2009 September 20 Sunday
Obama Wants Reduced Investment In Oil

Even though the Obama Administration has a physics Nobel Prize winner as Secretary of Energy there's an element of cluelessness to Obama's energy policies. America's government believes we invest too much in oil and natural gas.

The Obama administration opened a new front in its effort to impose $31.5 billion in taxes on oil and gas companies, saying that the nation puts too much emphasis on oil and gas at the expense of other industries.

The chief economist in the Obama administration's Treasury Department testified before a Senate panel that current subsidies "lead to overinvestment" in the oil and gas industry.

Alan Krueger believes what he's saying?

Picture this: We invest less in oil and natural gas. Production rapidly drops. We have to import more and our trade deficit gets much larger. Then the dollar drops in value and imports cost more. Our living standards drop.

We need to keep up investments in oil and natural gas to give us time to develop the replacements for these energy sources. Oil extraction in particular is becoming much more expensive as the remaining oil is harder to reach and more expensive to extract. The cheap oil is gone. We need to spend more, not less, to get what's remaining.

When world oil production starts declining every year and we enter one long recession lasting longer than a decade the current period's energy policy discussions will seem hopelessly naive.

Update: The oil and natural gas industry is a big chunk of the US economy.

The U.S. oil and natural gas industry supports more than 9 million American jobs and makes significant economic contributions as an employer and purchaser of American goods and services, a new study by PricewaterhouseCoopers (PwC) found.

The study entitled "The Economic Impacts of the Oil and Natural Gas Industry on the U.S. Economy: Employment, Labor Income and Value Added” notes that the industry's total value-added contribution to the national economy was more than $1 trillion, or 7.5 percent of the U.S. gross domestic product, in 2007, the most recent year for which data was available.

I would very much like replacements for oil since I expect world oil production to go into long term irreversible decline starting some time in the next 10 years. We need replacements. But we can't pretend today that we have good replacements for the oil that supplies 95% of current US transportation needs. The investment needed to replace oil will require tens of trillions of dollars and decades to make.

Share |      By Randall Parker at 2009 September 20 01:27 PM  Economics Energy

Francis said at September 20, 2009 3:28 PM:

-We need to keep up investments in oil and natural gas to give us time to develop the replacements for these energy sources.-

We have a replacement. It is called nuclear power. But the liberals running the show have nixed that. Wecome to the dark ages...

Randall Parker said at September 20, 2009 4:15 PM:


95% of our transportation energy comes from oil. Our biggest problem is liquid fuel, not electricity. I agree: Build more nukes! But our biggest need is for advances in battery tech to make electric cars more affordable.

I see natural gas powered cars as a bridge to help us while battery technology advances.

The Sanity Inspector said at September 20, 2009 5:55 PM:

And don't forget we need petroleum to make plastics, too. Care to envision a stay in the hospital, if it has no plastic products?

not anon or anonymous said at September 20, 2009 8:51 PM:

"Our biggest problem is liquid fuel, not electricity."

Woodgas, compatible with gasoline engines, could fill some of that need, especially on farms. Further, an increase in fuel-flexible engines would make any distiller's mash an immediate fuel source. Also, research into the diesel tree and other oil-producing plants and algae are increasing the feasbility of diesel-engine-compatible oil in both the short and long term, even if the algae is inefficient. That is, ICEs aren't bricks weighing us down in a rising sea of lack-of-oil; they're more useful than that.

With nuclear power plants running massively enhanced growing operations (eg, lots of big lights runing continuously), some of these inefficient sources of fuel could be produced closer to where they're consumed and for a cheaper cost overall than, at least, the far-out ideas like tapping tundra oil shale or methane from the ocean floor.

Which is to say, if electricity were to be suddenly a lot cheaper, especially relative to the price of oil, when replacing oil products these ways with electricity being the main input becomes extremely attractive. Possibly more attractive than new power lines to handle the load of electric car charging. Imagine using the existing truck infrastructure to distribute electricity-fueled liquid fuels for the foreseeable future, in the absence of crude oil imports. (It's like transporting charged batteries by train, with a fixed and known charging efficiency and transportation cost, compared with the large initial capital outlays involved in new power lines. Imagine if battery technology had been 200 years ahead when household electric appliances were first being conceived!)

MaryJ said at September 21, 2009 8:56 AM:

Concentrating thermal solar with molten salt storage can provide electricy 24/7, then you can charge advanced battery powered electric cars at home in your garage. If the concentrating thermal solar is impractical in some parts of the country, I agree, go with nuke power. We will still need oil for plastics, pharmeceuticals and pesticides, but not that much. Some plastics can made with corn starch. As usual, whitey will figure out some way to save the world, and then the rest of the world will ignore it and blame us for not coming up with a solution faster, or for not "sharing" it fast enough with the rest of the world.

Engineer-Poet said at September 21, 2009 9:38 AM:

I see someone who isn't quite anonymous might as well have been reading my blog.

We don't need petroleum to make plastics.  Lots of plastic comes from ethylene, which is IIUC a common component of natural gas.  Ethylene can also be made by dehydration of ethanol or catalytically synthesized directly from syngas.  Anything which can make syngas can supply the necessary monomers, and just about anything with a substantial amount of carbon in it can be used to make syngas.

If you look at the per-capita consumption of plastic (much of which could be eliminated), you'll see that biological sources of carbon are sufficient to cover needs.  Our big problem is the use of oil for energy, not raw material.

Black Death said at September 21, 2009 10:10 AM:

The incompetence of this administration is just astounding. As worldwide oil production declines, more, rather than less, money should be spent on exploration and development. Obama wants the tax revenues to fund his bloated new entitlement programs. But which group will be hurt the most by soaring energy prices? To affluent Americans, $8 a gallon gasoline will be an annoyance - they may feel it's worth the cost to have less crowded highways. But those at the bottom of the economic ladder will be hammered, especially if they have to drive to work. Of course, the way things are going, many of them won't have jobs, so maybe it won't matter. Robust job creation and affordably priced energy will benefit poor Americans much more than new government handouts.

To see where this will lead, take a look at the previous post about declining Mexican oil production. For decades, the Mexican government has used the state oil monopoly, Pemex, as a giant cash cow, funding over a third of federal revenues. And there lots of Pemex patronage jobs for the corrupt political elite to hand out to their friends. The result is that Pemex has almost no money left over for exploration and development. Plus, with no profit incentive, no one at Pemex really cares. The giant Canterell field, now in decline, was discovered by accident by a fisherman who complained that oil was fouling his nets. Within a decade, Mexico, which has traditionally been number two or three as a source of US oil imports, will become a net importer of oil. Bad for Mexico, bad for the US.

Engineer-Poet said at September 23, 2009 2:54 PM:

You are assuming that more money spent on exploration and development will be worth it.  As oil supplies deplete and discovered fields become smaller, it takes more and more energy to get a given amount of oil; the net fraction (after energy expended) decreases even faster.

Our best payoff right now is in reducing demand and converting to other energy supplies.  Bidding the price of oil up to $150/bbl so you can waste it in an Escalade is insanity.  Making a plug-in hybrid minivan with Zebra batteries may cost more up front, but the downstream energy costs are much more stable and not generally subject to exchange rate risk.

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