Oil Barrel: Half Empty or Half Full?

Every coin has two sides and so does every story. The current oil crisis is no exception. Those who wish to protect the environment at all costs have made an art of spinning every oil news story into one that discourages any additional domestic drilling. Of course those on the side of the oil industry are no dummies in the spin department, either. But here’s a recent example that shows how the spin zone works. And you can decide for yourself if the glass, or the oil barrel, is really half full or half empty.

Increasing supply is one of the many solutions being offered to solve the world’s oil crisis. Naturally this alone will not solve the problem, but with the long-term increasing demand from developing nations, obviously a growth in supply would be highly beneficial.

Recently, the US Geological Survey released a study that concerns the Arctic region’s potential supply of oil and natural gas. You can view this assessment for yourself at www.usgs.gov, but here are a few selected quotes: “The area north of the Arctic Circle has an estimated 90 billion barrels of undiscovered, technically recoverable oil, 1,670 trillion cubic feet of technically recoverable natural gas, and 44 billion barrels of technically recoverable natural gas liquids in 25 geologically defined areas thought to have potential for petroleum.”

“These resources account for about 22 percent of the undiscovered, technically recoverable resources in the world. The Arctic accounts for about 13 percent of the undiscovered oil, 30 percent of the undiscovered natural gas, and 20 percent of the undiscovered natural gas liquids in the world. About 84 percent of the estimated resources are expected to occur offshore.”

The Arctic region covers a large area, including Siberia, Greenland, Canada and upper Alaska. While we can’t influence exploration in most of those regions, we certainly can in Alaska. Arguments about opening up ANWAR to drilling have been going on for years and this report is certain to add fuel to the fire.

This is especially true since this report points out that Arctic Alaska is one of the three geological provinces that make up “more than half of the undiscovered oil resources” and “more than 70 percent of the undiscovered natural gas.” The undiscovered oil resources in Arctic Alaska are estimated to be 30 billion barrels.

Sounds like great news, doesn’t it? But not to those who oppose any and all oil drilling. They have come out with their own interpretation of the data, saying that all the oil in the Arctic would only supply the world for three years. So why put the Arctic environment at risk for such a small return?

One problem with this argument is the way in which these environmentalists came up with their three year figure. They took the world’s annual use of 30 billion barrels a year (that’s 83 million barrels a day) and divided it into the 90 billion barrels said to exist in the Arctic. But this isn’t really a valid argument. One of the main reasons that oil prices are so high right now is that there is very little margin between world demand and world supply. Any additional oil put into the supply line would lessen these margins and bring down prices.

Even the democrats in Congress are pushing for a release of petroleum from our Strategic Oil Reserve for this very reason. They know that adding some supply would put downward pressure on current oil prices. You don’t hear them explaining that the 706 million barrels in our Strategic Oil Reserve would only supply the world’s needs for 8 ½ days, so why bother tapping it at all? And yet, they argue that we shouldn’t open up new drilling in Alaska, or anywhere else where there is domestic oil, because the 30 billion barrels or more we could access wouldn’t fill the world’s demand for more than a few years. It’s hypocritical to say the least!

Increases in technology will only add to the available reserves already existing in the Arctic. And think of those 90 billion barrels this way: if the Arctic could add 2 million barrels of oil a day to the world’s supply, that oil would last 123 years. You can spin it however you want, but without increased oil supply, our oil crisis will only get worse.

Mr. Voudrie is a Certified Financial Planning Practitioner and provides personal, private money management services to clients nationwide. Find out more at www.guardingyourwealth.com.

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