Treece: Sitting on an oil mine
Written by Ben Treece | | ben@treeceinvestments.comI received an email from a reader following my article “The True Economic Numbers Don’t Lie” last week in which the respondent asked my thoughts on the energy policy we currently have in the U.S. Many readers enjoyed Dock David’s article “Lighting the Fuse,” which appeared in the Toledo Free Press last week, but for those who missed it, Dock commented on ways to jump start business, while citing current energy policies as being a detriment to the U.S. domestic economy. This is a belief that we hold across our firm and one that I thought needed a little more in-depth analysis this week.
For anyone who tracks the oil and commodities markets it should not be any shock that we have seen a spike in prices at the pump in the last week. After all, a few weeks back Saudi Prince Alwaleed bin Talal al Saud told CNBC that Saudi Arabia would not allow oil to go over $100 per barrel. It seems that no matter what statement comes out of OPEC, usually the exact opposite is what occurs, and this proves to be no different. Since that statement, oil has gone from roughly $98 a barrel to $106 a barrel, an increase of 8.16 percent in just 2½ weeks. It is a shame that we continue to rely on foreign oil in the manner that we do when we are sitting on more energy than we know what to do with (a brief disclaimer, for those claiming “peak oil”; geologists have been documenting “peak oil” since the 1930s and I’m sure some of you will claim it again … it is simply not true, but keep trying, maybe in another 70 years you will be right … but I doubt it). Here are a few facts about oil and our current energy policy that you may not have thought of before.
Fact 1: Gasoline prices are a tax. While gasoline is not a government-enforced tax unlike Social Security, income or capital gains, it functions much in the same way. For many Americans, energy is an inelastic good; it cannot be substituted and demand will remain fairly constant for that product. We need it to get to work, pick up our kids from soccer, mow the lawn, etc. Gas prices being as high as they are takes a devastating toll on the domestic economy, enriching only the oil producers in the Middle East. First of all, higher gas means higher shipping costs, and believe it or not the sellers of these goods are going to cover those costs by charging the consumers more. This is why food prices (along with an abnormal agricultural season last summer) have been abnormally high. Higher gas prices also mean that consumers have fewer dollars for discretionary spending, since a higher portion of their paychecks are going to the pumps.
Fact 2: Pursuing domestic oil would be a job creator. Just thinking off of the top of my head, in order to extract oil at home, drilling companies would need geologists and engineers to assist in extracting the oil, rig operators, companies they can contract to build the rigging equipment, and those companies would have to contract companies to get them the raw materials needed to construct. Aside from all of the manufacturing and engineering jobs associated down the line with producing and operating the equipment to extract the oil, companies would need more bodies to assist in shipping, refining, constructing pipelines such as the recently killed Keystone XL Pipeline, and tons of white collar marketing, sales and managerial positions to oversee these new projects. Those jobs are just the tip of the iceberg.
Fact 3: U.S. dependence on foreign oil is unnecessary. Estimates have shown that between the Utica Shale formation ranging from New York through eastern Ohio and the Bakken Shale formation in Montana, we have enough oil in the U.S. to relieve heavy reliance on foreign producers. By my numbers from various websites, among just Utica, Bakken and Arctic National Wildlife Refuge, we are sitting on roughly 10 billion to 15 billion barrels of oil. And that is just from three locations … not bad considering we normally as a nation consume roughly 20 million barrels of oil per day.
The sad fact of the matter is that green energy policies are keeping oil under the ground and out of the refineries. The same green energy policies that push the sales of the Chevy Volt, which burns 21.3 pounds of coal to charge its 16 kWh lithium ion battery (assuming an average of 1.3 pounds/kWh), or wind turbines that even green energy proponents don’t find economical. Many environmentalists say that fracturing is going to destroy the environment and is harmful to wildlife. Let me provide readers with a visual: A lot of the oil under the surface is not pooled. To put it best, instead of sticking a straw into a glass of water, imagine sticking a straw into a slab of concrete and being told to suck the moisture out. That is where fracturing comes in; if that concrete were broken up into smaller pieces, the moisture would be much easier to obtain. Fracturing would not result in catastrophic releases of oil into the environment as many predict.
A combination of misunderstood practices in the oil industry and pressure from green energy proponents are the sole reason for gas prices being where they are. If there was a will in this country, we could very easily have gas prices back below $2 a gallon. But it is time for a change in philosophy. Whether it be Ohio, New York, the Gulf of Mexico, ANWR or Montana, it is time to realize that we are blessed to have these resources available at our disposal, and we need to stop sending jobs and money overseas and jump start the economy right here in the United States.
Ben Treece is a 2009 graduate from the University of Miami (Fla.), BBA International Finance and Marketing. He is a discretionary money manager with Treece Investment Advisory Corp (www.TreeceInvestments.com) and a stockbroker licensed with FINRA, working for Treece Financial Services Corp. The above information is the express opinion of Ben Treece and should not be construed as investment advice or used without outside verification.
Tags: Arctic National Wildlife Refuge, Bakken Shale formation, Ben Treece, energy policy, fracturing, green energy, oil, Utica Shale formation
For someone who is supposed to be investing people’s money with long-term goals in mind, this is a very short-sighted approach to our oil consumption. Ben states that relying on foreign oil in unnecessary since we are sitting on such vast amounts of oil right here at home. Using Ben’s own figures and some simple math, it clearly shows that tapping into our own oil is like putting a small band-aid on a gaping wound. Even with the larger estimate of 15 billion barrels of oil in our three largest oil deposits, the fact that we use 20 million barrels PER DAY means that we would completely dry up those three spots in 750 days, or just over two years. What then? Not to mention the fact that to access the oil in two of those three deposits is more expensive than the current oil extraction method that does not involve shale deposits means that the consumers will pay more for that oil as well. When will we acknowledge the real facts about oil? We need long-term solutions, not short-term propaganda.
This comment was posted on February 28th, 2012 at 4:44 pm