Saturday, July 12, 2008

Risk taking bureaucrats…and Democrats

In the mid 1970s this oxymoron was brought home when my newspaper (the Washington Star) invited two top level oil executives to chat with our business executives and news/editorial staff. After luncheon pleasantries, the oil execs related a story about a lease they had explored in the Gulf of Mexico. Said they paid short of a billion dollars for the lease, and over a billion for survey and drilling costs. But they came up with nothing, “only dry holes,” one explained. They had to abandon the lease.

One of the reporters took the bait. She asked, “What happened to the person who made that decision? Was he fired?” The answer was no, and as a matter of fact he had subsequently received a promotion. The exec went on to explain that all the research data had pointed to oil formations, that they had once contained oil, but over the millennia the oil had escaped. It just wasn’t there when they looked for it.

Then he turned the tables. He asked what would have happened if the government had done the drilling? How many congressional hearings would there have been? Would the bureaucrat who had made that decision been raked over the coals for wasting billions of taxpayers’ money? Government wants only sure bets, but the oil companies are in the risk business. They have costly failures, but they also have successes. It takes risk takers to succeed in the oil business.

Today there are new, but very high financial risk and potentially very high reward technologies to tap our oil shale deposits. If they can be developed, they will dwarf all oil fields ever discovered in the US, and are estimated to contain 800 billion barrels of recoverable oil. A Shell Oil physicist with the unlikely name of Harold Vinegar, has been working for nearly 30 years to find a better way than conventional surface or in situ (underground) retorting. Retorting techniques were wasteful, yielded a liquid that needed further processing before refining and in the case of surface retorting, left the landscape badly scarred.

Vinegar and Shell think they have found a better way. Their method is to heat the shale with electric heating rods to nearly the full depth of the deposit, and when the shale oil begins to flow, pump it out using conventional oil drilling equipment. Initial results in 1981 from a small privately owned test field successfully yielded oil, but initially it was unacceptably “gunky.” By keeping the conversion temperatures low (650º F) and prolonging the heating period (three years) he was able to produce a clear pipeline grade oil. More information on this may be found in the November 1, 2007 issue of Fortune and the 2005 Rand Study: Oil Shale Development in the United States.

Now Shell would like to do this on a larger scale. But they are stymied. Why? Because the Senate Appropriations Committee on a straight party line vote in May, extended the moratorium on shale oil lease development, to let “risk taking” bureaucrats at the Dept. of Interior study it for another year. At some point Democrats must support the economic well being of this country. And it isn’t just a price issue. It is about the security of the US.

Already Hugo Chavez of Venezuela threatened to cut off his 1.2 million barrels per day (roughly 10% of US imports). The majority of Americans now support offshore drilling. Why is it better to outsource our drilling to the Saudis, Libyans or the Indonesians? What does it accomplish? Oil imports adversely affect our balance of payments by $700 billion per year. And much of that goes to less than friendly governments. It’s time to stop being ideologues, and look at the needs of the country.

Wake up Democrats!

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