“Sent: Thursday, July 03, 2008 8:49 PM
Subject: [proprights] Energy Myths


So . . . just who is it that’s holding the world hostage to high oil prices . . . OPEC or the United States Congress?

Energy Myths

By INVESTOR'S BUSINESS DAILY | Posted Thursday, July 03, 2008 4:20 PM PT

Oil: With the long July Fourth weekend, you might get a chance to see your senator or representative. If so, you should be ready to dispel a few myths politicians now have about drilling for more oil.

IBD Series: Breaking The Back Of High Oil

This is especially true of Democrats. Many in Congress seem either disconnected from reality or intentionally disingenuous about our energy crunch. They have well-honed negative responses to common-sense ideas about solving our energy crisis, particularly drilling for more oil.

These responses are based on a number of widely held myths. Sadly, they've become the backbone of the Democrats' energy policy. They include:

• "We can't drill our way out of our energy crisis."

Actually, we can. As we've noted before, conservative estimates put the total amount of recoverable oil in conventional deposits at about 39 billion barrels. Offshore, we have another 89 billion barrels or so. In ANWR, 10 billion barrels.

In oil shale deposits, we have more than 1 trillion barrels of oil. In perspective, that's about four times the total reserves of Saudi Arabia. And if estimates of shale reserves as high as 2 trillion barrels prove true, we'll have about a 300-year supply of oil just from shale. This compares with current estimated total U.S. oil reserves of about 21 billion barrels.

ANWR alone is expected to yield 1 million barrels of oil a day. Now make the highly conservative assumption that we're able to get a like amount of oil from the other sources — for a total increase of 3 million to 4 million barrels of oil a day.

That's an enormous rise in oil output. Today, we produce just under 8 million barrels of oil a day from domestic sources. So we could, in effect, boost our energy output 50%, and thus our energy independence, by bringing an additional 4 million barrels of oil to thirsty world markets each and every day.

By the way, those calculations don't include the trillions and trillions of cubic feet of natural gas found in the same locations, which, along with nuclear power, could be used to fire our power plants.

By 2030, according to the U.S. Energy Information Administration, we will need at least 30% more energy to fuel our economy. Nearly 85% of that increase will come from oil and gas, even with expected gains for alternative energy. Can't drill our way out? In fact, it's the only way out of our energy crisis.

• "Oil companies are sitting on 68 million acres of oil leases and refuse to drill."

This is yet another slander of "Big Oil" by House Speaker Nancy Pelosi — one that has become a major talking point for Democrats in Congress. It's completely dishonest.

Oil companies have spent billions of dollars for those leases. Drilling has increased by more than 66% since 2000. They are searching for oil even as you read this. Some parts of those 68 million acres will have oil, some won't. But at $145 a barrel, you can bet oil companies have plenty of incentive to find it.

That said, 68 million acres is in fact a minuscule amount. Some 94% of federal lands — 658 million acres — remains off-limits to exploration. Another 97% — or 1.7 billion acres — of federal offshore properties likewise remains off-limits. These lands contain tens of billions of barrels of recoverable oil. It's there for the taking, now.

How much energy is there? Federal lands, according to the American Petroleum Institute, hold 651 trillion cubic feet of natural gas, enough to fuel 60 million households for 160 years. They hold at least 116 billion barrels of oil, maybe more. That's enough to fuel 65 million cars and provide fuel oil for 3.2 million homes for 60 years.

As such, it's the height of irresponsibility for Congress to leave these lands off the table. It ensures we remain vulnerable to pariah petrostates like Venezuela, Saudi Arabia, Libya, Iran and others who wish us ill.

• "Even if drilling works, it'll take a decade or more for the oil to flow."

This is quite an argument coming from the Democratic Party, which has made keeping oil off the market a linchpin of its energy policy for decades.

If President Clinton hadn't vetoed the idea of drilling in ANWR back in 1995, we'd have that oil on the market today. Ditto if Congress had approved ANWR drilling in 2002, when President Bush requested it.

Even so, the larger point is false anyway. New oil will be flowing in some cases within three to four years, according to industry estimates. But the impact on prices will be immediate. Why? Because markets would suddenly have to discount future oil prices for the expected gain in oil supply. That would cause oil prices, especially in futures markets, to drop.

By the way, this isn't just conjecture. President Reagan, within a week of his inaugural in 1981, removed domestic controls on oil. Energy prices began tumbling almost immediately, with oil falling from $34 a barrel in early 1981 to just $11 by 1986.

It worked before, and it'll work again.

• "Record profits by big oil companies are the reason for soaring prices."

It's true that oil company profits have never been higher. But put into perspective, oil company profits are high because the price is high. As a share of revenue, profits aren't so high.

The average profit, as we've noted before, is around 8 to 9 cents to the dollar. That compares with about 7 cents to the dollar for manufacturers and more than 15 cents to the dollar for computer makers.

In short, oil profits aren't out of whack with the rest of industry.

What doesn't get said is that while oil companies have profit margins of about 8%, about 12% of the price of a gallon of gas goes to the government in the form of taxes. When indirect taxes are included, the share is even higher.

So who are the real price-gougers?

From 1981 to 2006, the oil industry made $867 billion in profits. Yes, that's a lot. But over that same time, they paid total taxes of $1.2 trillion, Energy Department data show. And that doesn't include taxes of $519 billion paid to foreign countries.

Please remember that the next time a politician vows to hit "Big Oil" with a windfall profits tax or some other idea. The tax won't be paid by the oil company; it will be paid by you, the consumer.

In coming weeks, we'll try to look at some of the other myths surrounding America's energy. The problem is, there are so many that dispelling the falsehoods about energy can become a full-time occupation for a newspaper.

In the meantime, let us suggest that if you think more oil will help, you should tell your local members of Congress. They're easy to find at the government Web site thomas.loc.gov. The only problem is, on this topic, many won't want to be found.


Attention, Yahoo! Groups users! Sign up now for a one-month free trial from Blockbuster. Limited time offer.
Yahoo! News

Get it all here

Breaking news to

entertainment news

Real Food Group

on Yahoo! Groups

What does real food

mean to you?

Everyday Wellness

on Yahoo! Groups

Find groups that will

help you stay fit.