Tuesday, August 5, 2008

Part II: Oil & The Hostile Domestic Regulatory Environment

Nothing could be more fundamental to our economy and our way of life than energy. Costs of transportation and energy effect every aspect of our life and the cost of virtually every good and service in the U.S.. We are on the leading edge of a crisis in energy that could severely damage our economy over the next decade. Our problem is three fold, rising world demand, stagnant world supply that is exponentially compounded by the regulatory and legal burdens to exploiting our own rescources, and the anti-capitalist mentality of the Democratic left.

This is Part II of what is planned to be a series of four posts on our energy alternatives.

Part I - The Economics of Alternative Energy

Part III - Why Exploit Our Domestic Oil Resources

Every day 85 million barrels of oil are produced around the world. Twenty-one million of those are used here in the United States. Of that, over 70% is imported. That has grown from 20% in the 1970’s. This is both an existential issue for both economics and our national security.

What has changed from the 1970’s is a series of laws that have created two layers of limitation to directly and indirectly stopped the exploitation of our oil resources. These laws were passed when the costs of oil were nominal in comparison to today. And they were taken in response to the problems then associated with energy production. The coastal drilling moratoriums grew out of oil spills off California in the 1960’s. Beyond the moratorium’s, Carter’s populist war on oil companies set them up as the greedy demons causing high prices. Three Mile Island coming on the heels of the film The China Syndrome shut down production of new nuclear plants. Add into this toxic mix the turn towards socialism and narcissism since the 1960’s that has fostered an increasingly radical environmentalism and you end up with the situation in which we find ourselves in today.

This was the testimony of John Hofmeister before Congress several weeks ago describing the laws that directly prevent exploitation of our resources:

. . . [I]n the United States, access to our own oil and gas resources has been limited for the last 30 years, prohibiting companies such as Shell from exploring and developing resources for the benefit of the American people.

. . . According to the Department of the Interior, 62 percent of all on-shore federal lands are off limits to oil and gas developments, with restrictions applying to 92 percent of all federal lands. We have an outer continental shelf moratorium on the Atlantic Ocean, an outer continental shelf moratorium on the Pacific Ocean, an outer continental shelf moratorium on the eastern Gulf of Mexico, congressional bans on on-shore oil and gas activities in specific areas of the Rockies and Alaska, and even a congressional ban on doing an analysis of the resource potential for oil and gas in the Atlantic, Pacific and eastern Gulf of Mexico.

Read the entire post. Mr. Hofmeister went on to add that the Democratic controlled Congress had also recently placed exploration of oil shale in Utah and Wyoming off limits. Projected reserves of oil shale range to a high of two trillion barrels of recoverable oil.

As to the moratoriums on drilling along the outer continental shelf, they were both Presidential and Congressional. President Bush recently removed the Presidential moratorium. The Congressional moratorium is slated to expire October 1, 2008. How the Democrats will treat that is an open question given the proximity to the election. That said, if they treat off shore exploration and drilling as they recently treated oil shale, then we can expect an attempt to reinstate the moratorium.

Then there are those laws and regulations that indirectly inhibit the exploitation of our resources prohibitive. You can get a feel for the tremendous legal and regulatory burden from this study by Argonne National Laboratory assessing the environmental regulatory burden on natural gas. It all applies equally to burdens on domestic oil production. Here is a quick run down of the Table of Contents of Chapter 2 of the study:

2.1 Issues Likely to Limit Access

2.1.1 Coastal Zone Management Act Consistency Provisions
2.1.2 Endangered Species Act
2.1.3 Forest Service Restrictions
2.1.4 Outdated BLM Land Use Plans
2.1.5 Lease Stipulations
2.1.6 Monument Designations
2.1.7 OCS Moratoria — Atlantic Ocean
2.1.8 OCS Moratoria — Eastern Gulf of Mexico
2.1.9 OCS Moratoria — West Coast
2.1.10 Permit Restrictions
2.1.11 Bans on Great Lakes Drilling
2.1.12 Roadless Rule
2.1.13 Wilderness Areas
2.1.14 Ocean Policy

2.2 Issues Likely to Produce Delays

2.2.1 CBM-Produced Water Management
2.2.2 Drilling Permits
2.2.3 Essential Fish Habitat
2.2.4 Fracturing Operations
2.2.5 Nationwide Permits
2.2.6 NEPA Integration and Lawsuits
2.2.7 Pipeline Certification
2.2.8 Pipeline Safety
2.2.9 Wetlands Mitigation

2.3 Issues Likely to Increase Costs

2.3.1 Cooling-Water Intake Structures
2.3.2 Electronic Reporting and Record-Keeping Requirements
2.3.3 Lack of Incentives to Go beyond Compliance
2.3.4 Louisiana E&P Waste Disposal Regulations
2.3.5 Maximum Achievable Control Technology
2.3.6 Mercury Discharge Regulations
2.3.7 NOx Prevention of Significant Deterioration Increment Consumption
2.3.8 Noise Regulations
2.3.9 Nonroad Diesel Rule
2.3.10 Ocean Discharge Criteria
2.3.11 Particulate Matter Regulations
2.3.12 Pipeline Gathering Line Definition
2.3.13 Regional Haze Rule
2.3.14 Spill Prevention Control and Countermeasures
2.3.15 Standards for Decommissioning or Closing Wells
2.3.16 Storm Water Construction Permits
2.3.17 TMDL Regulations Targeting Oil and Gas Wells

You can follow the link above and read through the discussion in that 130+ page report of how we have over-regulated ourselves out of the energy market irrespective of the moratoriums. But even if an oil company is able to jump through the above hoops, there are the private lawsuits brought under the EPA and ESA that can add years and millions of dollars to any particular attempt at drilling.

These private law suits are truly insidious as they circumvent our democratic process and allow very limited special interest groups to hold a veto over an issue at the center of our economy. One need only look to the recent fiasco regarding polar bears and the ramifications of the decision to list polar bears under the ESA to get a feel for how this works. Let there be no doubt that the push to get polar bears listed was aimed in large part at stopping oil drilling in the arctic. Bottom line, if we are going to exploit our resources, not only does Congress have to lift the moratoriums and reduce the regulatory load, but we need a change to the EPA and ESA. We need to take governmental decisions out of the hands of special interest groups and unelected judges explicitly chosen by these groups to hear their law suits.

The sum of the regulatory burden and the hostile attitude towards our domestic oil companies was thoroughly discussed in a March article written in Investor’s Business Daily. It was written in the wake of the then recent announcement by Haliburton to move their headquarters to the Dubai:

Democrats gleefully demonize oil companies, outlaw offshore drilling and, in Hillary Clinton's case, vow to expropriate profits. In that kind of climate, why the surprise that Halliburton is moving to Dubai?

Halliburton's pullout from its Houston headquarters Monday for a new home in the Middle East drew umbrage from the very Democrats who've had the oil-services company in their gun sights for years.

Clinton led the charge, hinting at more punishment ahead. 'I think it raises a lot of very big concerns, and we're going to be looking into it in Washington,' she warned.

One of industry's most innovative firms, Halliburton provides the operative brawn to transform the discoveries of oil exploration into fuel ready for pipeline transport all the way to the gas station. It holds 4,700 patents.

The only thing Democrats see in this showplace of U.S. innovation is a criminal conspiracy. But then, leftists have built a whole culture around hating Halliburton. Their Amazon-listed books hawk conspiracy theories about how Halliburton supposedly runs the U.S. or the world or both.

'Tantamount to fleeing the scene of a crime,' huffed the Huffington Post, claiming Halliburton's move was to avoid taxes and slip investigations. The company, of course, denies this — credibly, we might add, considering its remaining base in Houston.

The reality is, Halliburton's pullout is the result of Democrats doing everything possible to give the company reasons to leave. Yet they don't seem to have a clue that that's what's happening.

Clinton says she is 'troubled by the continued outsourcing of jobs and . . . eager to find out how the tax code can be strengthened to encourage American companies to invest here rather than abroad.'

Invest in what? Democrats have effectively taken away every opportunity that might keep Halliburton in the states. They've blue-penciled all but a small portion of the Gulf of Mexico for offshore drilling. They also have made the Alaska National Wildlife Refuge off-limits and now want that ban permanent.

Add to that Clinton's threat to confiscate the profits of companies such as Exxon, profits now being used to develop the very energy that fuels the electricity in her microphone. The result is a climate so hostile that the only way oil concerns can produce oil is by moving.

It's not just Halliburton. Exxon last week announced 32 new projects for 2006-09. Only three are based in the U.S., and just one is in the Gulf of Mexico.
Another project is in Canada, and the rest are overseas, where no Hillary-like hatred of oil companies exists.

Nine projects are in Western Europe, eight in sub-Saharan Africa, six in the Middle East, three in Central Asia and two in Southeast Asia. Given the size and scope of Exxon, this amounts to a proxy road map of where world opportunities lie for developing energy. In short, they're not here.

That's why this move by Halliburton represents a loss for the U.S. Companies aren't people. They can't be unpatriotic, as the Democrats charge, because their substance is to represent the decisions inherent in the use of capital.

Right now, Halliburton's move reflects the fact that opportunities in energy development lie outside the U.S. Unless Democrats change the hostile business climate they've created, Halliburton's move is a warning of more like this to come.

Read the entire editorial. Though this one concerned Hillary’s plan to attack profits, Obama’s plan is no different.

1 comment:

Lisa said...

Nine projects are in Western Europe, eight in sub-Saharan Africa, six in the Middle East, three in Central Asia and two in Southeast Asia. Given the size and scope of Exxon, this amounts to a proxy road map of where world opportunities lie for developing energy. In short, they're not here.