From everything one hears in the news there seems to be small – slight – signs pointing to an energy crunch in the United States, if not the world. Many believe the world is / has reached a “peak oil” scenario – worldwide production of conventional crude oil peaks in volume resulting in the rise of oil prices due to the lack of easily accessible oil – and energy costs will continue to rise over the coming decades. The trend already may been seen in pricing costs.
In the past 7 years oil prices have moved from less than $30/barrel to almost $100/barrel while oil field discoveries are starting to slow and are coming from more remote locations than every before. Add political and economic instability to the mix and it could be easy to see why prices would move upward.
Little does the general public know but the United States actually has roughly the third largest oil reserves in the world – welcome to Oil Sands. This source of energy, oil specifically, is not what one would typically expect from oil – the whole gusher and drilling rig – rather oil is trapped in shale and sand which requires companies to utilize a separation process in order to gain access to the oil. The problem with this procedure is cost.
Crude oil, historically, was at a price point that “normal” margins for Oil Companies when producing resources in the United States. At $30 a barrel a company had a profit margin of roughly 11%. Just for perspective, Microsoft’s profit margin in roughly 30% and Coke’s in about 20%. The way oil companies were making their profit was on volume.
Due to the high cost of extraction cost of Oil Sands, at $30/barrel it was highly unprofitable for an oil company deal with this form of energy. Essentially, the price of oil needs to be above $75/barrel in order for oil producers to even break even with Oil sands. Now that energy costs are trending higher, it makes both fiscal and political sense to tap this resource.
So, let me ask you this – With an energy crisis, rising prices and the fact that the U.S. has 40 Billion barrels of estimated oil in sands; wouldn’t you think the government should be promoting the development of this energy?
He wants to continue limiting the use of this oil, making it difficult for companies to extract, as well as have access to the land on which the oil sits. While it does not remove our focus from oil to clean energy, accessing this oil would help limit our exposure to foreign and possible hostile governments. Isn’t that part of the reason for facing the energy crisis head on?
If we are indeed facing an energy crisis can someone, please, explain to me how this is in the United States best interests?