Venezuala's declining oil production

We know that Mexico's oil production is declining with no prospect of new supplies coming on-line in the foreseeable future. Now we have word that production in Venezuela is also declining. Bloomberg.com reports:

"What the media rarely report is that the existing plant in Venezuela is continuing to produce less and less oil every year--at this point roughly half of what it would normally be capable of extracting--because of bad management, the departure of qualified engineers, and plain old corruption, not to mention the squandering of petrodollars to buy political influence in Latin America and elsewhere (including Joe Kennedy's Massachusetts) instead of investing in maintenance, spare parts, and acquisition of new technology."

This merely confirms what many of us suspected, but it reinforces the need for the U.S. to aggressively develop its own natural resources. Mexico and Venezuela are two of our largest suppliers, and both are declining. Is anyone in Washington paying attention?

Energy (renewable and traditional): wishing doesn't make it so

The Secretary of Energy designate, Stephen Chu, is no fan of fossil fuels. He thinks they cause climate change (formerly global warming). He is a fan of renewable energy, even advocating converting solar energy into automobile fuel. But, as the title of this post says, wishing doesn't make it so.

The Wall Street Journal reports that renewable energy contributed only 6.7% of the total US energy demand in 2007, down from 7% in 1981. This in spite of the fact that renewables received almost $4.9 billion in federal subsidies in 2007 alone. Renewable energy sources are not likely to dominate the scene anytime in the foreseeable future.

Meanwhile, the news regarding fossil fuels isn't reassuring either. Pemex just announced that its crude oil output fell 6.5% in November year-over-year, largely because production at its Cantarell field declined at a faster-than-expected rate. As I've noted in a previous post, Cantarell is the third-largest producing oil field in the world, and Mexico is one of our largest foreign suppliers of oil. Mexico can't even agree on how to develop the deepwater fields it is counting on to replace Cantarell. I would be surprised to see significant production from those fields within the next 10 years. Saudi Arabia's major field is half a century old, and it's production either is or soon will be declining.

What should we do? The answer is so obvious that I'm surprised there is even an issue: develop and produce our own supplies of domestic oil and natural gas. The logical place to start is the Eastern Gulf of Mexico. The oil companies already have a lot of experience and seismic data regarding formations in the western Gulf. And the extensive infrastructure already in place (particularly the subsea pipelines) can be extended to accommodate the new production. This will not solve the problem, and it may not have an impact overnight, but doing nothing is not a viable option.

What the oil companies really do with those leases.

I have very mixed feelings about Newt Gingrich, but his Townhall article on what oil companies have to do to explore and develop their leases is superb. You can find it at townhall.com (I cannot get the link to work for some reason).

As he points out, oil companies cannot hoard their leases, because those leases expire after a specified period (usually 10 years), unless the oil company begins commercial production on them. In fact, this "use it or lose it" requirement is common in the industry, where leases are "held by production."

Moreover, the federal government does not give these leases to the oil companies as Harry Reid claims. The oil companies buy them, often paying tens or even hundreds of millions of dollars for a single lease. If they do not, or cannot, commercially produce their leased acreage, that money is a dead loss.

Gingrich also shows that a lot of "idle" acreage is anything but. Oil companies may be exploring, testing, even drilling leased acreage, but until they actually begin commercial production, that acreage is classified as idle. Of course, if a company decides that a lease is not commercially viable, the lease simply reverts to the government.

Once you know the facts, the statistics bandied about by those who oppose opening additional acreage to drilling are neither surprising nor sinister. Nor do they support the argument against allowing additional drilling.

"I'm trying to save the planet. I'm trying to save the planet."

Well, that's a relief. But frankly, I'd feel a lot better if Nancy Pelosi would allow a vote on the "trivial" issue of permitting drilling on the outer continental land shelf and other federal lands. The current high oil and gas prices, in the main, are the result of the current supply/demand imbalance. And traders in the futures market have been bidding those prices higher, because they expect that imbalance to get even worse in the future (although oil prices came down after Bush rescinded the presidential order forbidding oil exploration on the outer continental land shelf).

The point is that we can do little or nothing to affect the burgeoning demand for oil and gas in other parts of the world. Developing countries aren't going to stop growing on our account. We can, however, improve the supply side of the equation.

As for saving the planet, again, the biggest increases in the production of CO2 and other "greenhouse gases" are occurring in those same developing countries (no surprise there). If oil prices get high enough, the resulting world economic slowdown might cause world demand to slacken. But that "solution" would be both painful and temporary.

By all means, let us strive to increase efficiency and develop alternative energy sources. But we also need to increase domestic oil and gas production. Saving the planet is a longer-term project.