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June 28, 2008

State Rep. Tardy in badly distorted op-ed calls for expanded oil drilling, while Senator Collins plays with "speculation," but does not name those who rigged the markets (Hint: It was McCain advisers.)

Were Republicans thinking ahead when House Republican Leader Josh Tardy was chosen to serve as vice chair with co-chairs Senator Olympia Snowe and Senator Susan Collins in Senator John McCain's Maine presidential campaign? Tardy is the foil for national Republican talking points, issuing an unqualified, unabashed pro-drilling editorial last week in the Thursday edition of the Bangor Daily News. This allows Collins and the campaign for Republicans in Maine to straddle both sides of the oil drilling issue while Collins makes herself look tough on oil futures speculators. It's a delicate tightrope they are walking.

Senator Collins in the past has opposed opening the Arctic National Wildlife Refuge to oil drilling and recently has pushed out word that she "is opposed to drilling off the coast of Maine because it would be harmful to the state's fishing industry" in a Susan Sharon report on MPBN last week. Collins evidently also flops more standard Republican. According to MPBN she believes,
the nation should be energy independent by 2020. To do that means expediting applications for oil and exploration on federal lands where it has already been approved. It also means more drilling in Alaska and the Gulf of Mexico.
Meanwhile, Collins Saturday had an editorial in the BDN that attacks speculators in rigged oil futures trading markets (but not the characters that did the rigging). There she has nothing at all to say about drilling.

Of course, assuming that the U.S. offshore and Arctic Refuge drilling bans have any significant effect at all on world oil prices is pure madness. For the record, I believe that some of these areas will be opened up and may deliver fabulous profits some day to a few lucky lessees. But these areas in question are very, very unlikely to produce finds on the scale even of the North Sea, for example. In fact, if you look into the reference for the figures Tardy cites--from a controversial Department of Interior inventory of U.S. oil & gas resources--you'll discover the numbers are totally ethereal.

Tardy writes,
In 2005, Congress passed the Energy Policy Act that required the Department of the Interior to inventory oil resources that could be found both onshore and offshore in U.S. territory. Interior reported back that we have an estimated 86 billion barrels of oil sitting off our coast. We also have 53 billion barrels onshore. That?s a total of 139 billion barrels, more than the proven reserves of Iran or Iraq or Russia or Venezuela or Nigeria or even Kuwait. Moreover, America?s Outer Continental Shelf also is estimated to contain some 420 trillion cubic feet of natural gas. That?s a tremendous resource base, and we need it.
The numbers evidently come from a table on page vii of the report. The column cited is called Undiscovered Resources (Mean amount). That is not a "proved" resource base! But note Tardy's use of the word "have." By definition, we do not yet "have" undiscovered oil.

Tardy then distorts wildly the meaning of these numbers when in the very next line when he compares them to the "proven reserves" of Iran, Iraq, Russia, and so on.

Within the report itself, it is made clear that "considerable uncertainty concerning the resource potential of many of these OCS areas" and what Interior calls "undiscovered technically recoverable resources." When these terms are defined, it is never made clear how "undiscovered" resources can be assessed as "technically" or even "economically" recoverable. The only certainty about these estimates is that they won't mean much until oil is actually found.

Furthermore, I will point out that most stories using figures from this report, one from the right wing Heritage Foundation and even President Bush last week, do not use those cited by Tardy. Mr. Bush said "18 billion barrels" and that Heritage release from a couple of years ago used "19 billion barrels." The numbers supposedly reflect "planning areas" currently off limits. It's not clear, but these may be considered most likely to deliver actual oil? Anyway, the number "19 billion barrels" come from page xii of the report.

The truth is that U.S. oil resources are depleting. Production now is in permanent decline. Despite considerable new drilling and development in the Gulf of Mexico, total crude oil production has fallen in the U.S. by over one million barrels per day in the last ten years. The politicians and the media rarely bother to discuss this fact. And no one has any idea when oil could show up or how much oil on a daily basis could possibly be produced as a result of opening these relatively small prospective areas for leases.

Personally, I see the probability that in the minimum time of a decade that would be required to start any production at all from these areas, the currently existing resources will have declined further, possibly more than the new production could even make up. It's a cynical, greedy move by Bush, McCain, Tardy, and other Republicans to sell liberalization of oil leasing policy as some sort of solution for prices that are skyrocketing today.

On the matter of the recent flurry of media and hearings supposedly demonstrating how Senator Susan Collins is all over the energy crisis because "speculation" is the whole problem (her Saturday BDN piece was called "A bill to reform markets"), I think the senator is dealing with only a small part of the issue.

Yep, there is speculation and lack of regulation that probably contributes some volatility (both up and down) in the oil trading markets. Clearly transparency is lacking in some corners. I'm sure this helps certain individuals make a killing on these "dark" trades and probably takes some money out of our pockets to enrich these parasites. If the market were to be tightly clamped down, yes, petrol prices of all sorts, raw and refined, could be tamped down at least for a while. But I won't argue the merits of that here.

But why is there so much freedom for these traders to make so many nontransparent transactions? Senator Collins forgets to mention in her piece that the Commodity Future Trading Commission tasked with regulating all sorts of commodity markets was severely weakened because cronies of Senator McCain--former Senator Phil Gramm of Texas (currently an agent of the Swiss banking firm UBS) and his wife, Wendy Gramm--were key characters in a decade-long saga where the public regulatory functions in energy trading were crippled. Senator Collins rightly celebrates ending this "Enron Loophole" without mentioning where it came from.

McCain and his lobbyist cronies is all a topic for another post. But if you're unfamiliar with the story, MSNBC Countdown has had some good stuff over the last month or so. A June 18 report on Countdown explained how during the 1990s, the Commodities Future Trading Commission under chairwoman Wendy Gramm "left Enron alone." Then,
KEITH OLBERMANN: Fast forward to the year 2000 and Bush v. Gore. In the chaos of constitutional crisis, Enron got a law passed containing what is now known as the Enron loophole. Where Gramm deregulated individual trades, the Enron loophole deregulated entire markets, online markets. Enron had just started its own online market, and set its sites on the state of California. ...
It's all well and good that Senator Collins now cares about this stuff. But, I think a recent post at Collins Watch has it just about right. It's "nonsense" to think that what Senators Collins and Lieberman are doing in their committee is intended to have as dramatic an effect on oil prices as it does on "politics."

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