Is this the end of cheap energy?
Existing, unused sources of oil and new methods to extract it can fulfill America's needs
Few U.S. motorists need give a thought to the cost of producing so-called "unconventional" oil from Western shale or Canada's tar sands, among the most promising sources of energy in the world. We have been lulled into thinking that cheap oil is our entitlement.
But to oil companies, energy planners and investors, cost is becoming a critical component in the increasingly difficult and risky business of bringing new oil supplies to market.
Even at $65 a barrel, there is uncertainty, because history shows the price of oil is erratic. It could climb higher, pushed upward by explosive global demand -- or it might go into a tailspin, as it did in the early 1980s, when the price dived to $10 a barrel and forced oil companies to abandon projects in untapped areas.
Those who doubt that a precipitous drop in oil prices is possible, given the growth in world demand, fail to take into account the oil reserves of Middle East countries and Russia and their ability to draw on spare capacity. In the face of such uncertainty, U.S. oil companies are understandably cautious. Instead, they are relying on new drilling technology to extract oil from mature fields in the Gulf of Mexico and elsewhere, while looking for new finds.
Investing billions in Western oil shale is risky not because it isn't abundant or possible to produce -- some 300,000 barrels of shale oil a day is reaching the market through the Pentagon fuel program -- but because it's so much easier and cheaper to extract oil from beneath coastal waters in the Gulf of Mexico or beneath the sands of Saudi Arabia. In the Middle East, it costs at the very most $2.50 a barrel to produce oil, whereas it costs at least $15 a barrel to produce oil from Canada's tar sands, and even more from Western shale.
On the other hand, though U.S. conventional oil resources are finite, we are far from exhausting them. Our country's proven reserves total 22 billion barrels, more than three times the reserves of Canada and nearly as much as those of Mexico. In addition, there is an estimated 102 billion barrels of "undiscovered" oil on federal lands, both onshore and offshore, in the United States, according to the U.S. Geological Survey and studies by other agencies and industry. But 60 percent of the undiscovered oil is off-limits to exploration and production. Northern Alaska alone holds an estimated 25 billion barrels as well as 122 trillion cubic feet of natural gas -- enough to extend U.S. supplies for years, but most of the region, including the Arctic National Wildlife Range, is still closed. With our nation's energy security at stake, refusing to allow drilling in the most promising areas for discovery is foolhardy.
That's not to suggest that we shouldn't do all that we can, consistent with good environmental policy, to develop Western oil shale and Canadian tar sands. Both are worth pursuing, because we need a diversity of sources. Combined, they contain roughly 2.5 trillion barrels of oil, which is enough to last for 100 years at least. Oil companies are showing new interest in oil shale and tar sands. In fact, eight companies -- including Exxon-Mobil, Shell and Chevron -- recently filed applications with the U.S. Bureau of Land Management to lease land in Colorado for oil shale development.
But history teaches that the energy industry moves deliberately, determining where its investment will produce the most oil. If we hope to reduce our dependence on Middle East oil and lessen the volatility in gasoline prices, the best strategy is a combination of conservation and lifting the ban on oil exploration and production in the Eastern Gulf of Mexico, off the Atlantic and Pacific Coasts and in northern Alaska. The untapped deposits in these areas are huge, and the technology for separating the oil is available and keeps getting better.
Neil Bates, a nuclear engineer who writes about energy issues, works at Pearl Harbor Naval Shipyard.