More On Our Domestic Oil Supply (We're Being *LIED* To!!!)

John A. Quayle blueoval57 at VERIZON.NET
Fri Feb 13 01:56:50 MST 2009

Oil, Oil Everywhere . . .
Why is it expensive? Because it's so cheap.

Sunday, January 30, 2005 12:01 a.m. EST

The price of oil remains high only because the cost of oil remains so low. 
We remain dependent on oil from the Mideast not because the planet is 
running out of buried hydrocarbons, but because extracting oil from the 
deserts of the Persian Gulf is so easy and cheap that it's risky to invest 
capital to extract somewhat more stubborn oil from far larger deposits in 

The market price of oil is indeed hovering up around $50 a barrel on the 
spot market. But getting oil to the surface currently costs under $5 a 
barrel in Saudi Arabia, with the global average cost certainly under $15. 
And with technology already well in hand, the cost of sucking oil out of 
the planet we occupy simply will not rise above roughly $30 a barrel for 
the next 100 years at least.


The cost of oil comes down to the cost of finding, and then lifting or 
extracting. First, you have to decide where to dig. Exploration costs 
currently run under $3 per barrel in much of the Mideast, and below $7 for 
oil hidden deep under the ocean. But these costs have been falling, not 
rising, because imaging technology that lets geologists peer through miles 
of water and rock improves faster than supplies recede. Many lower-grade 
deposits require no new looking at all.

To pick just one example among many, finding costs are essentially zero for 
the 3.5 trillion barrels of oil that soak the clay in the Orinoco basin in 
Venezuela, and the Athabasca tar sands in Alberta, Canada. Yes, that's 
trillion--over a century's worth of global supply, at the current 
30-billion-barrel-a-year rate of consumption.

Then you have to get the oil out of the sand--or the sand out of the oil. 
In the Mideast, current lifting costs run $1 to $2.50 per barrel at the 
very most; lifting costs in Iraq probably run closer to 50 cents, though 
OPEC strains not to publicize any such embarrassingly low numbers. For the 
most expensive offshore platforms in the North Sea, lifting costs (capital 
investment plus operating costs) currently run comfortably south of $15 per 
barrel. Tar sands, by contrast, are simply strip mined, like Western coal, 
and that's very cheap--but then you spend another $10, or maybe $15, 
separating the oil from the dirt. To do that, oil or gas extracted from the 
site itself is burned to heat water, which is then used to "crack" the 
bitumen from the clay; the bitumen is then chemically split to produce 
lighter petroleum.

In sum, it costs under $5 a barrel to pump oil out from under the sand in 
Iraq, and about $15 to melt it out of the sand in Alberta. So why don't we 
just learn to love hockey and shop Canadian? Conventional Canadian wells 
already supply us with more oil than Saudi Arabia, and the Canadian tar is 
now delivering, too. The $5 billion (U.S.) Athabasca Oil Sands Project that 
Shell and ChevronTexaco opened in Alberta last year is now pumping 155,000 
barrels per day. And to our south, Venezuela's Orinoco Belt yields 500,000 
barrels daily.


But here's the catch: By simply opening up its spigots for a few years, 
Saudi Arabia could, in short order, force a complete write-off of the huge 
capital investments in Athabasca and Orinoco. Investing billions in 
tar-sand refineries is risky not because getting oil out of Alberta is 
especially difficult or expensive, but because getting oil out of Arabia is 
so easy and cheap. Oil prices gyrate and occasionally spike--both up and 
down--not because oil is scarce, but because it's so abundant in places 
where good government is scarce. Investing $5 billion over five years to 
build a new tar-sand refinery in Alberta is indeed risky when a second 
cousin of Osama bin Laden can knock $20 off the price of oil with an idle 
wave of his hand on any given day in Riyadh.

The one consolation is that Arabia faces a quandary of its own. Once the 
offshore platform has been deployed in the North Sea, once the humongous 
crock pot is up and cooking in Alberta, its cost is sunk. The original 
investors may never recover their capital, but after it has been written 
off, somebody can go ahead and produce oil very profitably going forward. 
And capital costs are going to keep falling, because the cost of a tar-sand 
refinery depends on technology, and technology costs always fall. Bacteria, 
for example, have already been successfully bioengineered to crack heavy 
oil molecules to help clean up oil spills, and to mine low-grade copper; 
bugs could likewise end up trampling out the vintage where the Albertan oil 
is stored.

In the short term anything remains possible. Demand for oil grows daily in 
China and India, where good government is finally taking root, while much 
of the earth's most accessible oil lies under land controlled by feudal 
theocracies, kleptocrats, and fanatics. Day by day, just as it should, the 
market attempts to incorporate these two antithetical realities into the 
spot price of crude. But to suppose that those prices foreshadow the 
exhaustion of the planet itself is silly.

The cost of extracting oil from the earth has not gone up over the past 
century, it has held remarkably steady. Going forward, over the longer 
term, it may rise very gradually, but certainly not fast. The earth is far 
bigger than people think, the untapped deposits are huge, and the 
technologies for separating oil from planet keep getting better. U.S. oil 
policy should be to promote new capital investment in the United States, 
Canada, and other oil-producing countries that are politically stable, and 
promote stable government in those that aren't.

Messrs. Huber and Mills are co-authors of "The Bottomless Well: The 
Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of 
Energy," just out from Basic Books.


Used with permission from 
<>, a 
web site from Dow Jones & Company, Inc.

Follow this <>link for a more 
detailed explanation of property rights and how they relate to the subject 
of conservation of resources.
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