SOTU: Energy Fabrications, Falsehoods and Fantasies

During his State of the Union Address, President Obama had a few things to say about energy snd I have a few replies.

Pres. Obama: We buy… less foreign oil than we have in 20 [years].

Wrong!!! We buy more “foreign oil” now than we did 20 years ago.

Monthly crude oil imports (thousands of barrels per day) are about 33% higher now than they were 20 years ago (Source: U.S. Energy Information Administration).

Pres. Obama: We produce more oil at home than we have in 15 years.

What do you mean by “we”?  You don’t produce any oil.

See that decline in Federal Gulf of Mexico production from ~1.7 MMbbl/d to ~1.4 MMbbl/d since early 2010?

You actually did build that.

All of the increase in domestic US crude oil production has come from State and privately owned mineral leases. Production from Federal leases has declined by about 300,000 barrels per day since 2009 (Source: U.S. Energy Information Administration).

Pres. Obama: That’s why my administration will keep cutting red tape and speeding up new oil and gas permits.

Drilling permits that once took 30 days to be approved now take more than 180 days. Even relatively simple things like the approval of development plan (DOCD) revisions are sometimes drawn out to nearly 300 days. As of a year ago, the average delays for independent oil companies are currently 1.4 years on the shelf and almost 2 years in deepwater:

While the permiting process has recovered a bit over the past year, it is still very slow (Source: Quest Offshore Resources).

Between the “permitorium” and high product prices, many of the best, most capable drilling rigs have been moved overseas. Once we manage to get permits approved, the delays in obtaining a rig can be almost as long as the permit delays were. In this “dynamic regulatory environment,” wells can’t be drilled quickly enough to compensate for decline rates, much less to increase production. This is why the production rate in the Gulf of Mexico is still 300,000 bbl/d lower than it was prior to Macondo. The only red tape you have cut, is red tape that your maladministration created.

 

Pres. Obama: So tonight, I propose we use some of our oil and gas revenues to fund an Energy Security Trust that will drive new research and technology to shift our cars and trucks off oil for good.

What do you mean by “our oil and gas revenues”? You don’t generate any oil and gas revenue. The Federal gov’t does generate some revenue from the private sector development of Federal mineral leases.

Federal mineral revenues for FY 2012 were HALF of what they were in FY 2008!

Federal mineral lease revenues for FY 2008 were $24 billion, with $18 coming from Federal offshore leases (Source: Office of Natural Resource Revenue).

Federal mineral lease revenue for FY 2012 was only $12 billion, with less than $7 billion coming from Federal offshore leases (Source: Office of Natural Resource Revenue).

The decline in Federal mineral revenues is really ironic considering the fact that the US Navy can’t afford to deploy a second aircraft carrier to the Persian Gulf due to a lack of revenue.  The reason for maintaining a strong naval presence in the region is the free flow of oil at market prices (the Carter Doctrine).  The Navy only expects to “save several hundred million dollars” by not delaying the deployment of CVN 75 USS Harry S Truman.  The royalty payments from the missing 300,000 bbl/d of production could have been as much as $1.8 billion and have more than covered the cost of the deployment. 

What’s even more ironic? We’re importing 50% more from the Persian Gulf than just three years ago!

U.S. crude oil imports from the Persian Gulf have risen over the last three years.

The actions of this administration have both increased our need to maintain freedom of navigation in the Persian Gulf and reduced our means to do so.

Sources:

U.S. Energy Information Administration, U.S. Imports by Country of Origin

U.S. Energy Information Administration, Crude Oil Production

Quest Offshore Resources, Inc.  The State of the Offshore U.S. Oil and Gas Industry, December 2011

Office of Natural Resource Revenue, Statistical Information

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5 Responses to “SOTU: Energy Fabrications, Falsehoods and Fantasies”

  1. David Middleton Says:

    Bair Polaire says:
    February 14, 2013 at 3:07 am
    The tone of this post is a little childish.

    “You don’t produce any oil.” Really?

    My pet peeve regarding Mr. Obama’s use of “we” when discussing oil production started here:

    Now, under my administration, America is producing more oil today than at any time in the last eight years. (Applause.) That’s important to know. Over the last three years, I’ve directed my administration to open up millions of acres for gas and oil exploration across 23 different states. We’re opening up more than 75 percent of our potential oil resources offshore. We’ve quadrupled the number of operating rigs to a record high. We’ve added enough new oil and gas pipeline to encircle the Earth and then some…

    Lie #1: “Under my administration America is producing more oil than at any time in the last eight years.”

    Mr. President, with all due respect (by which I mean zero-point-zero), America isn’t producing any oil. America is a place. To many of us, America is a concept (the antithesis of Obamaland). But, America doesn’t produce any oil… Not a drop. Oil companies drill for and produce crude oil in the United States. Oil companies are not “under” your administration. You were elected President of the United States. As such, you are the Chief Executive of the United States Federal government (our nation’s administrative overhead), Commander-in-Chief of our nation’s armed forces and nothing else. No oil company is “under” your administration.

    Lie #2: “We’ve opened up new areas for exploration.”

    You haven’t opened any “new areas for exploration” that your administration or previous administrations didn’t shut down. Announcing that you might allow future lease sales or will consider approving future seismic survey permits doesn’t open anything.

    Lie #3: “We’ve quadrupled the number of operating rigs to a record high.”

    Who the heck is we? And where the heck did you learn math?

    .

    First the math… Baker Hughes tabulates a weekly rotary rig count. The total number of drilling rigs operating in the United States roughly doubled during the Bush-41 administration and currently stands right about where it was when you and your fellow Greentards took office. The US rotary rig count hasn’t “quadrupled” since 1987, much less since you took office.

    Furthermore, the only rigs over which you have any significant regulatory authority are operating in offshore Federal waters. That rig population has been almost cut in half during your mis-administration.

    Now the “we”… As it pertains to drilling for and producing oil and gas, “you” are not part of the “we.” You are part of the “them.”

    Lie #4: “We’ve added enough new oil and gas pipelines to circle the Earth and then some.”

    Once again, who the heck is “we”? “You” aren’t part of the “we” that laid the pipelines. “You” are part of the “them” that interfere with the laying of pipelines.

    While the industry may very well have laid “enough new oil and gas pipelines to circle the Earth and then some” since January 2009, President Obama played no constructive role in that process.

    On top of the lies, the President tossed in some peachy logical fallacies…

    Strawman #1: “But as I have said repeatedly, the problem is we use more than 20% of the world’s oil and we only have 2% of the world’s proven oil reserves.”

    The Institute for Energy Research (IER) has a very good explanation of Obama’s 2% strawman… Exposing the 2 percent oil reserves myth.

    Publicly traded US oil companies have to “book” proved reserves according to very strict SEC rules. Here’s a very simplistic example…

    In this scenario, a well is drilled up-dip to a dry hole with an oil show. The entire volume can be booked as proved because the down-dip well has an oil-water contact…

    In this scenario, the down-dip well has no oil show, just wet sandstone. If the oil well was drilled on the basis of a seismic hydrocarbon indicator, the volume down-dip of the lowest known oil has to be booked as probable…

    When the production from the well exceeds the original booked volume, the operator can increase the proved reserves on the basis of cumulative oil production vs. water cut or pressure decline, depending on the drive mechanism.

    The resource potential in the United States is huge. The only obstacles to converting the resource potential into proved reserves and, more importantly, production are the US gov’t and environmental terrorists activists.

    We (as in the oil & gas industry) worked very hard, spent our own money and that of our investors to “build that” (the U.S. domestic oil production. The only thing more infuriating than the U.S. gov’t making it more difficult for us to “build that,” is for politicians to claim credit for our success.

     

  2. David Middleton Says:

    Bair Polaire says:
    February 14, 2013 at 3:07 am
    The tone of this post is a little childish.

    “You don’t produce any oil.” Really?

    My pet peeve regarding Mr. Obama’s use of “we” when discussing oil production started here:

    Now, under my administration, America is producing more oil today than at any time in the last eight years. (Applause.) That’s important to know. Over the last three years, I’ve directed my administration to open up millions of acres for gas and oil exploration across 23 different states. We’re opening up more than 75 percent of our potential oil resources offshore. We’ve quadrupled the number of operating rigs to a record high. We’ve added enough new oil and gas pipeline to encircle the Earth and then some…

    Lie #1: “Under my administration America is producing more oil than at any time in the last eight years.”

    Mr. President, with all due respect (by which I mean zero-point-zero), America isn’t producing any oil. America is a place. To many of us, America is a concept (the antithesis of Obamaland). But, America doesn’t produce any oil… Not a drop. Oil companies drill for and produce crude oil in the United States. Oil companies are not “under” your administration. You were elected President of the United States. As such, you are the Chief Executive of the United States Federal government (our nation’s administrative overhead), Commander-in-Chief of our nation’s armed forces and nothing else. No oil company is “under” your administration.

    Lie #2: “We’ve opened up new areas for exploration.”

    You haven’t opened any “new areas for exploration” that your administration or previous administrations didn’t shut down. Announcing that you might allow future lease sales or will consider approving future seismic survey permits doesn’t open anything.

    Lie #3: “We’ve quadrupled the number of operating rigs to a record high.”

    Who the heck is we? And where the heck did you learn math?

    .Baker Hughes Rotary Rig Count

    First the math… Baker Hughes tabulates a weekly rotary rig count. The total number of drilling rigs operating in the United States roughly doubled during the Bush-41 administration and currently stands right about where it was when you and your fellow Greentards took office. The US rotary rig count hasn’t “quadrupled” since 1987, much less since you took office.

    Furthermore, the only rigs over which you have any significant regulatory authority are operating in offshore Federal waters. That rig population has been almost cut in half during your mis-administration.

    Now the “we”… As it pertains to drilling for and producing oil and gas, “you” are not part of the “we.” You are part of the “them.”

    Lie #4: “We’ve added enough new oil and gas pipelines to circle the Earth and then some.”

    Once again, who the heck is “we”? “You” aren’t part of the “we” that laid the pipelines. “You” are part of the “them” that interfere with the laying of pipelines.

    While the industry may very well have laid “enough new oil and gas pipelines to circle the Earth and then some” since January 2009, President Obama played no constructive role in that process.

    On top of the lies, the President tossed in some peachy logical fallacies…

    Strawman #1: “But as I have said repeatedly, the problem is we use more than 20% of the world’s oil and we only have 2% of the world’s proven oil reserves.”

    The Institute for Energy Research (IER) has a very good explanation of Obama’s 2% strawman… Exposing the 2 percent oil reserves myth.

    Publicly traded US oil companies have to “book” proved reserves according to very strict SEC rules. Here’s a very simplistic example…

    In this scenario, a well is drilled up-dip to a dry hole with an oil show. The entire volume can be booked as proved because the down-dip well has an oil-water contact…

    Proved Reserves

    In this scenario, the down-dip well has no oil show, just wet sandstone. If the oil well was drilled on the basis of a seismic hydrocarbon indicator, the volume down-dip of the lowest known oil has to be booked as probable…

    Probable Reserves

    When the production from the well exceeds the original booked volume, the operator can increase the proved reserves on the basis of cumulative oil production vs. water cut or pressure decline, depending on the drive mechanism.

    The resource potential in the United States is huge. The only obstacles to converting the resource potential into proved reserves and, more importantly, production are the US gov’t and environmental terrorists activists.

    We (as in the oil & gas industry) worked very hard, spent our own money and that of our investors to “build that” (the U.S. domestic oil production. The only thing more infuriating than the U.S. gov’t making it more difficult for us to “build that,” is for politicians to claim credit for our success.

     

  3. David Middleton Says:

    higley7 says:
    February 14, 2013 at 5:22 am
    Do not forget that they are trying to run the Navy on biofuels which cost as much as ten times the normal cost for fuel. The Navy surely cannot afford that!

    […]

    How Green Was My Bankruptcy? U.S. Navy Edition.
    The Navy and DOE are spending $210 million to build two biofuel refineries to produce $27/gal biofuel even though there is no realistic scenario in which biofuel costs less than twice as much as fossil fuels and the production will not exceed a tiny fraction of the Navy’s needs…

    According to a Reuters report, in 2009 the Pentagon paid Solazyme $8.5 million for 20,055 gallons of algae-based biofuel, which works out to $424 a gallon. Last year the order was 450,000 gallons, the biggest-ever biofuel order from government, at a cost of $12 million, which works out to more than $26 a gallon. Blended with conventional fuels, the cost is supposed to be $15 a gallon but under no scenario is the cost of biofuels less than twice as much as conventional fuel. Even so, the plan is 50 percent biofuels for the Navy by 2016. But some analysts see a problem on the practical side.

    James Bartis of the RAND Corporation says the amount of biofuels that can be produced is “a drop in the bucket” compared to the vast needs of the Pentagon, which uses 321,000 barrels of oil a day. Bartis estimates the maximum amount of fuel from chicken fat at 30,000 barrels a day, with up to 50,000 barrels a day from other sources such as seeds. That’s not nearly enough, so the plan makes no economic or practical sense. It did, however, serve up a revelation on the media side.

    LINK

    Let’s look at the RAND report…

    Testing and certification of hydro treated renewable oils. Algae-derived fuel is a research topic, not an emerging option that the military can use to supply its operations, and cultivating seed oils affordably without adverse effects on climate change has yet to be demonstrated. Because the prospects for appreciable domestic production of hydro treated oils over the next decade are so uncertain, the Department of Defense should discontinue large-scale testing and certification efforts (other than laboratory R&D).

    […]

    Much of the Defense Department’s work to develop alternative fuel production technologies is based on the unfounded assumption that the military will gain a direct benefit from having access to alternative fuels that can substitute for military fuels.

    […]

    For the most part, the Defense Department’s efforts to develop the technology to produce alternative fuels consists of a collection of independent projects, each focused on demonstrating the technical viability of a single concept for producing military fuels. Demonstrating technical viability is easy; consider the history of photovoltaic power and fuel cells. But demonstrating affordable and environmentally sound production—i.e., commercial viability—is difficult…

    […]

    For hydro treated renewable oils, the prospects for commercial production depend on the feedstock. For fuels derived from waste oils and animal fats, a small amount of commercial production directed at the civilian diesel fuel market is scheduled to come on line in 2010. But overall production potential in the next decade is unlikely to exceed 25,000 barrels per day.

    […]

    For algae-derived hydro treated oil produced via photosynthesis or fermentation of cellulosic materials, the scale of the technical challenge and the early development status of the enabling technology strongly suggest that appreciable amounts of commercial production are highly unlikely through 2020.

    […]

    RAND

    What the US Navy is attempting to do is the equivalent of building a home-version of the UNIVAC in 1957. The only difference is that in 1957, there was no alternative to the UNIVAC.

    “Bartis estimates the maximum amount of fuel from chicken fat at 30,000 barrels a day, with up to 50,000 barrels a day from other sources such as seeds.”

    The top two oil wells in the Gulf of Mexico are currently producing more than 50,000 barrels per day.

    As of July 2012, there were 21 oil wells in the Gulf of Mexico producing more than 10,000 barrels per day. Those 21 wells produced a combined 322,000 barrels of oil per day. Federal Offshore Gulf of Mexico Field Production has averaged 1.3 million barrels of oil per day in 2012, despite the lingering effects of the unlawful moratorium and permitorium.
    GOM vs Seeds & Chicken Fat

    Despite the fact that biofuels can’t provide even a fraction of the Navy’s consumption at more than twice the cost of conventional fuels, the Navy is proceeding with full-scale production (not just R&D).

    The biofuel is currently about $27/gal.

    They blend it (50-50)with conventional fuel runs around $3.30 gal. The result is a blend that costs about $15 gal.

    They claim that they can get the biofuel cost down to about $11/gal, where the cost of the blend would be about $7/gal.

    The DOD uses about 320,000 bbl of oil per day. The RAND paper says that the total national potential for biofuel production by 2020 is in the neighborhood of 50,000 bbl/day.

    I guess the “good news” is that the low production rate will prevent the DOD from p!$$ing away more than $433 million per year on biofuel between now and 2016. Of course, if they weren’t p!$$ing away $433 million per year on biofuel, they could afford to deploy that second CVN to the Persian Gulf.

     

  4. David Middleton Says:

    me says:
    February 14, 2013 at 5:30 am
    Imports of petroleum in October of 1992 were higher than today. Doesnt that make the statement correct?

    http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WTTIMUS2&f=W

    Only if you are ignorant of the fact that crude oil (petroleum) and refined petroleum products are two different things. They are as different as iron ore and steel.

  5. DGH Says:

    Dave –

    I’ve got a longer comment pending at WUWT. But of the several Fabrications, Falsehoods and Fantasies this one is the most egregious.

    Of the 12 Billion decrease in Federal Mineral Revenues since 2008, 9 Billion can be attributed to the fact that the 2008 revenues were anomalous. In that year the Bonus revenue was about 10x normal (leading and trailing) and contributed that extra 9 Billion.

    The balance of the decrease can be attributed to 2 factors. The global economic crisis has decreased demand. Lower sales equals lower revenues. It would be difficult to pin all of that on President Obama but some will try. So be it.

    The second cause for the decrease in revenue is the decrease in mineral commodity prices. Some of that is related to the global economic problem, too. When demand falls prices follow.

    The good news is that increases in supply also cause prices to fall. If you’d like to blame President Obama for the increase in natural gas supply that’s your call. I’m sure he’d appreciate that.

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