Drill, Baby, Drill

Throughout our own nation's relatively short history, Europe has served as a great example of WHAT NOT TO DO. Whether it's learning the lessons from monarchies, dictatorships, aristocracies, socialistic governments, welfare states, unions, economic freedom, free enterprise, national security or its current Articles of Confederation type experiment today with the Euro currency, simply by following the simple rule of just doing the opposite of what they do, we can be pretty sure that things will work out for the better. Accordingly, Europe is a great role model for what We the People of the U.S. shouldn't do.

So let's concentrate on the energy story today.

EUROPE

U.S. Shale Gas Revolution Throws Down the Gauntlet to Europe captures the energy story well:

"The United States is enjoying an energy bonanza thanks to shale gas, making it a magnet for industry, reducing import dependence and challenging Europe as it battles to dig itself out of recession, energy officials say.

Panelists at a weekend security conference in Munich warned Europe must develop a strategy on how to tap its own resources in order to keep energy costs competitive, or risk seeing power-intensive industries locate elsewhere.

"The shale gas and oil boom is already underway. As Europe continues to debate it, North America is reaping the advantages," said Jorma Ollila, Chairman of Royal Dutch Shell. . . .

(France's) reserves are . . . estimated to be Europe's largest at 180 trillion cubic feet.

France has banned . . . fracking which is used to extract shale gas and which involves pumping vast quantities of water and chemicals at high pressure through drill holes to prop open shale rocks.

Environmentalists fear it could increase seismic risks and pollute drinking water. U.S. officials question this and say that thanks to the higher proportion of gas use the United States has had its lowest carbon dioxide emissions in 20 years.

"Observing this from across the Atlantic it is really quite remarkable that there should be a ban or a go-slow on this development in Europe, really without any facts," said Daniel Yergin, Vice-Chairman of IHS Cambridge Energy Research.

Fracking is used to produce a third of U.S. natural gas he said, showing the environmental impact can be managed.

SHALE SCRAMBLE

World energy market flows already reflect North America's scramble to exploit shale oil and gas and highlight the potential prize Europe is ignoring.

"The U.S. internal energy revolution and the radical increases in production of oil and gas have boosted gas production by 25 percent and seen oil import dependence drop from 60 percent to 40 percent, and expected to decline further to 30 percent," said Carlos Pascual, the U.S. special envoy for energy affairs.

While Europe retains deep environmental concerns it also acknowledges that with the price of gas in the United States just a third of that in Germany, its industry is already suffering the effects.

German Economy Minister Philipp Roesler said: "Many German firms have opted for (relocation to) the United States, saying energy prices were the decisive factor...We are already seeing that we are suffering with our higher energy prices…it affects our own competiveness."

Addressing the panel in Munich European Union Commissioner Guenther Oettinger said Europe should be in a position to produce enough shale gas to replace its depleting conventional gas reserves, so as not to become more dependent on imports. . . . 

A recent confidential study by the German intelligence agency (BND) suggested the United States could turn from being the world's greatest energy importer into an oil and gas exporter by 2020, reducing its dependence on the Middle East and thereby giving it much more freedom in policy making.

China by contrast would become much more dependent on Middle East oil to fuel its rapid expansion."

U.S.      

The U.S. is drilling lots of oil and gas these days. While we're not in any way approaching the "maxed out" stage, we are developing much more than we ever have in our history.

And it will only get better from this point forward. And that will in turn augur well for our national security, manufacturing industries (including chemical and energy industries), our nation's domestic competitive cost of doing business and lower consumer costs. Of course, all of this will result in higher overall U.S. economic and job growth as well. There is definitely lots to like, including the favorable impact all this will have on our nation's deficits, debts and the ability to fund much needed educational opportunities and improvements as well.

U.S. Oil-Production Rise Is Fastest Ever has the good news story:

"U.S. oil production grew more in 2012 than in any year in the history of the domestic industry, which began in 1859, and is set to surge even more in 2013.

Daily crude output averaged 6.4 million barrels a day last year, up a record 779,000 barrels a day from 2011 and hitting a 15-year high, according to the American Petroleum Institute, a trade group.

It is the biggest annual jump in production since Edwin Drake drilled the first commercial oil well in Titusville, Pa., two years before the Civil War began.

The U.S. Energy Information Administration predicts 2013 will be an even bigger year, with average daily production expected to jump by 900,000 barrels a day.

The surge comes thanks to a relatively recent combination of technologies—horizontal drilling and hydraulic fracturing, or fracking, which involves pumping water, chemicals and sand at high pressures to break apart underground rock formations.

Together, they have unlocked deposits of oil and gas trapped in formations previously thought to be unreachable.

 

The 2012 rise in crude output was the largest since U.S. oil production began in 1859 at a well owned by Edwin Drake (right) in Titusville, Pa.

That has meant a resurgence of activity in well-established oil regions, such as West Texas's Permian basin, as well as huge expansions in areas that had been lightly tapped in the past, such as North Dakota's Bakken shale region.

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{NOTE: A great but lengthy magazine article about the Bakken story is North Dakota Went Boom. I recommend that you take the time to read it. Here's an excerpt:

"Just how much oil is in the Bakken is still unknown. Estimates have been continuously revised upward since a 1974 figure of 10 billion barrels. Leigh Price, a United States Geological Survey geochemist, was initially greeted with skepticism when, about 13 years ago, he came to the conclusion that the Bakken might hold as much as 503 billion barrels of oil. Now people don’t think that number is as crazy as it seemed.

“Right now our best guess is there are 169 billion barrels of oil in the Bakken, and that’s undoubtedly wrong,” says Ed Murphy, state geologist at the North Dakota Geological Survey. “There’s no way to be right. It’s like guessing how many jelly beans are in a jar.”

The current recovery rates for Bakken reserves typically range from 1 to 6 percent, but recovery rates are a function of both technology and market prices. “With the best technology, we can recover 4 to 8 out of every 100 barrels of oil in the Bakken,” says Ron Ness, president of the North Dakota Petroleum Council. “Every 1 percent increase in the rate of recovery means another billion barrels.”

As long as prices stay above $60 a barrel or so, oil will be a mainstay of the North Dakota economy for a generation or more. After drilling companies finish securing leased acreage, it will take 20 years to develop the 35,000 to 40,000 production wells needed to fully exploit the “thermally mature” part of the Bakken shale, an area about the size of West Virginia. Production from a typical Bakken well declines rapidly but on average produces modest amounts of oil for 45 years and earns a profit of $20 million. But as the volume of oil in the Bakken shale is still a moving target, and recovery techniques are increasingly sophisticated, some estimates put the life of the Bakken play, and the attendant upheaval it is causing in North Dakota, at upward of a hundred years." 

Now we'll turn our focus back to the article "U.S. Oil-Production Rise Is Fastest Ever."}

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The Bakken has gone from producing just 125,000 barrels of oil a day five years ago to nearly 750,000 barrels a day today.

The benefits of the surge in domestic energy production include improving employment in some regions and a rebound in U.S.-based manufacturing.

"At a very basic level this surge is creating jobs and wealth that didn't exist before," said Michael Levi, a senior fellow for energy and the environment at the Council on Foreign Relations.

It has also provided the country with greater defense against overseas turmoil that can disrupt energy supplies. . . .

Amid a sluggish economic recovery and tightening fuel-economy standards for U.S. cars and trucks, oil demand fell to a 16-year low in 2012, according to the trade group. Total oil imports for the year fell by 6.9%, to a 15-year low, API said.

Refiners that spent billions of dollars upgrading and expanding facilities last decade now find themselves with excess capacity, leading them to target consumers in South America and elsewhere for their surplus diesel and gasoline production.

Exxon Mobil Corp. predicts in its annual energy outlook that North America will become a net exporter of all energy by 2025, through continued growth of crude from Canada's oil-sands region as well as growing exports of gasoline and diesel.

Continuation of the production trend isn't a given, experts say, noting that the industry must continue to improve on its exploration-and-production technology, particularly as it continues to move into areas that are more heavily populated, or else it could face greater regulatory resistance. Environmental concerns remain a significant issue as the technology expands.

U.S. crude production won't necessarily mean significantly lower gasoline prices, which will still be influenced by global markets.

But the domestic-production surge is already having a dramatic impact on the refining business, which in the past had been focused on handling hard-to-refine crude imported from overseas.

Earlier this month, San Antonio-based refiner Valero Energy Corp. said it will add new equipment to a Houston-area plant to handle a very easy-to-refine type of oil from South Texas' Eagle Ford shale oil fields.

"No one has installed that equipment on a U.S. refinery in years," said Philip Verleger, an energy economist."

Summing Up

While it's always a good idea to keep things in perspective and not become irrationally exuberant, especially when "progressive green" politics is involved, good news is good news.

And our ability to achieve energy independence and all that entails for our national security, economic growth, jobs, fiscal deficits and national debt are wonderful things to look forward to soon becoming reality. Who'd a thunk it possible a short ten years ago?

So let's get ready for an energy independent and economically revived North America by urging our "public servants" to allow the private sector to hasten that 21st century U.S. Independence Day's arrival.

Thanks. Bob.