact in the energy industry can tell you that's a fallacy.

  • Amused

    Truth is , the gas you are paying 3.79 a gallon for today at the pumps , comes from gas already purchased at $85 a barrel , so you’re getting screwed by the oil companies . And the reason gas is $105+ a barrel , is due DIRECTLY to Wall Street hedge funds and the whole plethora of financial games being played , AND HAS NOTHING TO DO WITH SUPPLY . When are you dimbulbs going to wake up ? I sicerely hope the price at the pump hits $8 a vgallon , and it’s so npainfull , maybe some of you “uber-patriots ” will actually put a leash on the oil companies and the wall street brokers . Capitalism ? My Arse ! It’s THIEVERY !

  • Amused

    Truth is , the gas you're paying$ 3.79 or so a gallon for , has already been purchased by the oil companies for $85 a barrel – you're getting screwed . The high prices have everything to do with this , and Wall street Hedge Funds , Speculators and Traders , but NOTHING to do with supply . Smarten up , the oil companies are pulling your chain

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    Since 2006, Quebec has a green plan in order to achieve the objective of the Kyoto protocol on climate change.The Ministère du Développement durable, de l'Environnement et des Parcs du Québec (Ministry of Sustainable Development, Environment and Parks) is primarily responsible for implementing environmental policy. For its part, the Société des établissements de plein air du Québec (SEPAQ) is the lead agency for the management of national parks and wildlife reserves.

  • truthin

    Offlimits to the Gulf of Mexico? Seems you didn't hear that Cheney's Haliburton already destroyed the gulf. Sorry you didn't get that memo.