Drill, baby, drill fails: Oil prices soar in spite of sharp increase in U.S. production under Obama

Yet Haley Barbour, right wing try to blame Obama for high prices, still push policies that EIA says will have no impact on price

US oil production last year rose to its highest level in almost a decade….

As a result, analysts believe the US was the largest contributor to the increase in global oil supplies last year over 2009, and is on track to increase domestic production by 25 per cent by the second half of the decade.

Domestic oil production is soaring, but so are global prices.  It should be obvious that yet more drilling can’t have any significant impact on oil prices — particularly since the U.S. Energy Information Administration has been making that precise point for years now (see EIA: Full offshore drilling will not lower gasoline prices at all in 2020 and only 3 cents in 2030!).

The only thing that can protect Americans from the inevitably increasing oil shocks of Peak Oil is an aggressive strategy to reduce the country’s oil intensity (oil/GDP), including a steady increase the fuel efficiency of our vehicles — policies that conservatives have fought for decades.

But that doesn’t stop those same conservatives — including former Big Oil lobbyist Haley Barbour — from trying to blame Obama for high oil prices.  ThinkProgress has a rundown of all the absurd attacks:

Political opportunists in the Republican Party have already sought to blame this inherently unstable situation on President Obama. Mississippi Gov. Haley Barbour (R) — a possible 2012 presidential candidate and former oil industry lobbyist — has suggested that not only are increased prices Obama’s fault, but that he desired and created them. “His administration’s policies have been designed to drive up the cost of energy in the name of reducing pollution, in the name of making very expensive alternative fuels more economically competitive,” Barbour told the U.S Chamber of Commerce last week. “Their policy is to drive up energy prices.” Rep. Michele Bachmann (R-MN), chair of the House Tea Party Caucus and also a potential 2012 presidential candidate, said of high gas prices, “This is exactly what the ambition of the Obama administration is, because they want to move people toward green energy.” In a post on titled “Blame the Democrats for High Gas Prices,” CNN political commentator Erick Erickson argued that “Democrats have been politicizing and blocking expanded oil drilling for quite some time.” Similarly, Rep. Bill Johnson (R-OH) blamed Democrats’ unwillingness to open up more domestic drilling sites for the spike. “We seem to have our hands behind our back,” Johnson said. “And this lack of permitting — this lack of going after resources that we have right here in America — is indicative of a failed energy policy.

That is all pure BS, the exact opposite of the truth.  As the Financial Times reported:

The revival of US production has been made possible by a rush of small and mid-sized companies into onshore regions such as the Bakken shale in North Dakota, the Permian Basin in west Texas and the Eagle Ford shale in south Texas.

North Dakota’s production has doubled since 2008, reaching 355,000 b/d in November. Extraction of oil reserves in these regions was thought to be uneconomic, but has been made commercially viable by the transfer of techniques successfully used to extract shale gas; in particular, long horizontal wells and “fracking”, pumping water under high pressure to crack the rock and enable the oil to flow.

Dave Hager, vice-president for exploration and production at Devon Energy, one of the companies pioneering the development of the new onshore fields, said new technology had transformed production economics at its mixed gas and oilfields in north Texas.

Like it or not, Obama actually campaigned on opening up oil production in the Bakken shale, so he is delivering on a campaign promise there.

Of course, more domestic production simply can’t have any significant impact on global prices, as the US Energy Information Administration has made clear many times (see here).

EIA Offshore 2009 small

The EIA’s 2009 report, “Impact of Limitations on Access to Oil and Natural Gas Resources in the Federal Outer Continental Shelf” analyzed the difference between full offshore drilling (Reference Case) and restriction to offshore drilling (OCS limited case).  In 2020, there is no impact on gasoline prices (right hand column).  In 2030, US gasoline prices would be three cents a gallon lower.  Woohoo!

I have previously written about the trivial impact of opening the OCS further to drilling “” The oil companies already have access to some 30 billion barrels of offshore oil they have barely begun to develop (see “The cruel offshore-drilling hoax“).

If you are concerned about the impact of high oil prices from Middle East instability, the only viable long-term strategy is one aimed at ending our addiction to this climate-destroying fossil fuel.  Even the once-staid and conservative International Energy Agency understands that (see World’s top energy economist warns peak oil threatens recovery, urges immediate action: “We have to leave oil before oil leaves us”).  And Obama has taken aggressive action in this area, raising new car fuel efficiency standard to 35.5 mpg by 2016, the biggest step the U.S. government has ever proposed to cut oil use.

So why are Barbour and the conservatives shilling for Big Oil?  TP explains:

There is a notable theme here — aside from crass political point scoring, these attacks are calibrated to protect oil as a primary energy source at the expense of cheaper green alternatives, while pushing for even more oil drilling here in the United States. These opportunistic attacks come as the oil industry prepares to pump unprecedented sums of money into the political process. Since the midterm elections, the oil industry has “been very aggressive right out of the gate because of the huge opportunity with the election of their allies,” as Daniel J. Weiss, the director of climate strategy at the Center for American Progress Action Fund, told the Houston Chronicle yesterday. Oil and gas companies spent $146.3 million on lobbying last year, and that number is poised to rise as the presidential election approaches. For example, the American Petroleum Institute will start donating money to political campaigns this year.

… the big five oil companies — BP, Chevron, ConocoPhillips, ExxonMobil, and Shell — made $893 billion in profits from 2001 to 2010.

It’s a ‘virtuous’ cycle.  Big Oil gets politicians elected who push for more drilling and try to block strategies that could actually reduce our oil addiction.  Oil profits keep going up — and that means more money for Big Oil to invest in those politicians.

Note:  For the EIA data in the top figure, go here.

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19 Responses to Drill, baby, drill fails: Oil prices soar in spite of sharp increase in U.S. production under Obama

  1. Foppe says:

    That’s what you get when you deregulate the commodity markets to allow for speculative behavior. See Ch.4 of Matt Taibbi’s book Griftopia for some of the history of that.

  2. Anonymous says:

    Below is a Letter to the Editor of The Detroit News that I wrote last week concerning a “drill baby drill” editorial they had. I’ve added some minor additions. I talk about why U.S. oil production increased in 2009 and 2010 and why that was an anomaly in terms of future production:

    Back in 1999, I wrote a paper concerning oil production in Norway and the United Kingdom (U.K.). In the paper I compared my projections of future oil production (crude oil + condensate) with that of the U.S. Department of Energy/Energy Information Administration (US DOE/EIA). Through the first 11 months of 2010, I’m off by 0.0% for my 2010 projection for the sum of Norway and U.K. production while the US DOE/EIA is high by 116.0%.

    I mention that to illustrate that U.S. government agencies such as the US DOE/EIA, U.S. Geological Survey (onshore) and Minerals Management Service (offshore) have a history of greatly exaggerating future production rates and assessed volumes of oil.

    The Annual Energy Outlook 2010 (EO2010) from the US DOE/EIA projects that Lower 48-Offshore oil production will increase from 1.67 mb/d in 2010 to 2.36 mb/d in 2035. For the projection in 2035 to be valid, the deepwater Gulf of Mexico (GOM) would have to produce at least 1.4 mb/d in 2035. I see no possibility that the deepwater GOM will produce anything remotely close to 1.4 mb/d in 2035.

    In 2010 the USGS had to downgrade their assessed volume of technically recoverable oil in the National Petroleum Reserve-Alaska to about 1/10th of their previous estimate.

    In your “drill baby drill-pt II” commentary (Feb 28), you didn’t mention that the National Petroleum Reserve-Alaska (NPR-A) was opened to oil development back in the late 1990s. For a long time, the USGS was stating that the NPR-A had ~9.3 billion barrels of technically recoverable oil. For a long time, I had been stating that there would be considerably less ultimately recoverable oil than that. Last year the USGS had to downgrade the volume of recoverable oil to around 1/10th of their previous estimate. The point here is that unless you want to be ignorant or gullible or both, it’s wise to be highly skeptical of projections and assessments from the aforementioned government agencies.

    You may be aware that U.S. oil production increased in 2009 and 2010. That was achieved largely by production increases in the deepwater GOM and Bakken Shale region of North Dakota.

    A flurry of +50,000 b/d peak production fields (6) were brought on-line in the deepwater GOM during 2007-2010 which led to the production increases in the deepwater GOM in 2009 and 2010. Just as in the case of North Sea oil production, there are a limited number of large fields to bring on-line in a timely manner to negate the decline of the older deepwater fields in the foreseeable future.

    Even prior to the restrictions placed on U.S. offshore oil exploration due to the Deepwater Horizon explosion, I was making the case that deepwater GOM oil production would peak around 2010 (see Drill baby drill-a reality check, and I stand by that prediction.

    If, as I expect, deepwater GOM oil production starts declining in the near future*, I expect to hear that the decline was due to drilling restrictions. That sounds good but deepwater production over the next 4-5 years will be dependent on production projects that had been started by the time of the Deepwater Horizon explosion, not on wildcat drilling.

    You suggest that all we have to do is let oil companies perform more wildcat drilling and production will increase in the deepwater GOM.

    Oil geologists have a good idea about where the most favorable locations are to drill for oil and that’s where they look first. They find the big fields early in the exploration phase. In the deepwater GOM, oil companies have had a good 15 years of extensive exploration and have drilled wildcat wells down to the Mexican border in the GOM.
    What they are doing now is increasingly going into less favorable areas and with that, future exploration results will be less favorable.

    In the case of the Bakken Shale region, production has ramped up quickly. The USGS claims that there is 3-4 billion barrels of technically recoverable oil in the shale which probably means maybe around 2 billion barrels. Based upon my modeling of production from the Bakken Shale and a continuation of the percentage production rate increase that has occurred over the last two years, around 1.8 billion barrels would be produced by 2016. Based upon that, it’s reasonable to expect production to peak in the region within the next 10 years.

    It seems that the Arctic National Wildlife Refuge (ANWR) is the holy grail of the drill baby drill crowd. It will not have nearly as much producible oil as the USGS has given for the assessed volume (~10.5 Gb mean). I personally think that the oil industry will be lucky to get 3-4 billion barrels out of ANWR. Alaska will never produce anything close to what it produced in 1988 (2.01 mb/d). By the way, Alaskan production is down another ~40,000 b/d so far this year, compared to the same period last year if we exclude the production problems that occurred during the middle of January 2011.

    You state that much of the U.S./48 is off-limits to oil development. I personally view that as a substantial exaggeration. Any federal lands in the U.S./48 that are off-limits to oil development will never produce much oil even if they were opened.

    We should probably open all of the U.S. to oil development so future generations don’t get any of it but opening what remains undeveloped will only have a minor impact on future U.S. oil production.

    *Looking at 6-month increments for total GOM oil production, production reached its highest level in the second half of 2009 at 1.73 mb/d. In the first half of 2010 it was down to 1.63 mb/d and for the first 4 months of the second half it was down to 1.59 mb/d suggesting that deepwater GOM production may have peaked although yearly production in 2010 should be higher than in 2009.

    Roger Blanchard
    Sault Ste. Marie, MI
    Author of “The Future of Global Oil Production: Facts, Figures, Trends and Projections by Region”

  3. Leif says:

    It would be informative to plot the profits of the fossil industry and oil speculators on that graph.

    Perhaps even the cost of living of the lower two thirds of the American people.

  4. See Reuters story on how US oil pipeline and processing infrastructure will send prices spiraling while we’re awash in crude.

  5. “The only thing that can protect Americans from the inevitably increasing oil shocks of Peak Oil is an aggressive strategy to reduce the country’s oil intensity (oil/GDP)”

    After peak oil, by definition, world oil production will begin declining in absolute terms. The only way to deal with that is for consumption to decline in absolute terms – not just declining oil intensity (oil consumption/GDP) but declining oil consumption, period.

    [JR: Same difference here, actually. We already peaked in U.S. oil consumption, I imagine. No “aggressive strategy” to reduce oil intensity would fail to reduce absolute usage.]

  6. mikkel says:

    Speaking of the pipeline and processing, Gail says that not only is that a problem but that she doesn’t believe it will be economical to resolve it in any fashion.

    Joe, have you run across any stories on coal to liquids? I’m very scared that mine baby mine will become huge over the next few years.

  7. ToddInNorway says:

    Is there anybody here who wants to volunteer themselves or send a family member or two to fight yet another oil war in the Middle East? No takers? Well then, game over for global oil supply security. When the masses of very dissatisfied oppressed minorities in Saudi Arabia conclude that the US will NOT come to the rescue of the House of Saud, then they will likely take their chance and there goes that bit of oil and gas infrastucture. Possibly the same for Iran, and it will be interesting to see if Irakis are willing to open up for a civil war for control of their oil fields and pipelines once the US pulls out for good.

  8. Barry says:

    What the GOPetroleum party never says is that oil prices are set on the international market. The price at the pump is unrelated to where that oil came from.

    Big Oil is just running out of nations that are willing to let it come in and grab all the profits from the nation’s declining oil resource. So they are subverting the politics and best interests of USA and Canada in particular to get at some of the few remaining pockets of oil still open for private profiteering.

    Canada is getting a particularly short end of the stick as they are stuck with the CO2 burden of exported oil sands crude while the big dollar profits from it flee the country in the hands of Big Oil shareholders.

    Domestic drilling in USA won’t stop price rises or price shocks. Those are international in origin.

  9. Bob Lang says:

    #2 Anonymous. Excellent comment!

    I was aware that the DOE/EIA had a long history of greatly exaggerating future production, but thought all that had changed under Steven Chu when they came out with the following chart of “World Liquids Fuel Supply”:

  10. Michael Tucker says:

    Pure BS coming from the mouth of a Republican? YES, massive steaming piles, it never ends, they love to lie and perpetuate lies. Barbour, YOU LIE!

    However, California does enjoy very high gas prices due to state regulation, which I am ok with. The last time gas was at $4 a gallon nearly every pick-up I saw had a “For Sale” sign in the window. Barbour only wants to protect further exploration. The big oil business model seems to require constant exploration.

    But if oil really was threatened by a truly cheaper green alternative I’m sure the oil industry would be against it, the tools of big oil would be making all kinds of stupid statements about it, and the American people would demand that this new wonder fuel be given a chance.

    Americans, for the past couple of years, have been selecting the best mileage vehicle they can afford. The auto industry seems to be onboard with higher mileage standards. Hybrid vehicles are selling well and we finally have new electric vehicles on the market. Batteries are still a very expensive barrier and they need to be subsidized but, so far, they are not a cheap alternative and I’m not sure how ‘green’ they really are; better than gas though.

  11. Mike # 22 says:

    Rather than a steady increase in fuel efficiency, try “313 mpg on the combined cycle while emitting 24 g/km of CO2 to set a new benchmark for vehicle efficiency.”

    Not actually clear what this hybrid’s fuel use would be coast to coast, but close to 200 mpg. As an electric, the vehicle would get about 13 miles/kwh.

  12. Lewis C says:

    The supposedly laudable new CAFE standard of 35mpg fleet average (a good many years hence) looks like a farce and a con against the US public when viewed from a European perspective.

    Here in central Wales, where petrol and diesel are the £/litre price equivalent to about $8.42 & $8.84 /US gallon respectively, we can buy competitively priced IC-vehicles doing 65 & 70mpg straight out of the showrooms today.

    If EU car plants can build them, then so can US car plants. And that’s this year, not after umpteen CAFE upgrades over the next 40 years or so.

    Methinks we will need legislation banning the cross-holding of shares in fuel supply firms and fuel-usage equipment manufacturers (by both corporations and individuals). The present leverage of cross-holdings is absurd and a gross distortion of the equitable market, where the vehicle-makers would have no interest whatsoever in maintaining a maximum of fuel consumption by the vehicles they produce.

    With regard to the GOP propaganda that “Obama is responsible for higher gas prices”, in view of the DOE assessment of global oil-supply that Bob links to at #9/., this surely is just laying the groundwork for that lie to become critically effective during the 2012 election ?

    Obama’s conduct in pandering to the right while refusing even to mention the looming existential crises of PO & CD makes a single-term presidency look a pretty sure bet. Don’t any of his advisors or his cabinet have the integrity to tell him so ?



  13. From Peru says:

    That the USA crude oil production is growing is a surprise to me, given that USA oil production peaked in the 1970s, 3 decades ago.

    So far, there had been just 2 years of growth. Given that the major, traditional old oil fields are depleting, how long can the new fields developed sustain that growth before the unavoidable decline in production returns?

    By the way, how was the oil extracted in these new fields? “Fracking” shales, as far I know, is used to extract natural gas, not oil.

  14. Zetetic says:

    @ From Peru:
    Actually a form of fracking is used for oil extraction too, it’s just more commonly used for natural gas.

    Oil and Water Don’t Mix with California Agriculture
    In California about 83% of the Kern Vally’s water supply is being used for oil extraction, instead of agriculture or drinking. According to the article, for every 8 barrels of water used they get out 1 barrel of oil and get out 9 barrels of contaminated water, and every year it takes more and more water for each barrel of oil extracted.

  15. Magnus W says:

    For Every Green Job, Four Other are Lost (UK)

    Anyone have comments on this study?

  16. Peter M says:

    ‘Drill Baby drill’ seems more like a slogan, then it having any real impact on gasoline prices. But cheap slogans come easy with the fossil fuel crowd- like ‘Strength through Joy’ :-(

  17. Robert says:

    Petrol, sorry “gas”, is so cheap in the US it is ridiculous. Well, that’s how it seems from the UK side of the pond.

    I drove up the M1 from London to Nottingham and back yesterday. Regular unleaded was on sale at the service stations for around £1.42 / litre (about $9 per US gallon I think). The queues and congestion were the same, as are the endless roadworks for road widening schemes to accommodate more and more vehicles.

    Oil needs to get a lot more expensive in the US to make any difference to consumption, but don’t underestimate how inelastic demand can be. With 2 people in the car (1.2 Polo) the round trip cost is still not much money (about £25 or $40) which is much less than the return train fare for 2.

  18. Roger Blanchard says:

    For From Peru (#13),

    I was certainly predicting by at least 2008 that U.S. oil production would increase in 2009 and 2010 (see #2 above). In an addition to what I wrote above, 6 fields with summed peak production of 825,000 b/d were added in the deepwater GOM during 2007-2010. Only 2 fields with summed peak production of 90,000 b/d will be added to the deepwater GOM during 2011-2013.

    I think U.S. oil production should start declining again soon but it will be slowed by development in the Bakken Shale region.

    They are using fracking in the Bakken Shale region to help extract oil.

    Roger Blanchard
    Sault Ste. Marie, MI

  19. Zetetic says:

    @ Mangus W:
    Just off the top of my head any story that quotes James (I don’t read the research) Delingpole and the Daily Fail’s denialists is automatically suspect. Also the story itself comes from Investors Business Daily, which makes it additionally suspect.

    It smells like another fossil fuel funded smear campaign, but it bears further investigation to really tear apart.