The White Lies About Black Gold
November 25, 2009 by John Myers
(Part two of a three-part series on energy. Part three will appear Dec. 9)
Rep. Joe Wilson during President Barack Obama’s healthcare 2009 speech
It’s one year after Barack Obama’s presidential victory and the winds of winter are beginning to gale. But don’t expect him to give Jimmy Carter-like sweater-clad chats from a chilly Oval Office.
Carter—the first president to warn us about Arab oil dependency three decades ago—is irrelevant to today’s Democrats. Rather than engage the nation about our critical dependence on Middle East oil, Obama and the Democrats have either ignored our energy problems, or worse—outright lied about them.
At the August 2008 Democratic National Convention Obama declared: “I’ll invest 150 billion dollars over the next decade in renewable energy—an investment that will lead to new industries and 5 million new jobs that pay well and can’t ever be outsourced.”
Apparently Obama didn’t feel as “green” after winning the election. Just one day after he reiterated his commitment to renewable fuels in his State of the Union address in January 2009, we were told that the president’s budget cuts would force layoffs at the National Renewable Energy Laboratory.
Then there is Obama’s proclamation made on Oct. 15, 2008, during the presidential debates:
“In 10 years,” said candidate Obama, “we can reduce our dependence so that we no longer have to import oil from the Middle East or Venezuela.”
It’s Called Peak Oil Mr. President
Such comments reveal a president that is either naïve about the energy situation, or is concerned with what is politically expedient. I can’t decide which.
What I do know is that what he says about oil is impossible. And I should know; I have been around petroleum all my life.
My dad was a geologist and oil trader when some of the biggest petro fields in world were struck in the 1950s and 1960s. He became the founder and publisher of OilWeek, a weekly petroleum magazine that counted the Saudi Oil Ministry among its subscribers and which is still published to this day in Calgary, Canada.
I studied geology during the first oil crisis of the 1970s. I graduated from the University of Calgary just as prices were cresting at $36 per barrel—more than 10 times higher than where they had been at the beginning of the decade.
For nearly 30 years I’ve been covering the oil markets and writing about energy. I am certainly not the smartest fellow in and around oil and gas. But I’ve had the good fortune to meet some of the men and women who are.
All would tell you the one truth that I know—that the United States of America is critically dependent on Arab oil.
It is called Peak Oil, and for the U.S. that happened 40 years ago.
Today the U.S. is pumping just 4.9 million barrels of oil per day (mb/d), or just a little more than half of the oil pumped in 1970. In fact the U.S. hasn’t pumped such little oil since the 1940s when Truman was President and our population was half of what it is today.
It is a situation that is going to only get worse as America’s Big Three crude producers—Texas, California and Alaska—are showing major declines.
Nearly half of our domestic crude production comes from these three states. Yet Texas’ oil output has fallen by 57 percent since 1981. California delivers just a little more than half of what it was pumping in 1985 and Alaska, once America’s oil oasis, has had production decline by a whopping two-thirds in the past 20 years.
Why the Bakken Formation is Baloney
One final note about domestic oil production—every time I write about it, I get comments about the Bakken formation.
The Bakken formation is in North Dakota and Montana. A lot of people wanting to sell newsletters and/or penny oil stocks have claimed incredible numbers for the region; some say it holds billions of barrels of oil, others say hundreds of billions of barrels of oil. One promoter even wrote that it had 2 trillion barrels of oil! If true that would mean there is more than twice as much oil below North Dakota rock than what remains in the rest of the world.
The best undertaking of the region was done by the Pittman/Price/LeFever study which estimated the volume of oil at 200 billion to 400 billion barrels. But here is the rub: because of the lower permeability and lower porosity of the formations, only 1 percent of this total is likely to be recovered at an effective cost. In other words we are talking at best 4 billion barrels—about enough oil to keep the U.S. going for five months.
The geology in North Dakota means that the oil is not pooled in elephant fields like Prudhoe Bay in Alaska, Ghawar in Saudi Arabia or Cantarell in Mexico.
Furthermore, meaningful production from the Bakken formation won’t take place for more than a decade. (That’s a similar timeline to bringing new Alaskan oil to market).
According to The Oil Drum, at some point we might have production of 225,000 barrels per day from the Bakken formation, “Which will have only a minor effect on U.S. production or imports.”
To read a detailed geologic analysis of the Bakken formation, go to: http://www.theoildrum.com/node/3868.
Digging Instead of Drilling
So while bragging up the Bakken may sell newsletters, it won’t save America from an impending oil crisis. And make no mistake, one is on the way.
We have some stopgap measures, including opening up new areas as well as horizontal drilling and offshore drilling. But oil magnate T. Boone Pickens estimates that if every possible new technology worked and if drilling restrictions were completely removed, the U.S. would still, “Only squeeze another 2 mb/d in added (annual) production.”
As it stands right now the U.S. is importing more than 13 million barrels of oil every day. That total is going to grow and within the next few years one-third of all our oil may come from the Middle East.
Meanwhile—as we discussed in Clean Energy is Pure Fantasy—alternative energy solutions are decades away from fruition.
However there is a real and reliable energy source just a few hundred miles north of Calgary. It is the oil sands of Alberta and Saskatchewan and it is already a major supplier of crude oil to the U.S.
Over the coming decade its importance will only increase and investors that take a stake in it will continue to earn big profits.
Canada is already the largest supplier of oil to the U.S., exporting 2 mb/d. About 1.3 mb/d come from oil sands. Yet in the next 10 years oil sands production will soar to 3.4 mb/d.
Given the rapid decline of Mexican and Alaskan oil fields over that span, Canada will become America’s energy lynchpin, providing it with 4.2 mb/d, or more oil than what the U.S. will be pumping for itself.
Invest in Suncor Energy
I first toured Suncor Energy (NYSE, SU, $36.30) nine years ago and as the editor of Outstanding Investments. I urged my subscribers to buy this stock in April 2001 for $12.69 per share (see Suncor price chart below).
But the story of Suncor dates back further than 2001 and will extend well beyond 2010.
It is Canada’s original oil sands developer, having produced the first barrel of crude oil from the Athabasca oil sands in Alberta in 1967.
Today Suncor is the world’s second largest producer of oil sands crude (after Syncrude Canada Ltd.) and is the only company to currently use both mining and in-situ resource technologies.
A fully integrated company, Suncor upgrades the oil from the oil sands to the level of conventional crude at its upstream facilities and then ships the crude to the company’s refineries east to Ontario and south to Colorado.
In August 2009, Suncor merged with Petro-Canada. The move made it Canada’s largest energy company and the fifth largest North American energy company based on market capitalization (the price of the stock times the number of shares trading, which in Suncor’s case is $57 billion).
Action to Take: Buy Suncor at market. The weakening U.S. dollar and supply constraints on oil will push crude prices higher. Suncor stock will continue to climb alongside rising petroleum prices.
Yours for real wealth and good health,
Myers’ Energy and Gold Report
P.S.—Next time, in the conclusion of this three-part series (which will appear Dec. 9), I will look at one real solution to America’s energy crisis, as well as a down-to-earth stock that will heat up your portfolio.