Monday, January 30, 2006

Domenici's Challenge

Tonight was the annual dinner of The Nixon Center, where the distinguished service awards are presented. For 2005, awards were presented to Secretary Jim Schlesinger and Senator Pete Domenici of New Mexico.

Dr. Schlesinger's remarks drew from his article in the Winter 2005/06 issue of The National Interest, again a warning about the forthcoming "liquids crisis" in energy as petroleum stocks run down, and that the longer we wait to do something about it, the harder the crunch will be.

I was intrigued by the Senator's remarks. Those who are familiar with his positions know he supports drilling in ANWR, developing natural gas sources in the Gulf of Mexico, and building more nuclear plants to generate electrical power. People disagree vehemently over these courses of action, but I thought that he made a critical point: our standard of living depends upon (and is linked inextricably to) access to energy. We cannot sustain our lifestyle in the absence of energy supplies.

This means thinking about tradeoffs. He noted that some are calling for boycotting Iran as a means of pressuring them on their nuclear program. Well and good. This deprives the market of 1 million barrels of oil per day. ANWR could supply that. Or we should be prepared to pay at least $20 per barrel more. Or we have to be prepared to make changes in our lifestyle (for example, shifting to more mass transit).

What I thought was useful is that he dispensed with the fantasy land so many of us cling to: that we can have cheap energy, no changes in lifestyle, no environmental impacts and wield pressure against oil producing nations with no ill effects. Energy policy is not independent of or somehow separate either from foreign poicy or domestic policy--and we need to have the same setting of priorities that enables us to make choices.

We should be ready for 100$ OIL
Aren't the estimates true that ANWR would only supply five months of US consumption? This oil would make more sense as a backup strategic petroleum reserve if environmental reasons for leaving it alone are not persuasive in Washington.
In terms of what ANWR can produce, I am citing what Domenici said last night--that it culd replace to some extent supplies that would be cut off from Iran (assuming it was at full capacity). If someone has the exact estimates of what ANWR contains and could post them, that would be most useful to see.
I agree that the Senators comments were surprisingly on point, but the one thing everyone seems to forget is that oil is a fungible commodity. Having ANWR oil might be equal to the amount Iran puts on the market, but it won't lower the price of oil on the world market which is generally what we pay....
The Department of Energy did a study on ANWR back in 2000, in response to a request from Sen. Frank Murkowski. (It was produced by EIA, which as an independent agency wasn't required to represent the position of the Clinton administration.)

Iran currently has net exports around 2.6 million bbl/d, out of total production of around 4.2 million bbl/d. (But on a gross basis, it exports more crude than that, and imports a substantial amount of petroleum products.)

So anyway, the two aren't really comparable in terms of volume. But I definitely agree with the points James Schlesinger made in the TNI article about a coming paeriod of scarcity, and the idea that this will impose constraints on U.S. policy, and force us to make tradeoffs.
Here is a discussion of ANWR that includes its relation to US consumption. Greg, does this analysis look right to you?

The figure I cited of five months was too low but if I understand it the estimate Holdren gives for ANWR is 0.6 to 2 years US consumption, or 1-4 years current imports, or ten percent of projected imports from 2010 to 2020.

That's a lot of oil but it would still seem to me more useful as a backup strategic petroleum reserve than as a source for current consumption. However, we do need to be thinking more seriously about how to reduce our dependence on imported oil.
I think Holdren's analysis is pretty reasonable. But any estimates dealing with ANWR have to carry the big caveat that no exploratory drilling has yet been done. Even with the best seismic data, the industry does sometimes get surprised when they start drilling, both on the upside and the downside -- that's why the EIA study has such a wide range in terms of the confidence intervals.

But anyway, the broader point I would make is that, even if U.S. production were 1 million bbl/d higher, that still wouldn't fundamentally change the structure of the world oil market, or give the U.S. more influence over prices. A significant disruption of supplies from the Persian Gulf would still have major consequences for the U.S. economy.
So, - thanks to the incompentent chickenhawks in the Bush government exhausting the American military, disrobing American credibility, and disrupting the global balance of power - we are all between Iraq and a hard place, with no good options but appeasing Iran, just as we do the Saudi's to satiate our pathological addiction to oil.

Freedom on the march indeed.
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