What’s Next?

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:

Complacency
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.

Obama’s EPA
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.

Israel/Iran
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.

The editorial called attention to a new effort by the Sierra Club to kill the natural gas industry. That’s right, it’s not an effort to impose higher safety standards on behalf of some obscure creature, insect or God forbid, human beings. The “Beyond Natural Gas” campaign is being launched with the goal of shutting down the industry. Michael Brune, Executive Director of the Sierra Club told the National Journal, “We’re going to be preventing new gas plants from being built wherever we can.” The new website promoting the effort says, “The natural gas industry is dirty, dangerous and running amok.”

If this sounds like bluster, consider the success the green lobby has had in blocking any nuclear plants from being built in the last 30-plus years or the huge amount of land that is off limits to oil and gas development or the devastation of the coal industry. Big Green may be misguided, but you have to respect their results-oriented mission.

WSJ did a nice job of exposing the irony of the Sierra Club’s position on natural gas, which has done a 180 degree turn since the emergence of the shale gas boom that has driven the cost of the clean-burning fuel from $8 per million BTUs to where it is today at $2.50. At this bargain basement price natural gas has crushed the prospects of the already economically challenged renewable energy sources so loved by the green lobby. The Green Machine praised the virtues of natural gas when it was expensive and appeared to be in short supply. But once horizontal drilling and hydraulic fracturing began unleashing enormous quantities of gas the Sierra Club suddenly stopped touting its low-carbon, clean burning credentials. Funny how that works.

The editors at WSJ pointed out other important results of the shale boom that the Sierra Club now wants to shut down, such as the countless thousands of jobs that have been created, not just in the industry, but in related manufacturing industries, most notably steel production. But, my point here isn’t just to repeat the obvious truths that the Journal explained to its readership. I need to point out what wasn’t mentioned.

We should all face the fact that the true goal of the Sierra Club, and other environmental activist groups, is to shut down as much economic growth as possible. But that’s only step one. The non-existent eco-utopia they are working toward necessitates that human impact on the planet not just be slowed, but be thrown into reverse. This is why any efficient energy production will always be the number one target of Big Green. They know their only hope of stopping the abhorrent impact of human beings on sacred Mother Earth is to wage war on the fuel lines that feed the development. Mark my words. If today some genius demonstrated that he could generate limitless supplies of energy from sand (making fossil fuels uneconomic) Big Green would not stand and cheer. The Sierra Club and other activist groups would quickly begin working on a website attacking the “terrible, dirty and dangerous” sand industry.

Whether it’s an attack on natural gas, oil, coal (or, who knows, even sand!), WSJ nailed it on the head. “It’s hard to imagine a campaign that poses a greater threat to the U.S. economy, energy security and American health.”

As usual, most of the national news coverage of the rising price of gasoline has been woefully incomplete, somewhat inaccurate or event completely unhinged. In the worst category is FOX News’s Bill O’Reilly. The last two nights on “The O’Reilly Factor” he’s ripped oil companies for obscene profits. His reporting on this issue is unconscionable, and it’s been that way for years. Those of you who have watched spOILed know that we featured him in the film. Mr. O’Reilly claims to be a thoughtful journalist, and I think most of the time he is. But when it comes to the price of a gallon of gas, O’Reilly willfully ignores the facts so he can pander to “the folks.” What a pinhead.

I think Bill O’Reilly should have his chain yanked, and I’m just the man to do it. Bill, invite me onto your show—if you dare. However, while I am particularly put out with the unconscionably poor reporting of Mr. O’Reilly, I’m even more disappointed with the response of the major oil companies… again. We’ve been down this road before so many times, and yet the response from the majors is the same. They sit on their hands and let the Bill O’Reilly’s of this world demonize them. Then they privately complain about how badly they are treated in the press.

Hey Exxon, Conoco, BP, Shell, put your mouthpieces out there and defend your business! Call up that pinhead O’Reilly and tell him you want to refute the untruths he is spouting. Then go on every other major network and do the same. For all of you out there who are waiting for this kind of aggressive approach, don’t hold your breath. It’s not going to happen.

For the record, I’m not interested in defending or promoting the major oil companies or even the oil and gas industry. Everyone in the industry needs to do a much better job communicating with the public and they need to get a LOT more proactive. My interest is in awakening the public to the vital interest WE ALL have in oil and most importantly transportation fuel. The quality of our lives, and even our very survival, is directly tied to this resource.

Allowing cable TV hosts like Mr. O’Reilly to demonize the industry that produces oil is extremely dangerous. The gross mischaracterization of petroleum companies creates an environment where government leaders feel free to make decisions that run counter to the interests of the American public. Right now Dennis Kucinich is proposing legislation for a “windfall profits tax” on oil companies. Representative Maxine Waters wants to nationalize the oil and gas industry. Count on hearing more of this kind of rhetoric so long as gas prices are well above $3.00 a gallon. What will the oil and gas industry do—publicly—as their industry is demonized? If history is our guide, not much.

I have been feeling this way over the last year or so, but this morning I had the sense that we just slipped further toward the inevitably of the moment when everything changes for the worse. I hate having this feeling and I really hate sounding like some sort of doomsday prophet (I’m not), but I have to call it like I see it.

More stories are coming out today that oil and gas companies are laying down rigs because there’s no profit in drilling natural gas wells. In the past four years the price has crashed from $8 per MMBtu to $2.50. This may be great short-term news for consumers, but it’s bad long-term news for the nation because of the loss of jobs and the inevitable price spike that will come when market conditions turn and the demand for gas suddenly rises.
Now take a look at a front-page story in the Wall Street Journal. In an irrational response to the earthquake and tsunami that wrecked the Fukushima power plant causing meltdowns and explosions, Japan is completely turning away from nuclear power. The nation has shut down all but three of its 54 nuclear plants. Yes, you read correctly, three remain operating, 51 shut down! It gets worse because the irrationality is catching. Nations across Europe and Asia are moving away from nuclear and toward natural gas.

With the US now poised to become a natural gas exporter (gas is $2.50 here and $16 in Japan), American natural gas will find a profit-making market. But this should be a good thing, right? I don’t think so. As I’ve said so many times, nothing is more important in the modern world than transportation. Oil is the fuel for nearly all of it, but oil cannot continue to carry the load, especially with the industrialization of the developing world. Natural gas is the only fuel source that can have a meaningful impact over the next few decades in relieving the pressure on oil for our transportation needs. But now Asia and Europe will begin consuming much larger quantities of this valuable fuel to produce electricity when nuclear power is much better suited for the job.

And, of course, there’s the bizarre rejection of the Keystone Pipeline project that would bring large amounts of Canadian oil to the US along with tens of thousands of jobs. One Canadian company is already in the permitting process to take its oil from Alberta to the nation’s west coast where it will be shipped to China, which is already a partner in this project.

In the years ahead we are going to need a lot more oil and natural gas for transportation, but our politicians are busy being obstacles to developing oil resources or they are actively sitting on their hands instead of promoting natural gas for transportation. Can you hear the haunting music? I can.

For the millionth time, we don’t have an “energy” problem! We have oceans of natural gas for electricity generation, heating and cooking. Coal keeps the lights on across the country and we could be getting a LOT more electricity from nuclear power if we could just get government out of the way. And we’ve got renewables doing all they can to pull less than one-percent of the load. “Energy” is not the issue. Oil is what we need to be looking at, but even here it seems national journalists are blind to the numbers.

In this morning’s Bloomberg story I read where the United States may be able to produce seven million barrels of oil per day within three years, up 1.1 million barrels from what the nation’s oil and gas companies are producing today. While that is certainly great news, there’s another number to consider—18.5 million barrels. That’s the daily amount of oil the US uses today while our economy continues to sputter. When business picks up (if government officials will stop impeding a recovery) that number will quickly return to the pre-recession days of 20 million barrels a day. The best-case scenario then is that the US produces 7 million barrels while consuming 20. Does that sound like “independence” or “security” to you?

No, I’m not someone who thinks we need to produce all the oil we use. It’s not possible, nor is it necessary. However, we do need to consider the macro forces in play. Three quarters of the world is just now trying to industrialize. China is buying up oil supplies everywhere it can, including here and in Canada. People in India are buying the new $2,000 Tata Nano car as fast as they come of the assembly line. And the Middle East remains tumultuous and unpredictable. Israel and Iran seem destined to a showdown very soon. The big forces are squeezing the gap between supply and demand and a sudden disruption could easily send oil prices rocketing.
It is oil that fuels the modern world through transportation and the pressure to produce more oil for the global economy is not going to ease up (unless politicians drive the economy off a cliff and greatly reduce demand).

So when you hear journalists and “experts” talk about America becoming more “energy independent” don’t drink the Kool-Aid. The generic term “energy” used to define electricity, heating/cooling, fuel for food preparation and transportation is a highly misleading term. Fuel for transportation is by far the most important piece of the energy picture and it is by no means secure.

In today’s Wall Street Journal two Democrat operatives write one of the most cynical op-ed columns I’ve ever read—“We Don’t Need More Foreign Oil and Gas”. The byline identifies John Podesta (former Chief of staff for Bill Clinton) as the author along with some supposed investment guru. Truly, I’m struggling for the right word to describe what it is that compels a man who once advised a US president to put his name on something so easily disproved as false on multiple levels. “Shocking,” “Breathtaking” “Insulting,”— none of these words can fully describe this column.

First, what person who knows anything about energy is claiming we need foreign natural gas? This would be like saying there are people who think Lady Gaga needs to be weirder. In a stunning stroke of audacity Podesta tries to give credit for the exciting growth in US oil and natural gas production to the “leadership of President Obama.” Memo to oil & gas producers: Obama deserves your praise and gratitude. Ignoring the collapsing market for wind and solar power, and the scandalous—and dare I say criminal—theft of $500 million tax dollars on Solyndra, Podesta tells us subsidies for non-competitive electricity generation are “good economics.” He justifies this by then writing, “Several technologies, such as solar power, are already cost competitive with fossil fuels.” Yes, and I keep my unicorn stabled in my backyard, cared for by a fairy and three hobbits.

There’s more blather and easily-disprovable claims, but the biggest assault on reality is what this politician/bureaucrat/propagandist completely ignores. Podesta imagines that his grossly exaggerated claims on “green energy” combined with the Obama-led natural gas boom means we don’t need the Keystone Pipeline, and in fact we don’t need any more foreign oil. Is Podesta so ignorant that he doesn’t understand that oil powers 98% of our transportation needs and that transportation is by far the most essential component of the modern world? Or is this former presidential advisor so cynical and contemptuous of our intelligence that he thinks we will read his politically-motivated claptrap and actually believe it? And if we “don’t need more foreign oil” how does Podesta imagine we will power half of all cars, trains, ships and planes? How about the Obama Administration and Congress actually getting out of the way of domestic oil production? Podesta offers no ideas on how the other 50% might be produced. Maybe he forgot.

I’m writing this concluding paragraph and it’s not even 7:00 am. I already think I need a Tums and I’m pondering an early evening sip of Glenlevit. Good grief, it’s only January.

Consider some recent headlines: “Glut Hits Natural-Gas Prices,” “US Economy Continues to Shed Jobs,” “Economists See Europe as Main Threat to U.S. Growth,” “Iran Threatens to Shut Strait of Hormuz,” “Syria in Crisis,” “Nigeria Torn by Violence,” “Obama Admin stops Keystone Pipeline,” “India’s Voracious Appetite for Oil,” and it goes on and on.

Isn’t anyone in power looking at the big picture? So many of today’s problems are directly related to poor government leadership and energy production and yet there are so few people who are taking the time to connect the dots. Our nation needs to create jobs…ASAP! The stability of the world and our national security are in jeopardy because of our over-dependence on foreign oil and our near complete reliance on petroleum for transportation—the most critical component of the modern world. Instead of just watching these headlines that increasingly point toward a perilous future why are we not discussing the most obvious solution—Compressed Natural Gas vehicles?

Seriously, how could it be more obvious? The oil and natural gas industry has found ways to tap into enormous amounts of natural gas from shale formations. The “shale gale” has driven prices to record lows. In some places pipeline capacity is so full and it’s so difficult and expensive to build new pipelines that companies producing oil (while also producing gas) are flaring the gas. This is madness!

With just a little bit of encouragement from our “leaders” CNG transportation could rapidly impact so many of our problems in enormously positive ways. Hundreds of thousands of direct jobs and equally as many indirect jobs would be created if we got serious about CNG. Decreasing our dependence on oil for transportation wouldn’t just improve our economy, it would greatly enhance our national security. And since natural gas is so clean burning, building or adapting millions of cars to run on gas would make our air cleaner. Building a new and large market for natural gas would raise the cost of gas to a reasonable level to encourage more development, creating more jobs while pumping tens of billions of tax dollars into state and federal government bank accounts. And yet, the cost of driving a CNG car would still likely be less than gasoline or diesel.

What’s it going to take for national and state politicians to wake up to the obvious?! How about people in the news media? Hello!! Can anyone hear me?! I might be losing it. I could have sworn I just heard a chuckle that sounded like Rod Serling.

Few people know it, but Iran is in the middle of conducting a 10-day naval exercise in the Persian Gulf. Iran’s leader, Mahmoud Ahmadinejad, wants to show the world that if he chooses to cut off 17% of the world’s oil supply flowing through the Strait of Hormuz, he has the power to do so. I know, he’s not going to do it. He’s the typical bully dictator trying to act dangerous with no intention of throwing the world into chaos. So why put an unnecessary damper on holiday reverie? Because when idiots and corrupt despots play with matches in a tinderbox at some point an accident is going to happen.

While Ahmadinejad plays “chicken” in the Gulf, his country continues to develop a nuclear weapon for the sole purpose of turning Israel into a moonscape. Israel will bomb Iran before the weapon can be deployed and when that happens Ahmadinejad will be forced to shut the Strait. At the same time this is going on, the so-called “Arab Spring” shows every sign of turning into a Middle East Meltdown. Within hours (or was it seconds?) of the Obama Administration pulling combat troops out of Iraq, bombs rocked the country and the enormously expensive but still unstable democracy fractured deeply. And then there’s Russia. Risking death, people have staged protests against dictator Vladimir Putin. One of the world’s largest energy producers, Russia hasn’t seen protests this large since the Soviet Union broke into pieces 20 years ago. There’s more, but who needs it, right?

My point is simply that it’s actually quite remarkable that some major event hasn’t already interrupted a significant flow of oil to world markets. When it happens—and it’s hard to believe we can dodge the ever-increasing odds much longer—our world is going to get rocked by the problems that will grow exponentially when there is not enough oil to fuel the world.

Then again, what the heck? We have the Chevy Volt (exploding batteries and all), budget smashing commuter rail lines, ethanol and an unflagging faith in “green” companies like Solyndra as far as the eye can see! What could possibly go wrong? Now, where is that multi-colored sweater that I MUST return to Kohls?

At that point the people who paid to watch spOILed and hear me answer their questions jumped into the fray. “What about Solyndra,” one man called out (I love it when everyday people stand up against government bullies!). Another said, “We can produce a lot more oil if we could just get you government guys out of the way!” It was awesome. After a few more challenges from the audience, our DOE representative (or so he claimed) then slinked back to his seat and the rest of us engaged in a lively and informative Q&A, which we then took to the lobby while my wonderful volunteer (Kathy) sold a large stack of DVDs and posters.

Was this guy really from the DOE? I can’t say for sure, but let’s consider the evidence. He mischaracterized the facts in the film. He suggested only one government-sanctioned solution. He was arrogant and dismissive in the face of overwhelming truth. Hmmm. If this guy wasn’t from the government he needs to put in an application. He’s got all the qualities government agencies look for!

———

In my new documentary film “spOILed” we explain how the public has become dangerously misinformed about the production and use of oil in the modern world. The culprits most responsible for the disinformation are politicians, elitist environmental groups and the news media. Unfortunately, the Tri-City Tribune’s October 14 story on “spOILed” is an example of how poor reporting contributes to the public’s distorted view of this critically important commodity.

In the story it was reported that I said fossil fuels were the only “smart” option for energy. I would never say that. Nuclear power is an important and viable energy source and so is hydropower. In some niche applications solar and geo-thermal power work well. Other possibilities are also on the horizon. One point made in spOILed is that fossil fuels provide the vast majority of our power and renewable energy sources will play only a limited role for decades to come and perhaps even longer.

In two places the article made reference to the world running out of oil. spOILed makes no such claim. The world is not going to “run out of oil” for centuries, if ever. What the film examines is both the long-term prospects for oil production and what would happen if a big event caused a supply disruption of even 15 or 20 percent of our oil supply. The consequences of this kind of event would likely be extreme and could be catastrophic.

The article claimed spOILed says that oil has “helped to build and destroy economies.” The film explains how oil built the modern world and that it has also been used by dictators such as Sadaam Hussein to abuse people.

In several instances the reporter attributed statements made by energy experts to me. In the film, oil researcher Matthew Simmons says he fears an “energy Pearl Harbor”. British science advisor Christopher Monckton described climate change as an issue being advanced partly by scientists who skew the data to secure government funding for research.

Journalist/author Robert Bryce says, “fossil fuels are green.” Energy analyst Paul Driessen makes the point that when airplanes or cars crash we don’t stop using them. He did not treat oil spills flippantly—nor does the film—as the article suggests. Of course, by including statements made by experts the film seeks to put forth these ideas for consideration. However, it’s important that people reading the article understand that these statements are being made by qualified and respected experts, not simply by a filmmaker.

Finally, in the article the reporter claimed the film made the point that drilling for more oil is the “only” answer to meeting this challenge. This is astonishingly inaccurate considering that so much of the film examines all the options that we do have. Near the conclusion, spOILed contains a graph that recaps many of the viable resources that can be tapped, chief among them natural gas for transportation.

spOILed contains a lot of information and it’s no doubt difficult to take notes in a darkened theater. However, as a former reporter I know that the journalist has a responsibility to double-check the facts of a story before publishing it. This article was troublingly inaccurate and I know it does not represent the journalistic standards the Tri-City Tribune seeks to uphold.

Sincerely,

Mark Mathis
Director/Producer “spOILed”