In 2012 I made dozens of trips to dozens of cities trying to wake people up to the reality that we are NOT “addicted to oil” but we certainly are spOILed by what this amazing energy source does for us. In the coming year I expect to see some good things (expanded shale oil production), but I also see some incredibly big challenges for the industry, and therefore for all Americans.
The International Energy Agency (IEA) recently announced that the United States will overtake Saudi Arabia as the world’s leading oil producer, with all of the increased production coming as the result of horizontal drilling and hydraulic fracturing. This is incredible news that would have been unthinkable just a few years ago! While the IEA’s prediction is exciting, my enthusiasm is dampened by a few troubling realities:
It’s the human condition. When people believe the pressure is off, their attention is directed to other matters. The IEA’s announcement creates the impression our oil vulnerabilities are over or will be soon. As you all know, reality tells a much different story. Even if the IEA’s projection is accurate (I believe it’s overly optimistic), we are still extremely vulnerable to a sudden supply disruption and likely will remain so for as far as the eye can see. In addition, there are many above-ground factors that I believe are going to impede America’s rise to 11 million barrels a day. Thousands of miles of pipelines must be built or replaced. Refining capacity must be expanded to accommodate the new influx of light crude. Stresses on water capacity will become more common. Labor shortages will continue to get worse as much of the industry’s workforce is lost to retirement. These problems are daunting but American ingenuity can overcome them. Unfortunately, we’ve got another obstacle.
Is there anyone in the oil and gas industry who believes that the flow of onerous regulations that have been heaped upon producers for the past four years is going to slow? Of course not. It’s entirely reasonable to believe that the EPA—among other bureaucratic bottleneckers—is going to double or even triple-down on job-killing, production-stifling regulation. Permits will be delayed and all wells requiring hydraulic fracturing (i.e. most of them) will be scrutinized by more regulators and lawyers than ever before. I believe Obama will continue to make good on his promise to “make energy expensive.” As the regulatory burdens rise the number of wells drilled will inevitably fall.
Then there is the virtual certainty that Israel will attack Iran’s nuclear enrichment facilities before the beginning of summer—the “red line” Benjamin Netanyahu emphasized in his speech to the United Nations last September. When Israel strikes, there’s no telling what hardships will be unleashed. Americans will probably see gasoline prices north of $5 or even much higher depending on the length and depth of the conflict.
I tell you all of this because I believe the message of spOILed is as important today as it was before we had such good news on rising volumes of America production. We in the United States are especially spOILed by the modern lifestyle that oil has built and what this critical commodity does for us every day. We should not take it for granted that petroleum will always be there for us. It’s not a birthright and the entire equation could change in an instant, or it can be eroded over time. The next few years are going to be difficult and interesting to watch. I doubt they turn out like many people believe, and that includes the IEA.