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Energy: some economic public policy considerations

Lee C. Gerhard, geologist and Earth scientist comments on Energy

Civilization has bootstrapped itself from grinding dependence upon the whims of nature and a precarious existence to its present self-sustaining world by discovering ever better sources of energy. As a result, cheap and plentiful electricity powers society, and petroleum powers the transportation of people, goods and services.
Today, Luddites scramble to stop any increase in domestic oil and gas production because increased production means less interest in costly and undependable wind endeavors.

Horizontal drilling and fracking

A new technology, horizontal drilling for natural gas and oil, has changed the rules. No longer is the risk of dry holes so great, although the costs of using this technology coupled to multi-stage fracturing of the reservoir rock have become very expensive. Still, the costs are recoverable with increased production rates and lower risk.
Despite the screams and hollers of the Luddites, increased access to larger amounts of natural gas is changing the electricity generation landscape. Gas turbine-fired electric plants now produce electric power at less cost and near zero air pollution compared to coal.
So why the whining over the advent of cheap natural gas? The only seems to be that it has dismantled a carefully constructed political platform plank to force the use of expensive and physically intrusive wind and solar.

Why stifle oil and gas production in the United States?

The executive branch of our government has tried to stifle oil and gas production and political demagogues continue to yammer about the “tax breaks” the oil industry gets but fail to identify any such “breaks”—because there aren’t any. Large companies do not get a depletion allowance. They are only allowed to deduct the labor and supplies costs of their activities as costs of doing business, the same as every other business. They must depreciate all the equipment that goes into completing a well, including the pipe in the hole. The industry pays royalties and lease rents to the federal government on production from federal lands and waters and is a profit center for government.
We import much of our oil that fuels our transportation system. Much of the world’s oil comes from places that are not very friendly to the United States such as Iran, Russia, Venezuela, Libya, and other Arab states. While we maintain good working relations with Saudi Arabia and the U. A. E., they are not friends so much as simply beneficiaries of our energy demands.

Oil from Canada

Pipelines traversing Ogallala Aquifer

Pipelines traversing the Sand Hills and the Ogallala Aquifer.

Canada is poised to become our number one external supplier of oil, but the pipeline that would have brought more Canadian oil into the United States has been stalled because it would cross the Sand Hills of Nebraska, just like so many other pipelines already do. Instead our oil imports come across the sea in tankers, which together with other cargo shipping not only are the number 1 source of oil in the ocean, but occasionally cause major spills. So in order to mitigate the possibility of small spills from pipeline breaks that are easily cleaned up, we choose to increase the risk of major spills and demonstrated contamination of the oceans.

Because of the lack of pipeline access and capacity, oil is backed up in North Dakota from its Bakken Play production. Moving that oil into the American Economy would decrease our reliance on imports from anywhere outside the United States.

American oil production and the balance of trade

Some elected officials and government bureaucrats claim that oil is oil, and whether it comes from Venezuela or North Dakota makes no difference to the economy. That is clearly nonsense! Using the recent $100 per barrel price, every million barrels of oil North Dakota can ship above what it ships now means a reduction in our balance of payments deficit of $100 million. Money that goes into our economy, not the pockets of Middle East potentates or Russian oligarchs.
Energy is the basis of our economy. Government efforts to increase the costs of energy undermine all of our private sector efforts to create jobs and rebuild incomes. Whose side is government on?