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Thought the list would be interested:<br>
<a class="moz-txt-link-freetext" href="http://www.opinionjournal.com/extra/?id=110006228">http://www.opinionjournal.com/extra/?id=110006228</a><br>
<font face="Garamond, Times" size="5"><b>Oil, Oil Everywhere . . .</b></font>
<br>
<font face="Garamond, Times" size="4">Why is it expensive? Because it's
so cheap.</font>
<br>
<font face="Verdana, Times" size="2"><br>
<b>BY PETER HUBER AND MARK MILLS</b>
<br>
<i>Sunday, January 30, 2005 12:01 a.m. EST</i>
</font>
<p><font face="Verdana, Times" size="2">The price of oil
remains high only because the cost of oil remains so low. We remain
dependent on oil from the Mideast not because the planet is running out
of buried hydrocarbons, but because extracting oil from the deserts of
the Persian Gulf is so easy and cheap that it's risky to invest capital
to extract somewhat more stubborn oil from far larger deposits in
Alberta.</font></p>
<p><font face="Verdana, Times" size="2">The market price of oil is
indeed
hovering up around $50 a barrel on the spot market. But getting oil to
the surface currently costs under $5 a barrel in Saudi Arabia, with the
global average cost certainly under $15. And with technology already
well in hand, the cost of sucking oil out of the planet we occupy
simply will not rise above roughly $30 a barrel for the next 100 years
at least.</font></p>
<p></p>
<p align="center"><font face="Verdana, Times" size="2"><img
src="cid:part1.08030306.08040408@solution-consulting.com" alt=""
width="88" height="6" hspace="0" vspace="0" border="0" align="middle"></font></p>
<p></p>
<font face="Verdana, Times" size="2">The cost of oil comes down to the
cost of finding, and then lifting or extracting. First, you have to
decide where to dig. Exploration costs currently run under $3 per
barrel in much of the Mideast, and below $7 for oil hidden deep under
the ocean. But these costs have been falling, not rising, because
imaging technology that lets geologists peer through miles of water and
rock improves faster than supplies recede. Many lower-grade deposits
require no new looking at all.</font>
<p><font face="Verdana, Times" size="2"><img
src="cid:part2.03060408.00050806@solution-consulting.com" width="205"
height="225" align="left">To
pick just one example among many, finding costs are essentially zero
for the 3.5 trillion barrels of oil that soak the clay in the Orinoco
basin in Venezuela, and the Athabasca tar sands in Alberta, Canada.
Yes, that's trillion--over a century's worth of global supply, at the
current 30-billion-barrel-a-year rate of consumption.</font></p>
<p><font face="Verdana, Times" size="2">Then you have to get the oil
out
of the sand--or the sand out of the oil. In the Mideast, current
lifting costs run $1 to $2.50 per barrel at the very most; lifting
costs in Iraq probably run closer to 50 cents, though OPEC strains not
to publicize any such embarrassingly low numbers. For the most
expensive offshore platforms in the North Sea, lifting costs (capital
investment plus operating costs) currently run comfortably south of $15
per barrel. Tar sands, by contrast, are simply strip mined, like
Western coal, and that's very cheap--but then you spend another $10, or
maybe $15, separating the oil from the dirt. To do that, oil or gas
extracted from the site itself is burned to heat water, which is then
used to "crack" the bitumen from the clay; the bitumen is then
chemically split to produce lighter petroleum.</font></p>
<p><font face="Verdana, Times" size="2">In sum, it costs under $5 a
barrel
to pump oil out from under the sand in Iraq, and about $15 to melt it
out of the sand in Alberta. So why don't we just learn to love hockey
and shop Canadian? Conventional Canadian wells already supply us with
more oil than Saudi Arabia, and the Canadian tar is now delivering,
too. The $5 billion (U.S.) Athabasca Oil Sands Project that Shell and
ChevronTexaco opened in Alberta last year is now pumping 155,000
barrels per day. And to our south, Venezuela's Orinoco Belt yields
500,000 barrels daily.</font></p>
<p></p>
<p align="center"><font face="Verdana, Times" size="2"><img
src="cid:part1.08030306.08040408@solution-consulting.com" alt=""
width="88" height="6" hspace="0" vspace="0" border="0" align="middle"></font></p>
<p></p>
<font face="Verdana, Times" size="2">But here's the catch: By simply
opening up its spigots for a few years, Saudi Arabia could, in short
order, force a complete write-off of the huge capital investments in
Athabasca and Orinoco. Investing billions in tar-sand refineries is
risky not because getting oil out of Alberta is especially difficult or
expensive, but because getting oil out of Arabia is so easy and cheap.
Oil prices gyrate and occasionally spike--both up and down--not because
oil is scarce, but because it's so abundant in places where good
government is scarce. Investing $5 billion over five years to build a
new tar-sand refinery in Alberta is indeed risky when a second cousin
of Osama bin Laden can knock $20 off the price of oil with an idle wave
of his hand on any given day in Riyadh.</font>
<p><font face="Verdana, Times" size="2">The one consolation is that
Arabia
faces a quandary of its own. Once the offshore platform has been
deployed in the North Sea, once the humongous crock pot is up and
cooking in Alberta, its cost is sunk. The original investors may never
recover their capital, but after it has been written off, somebody can
go ahead and produce oil very profitably going forward. And capital
costs are going to keep falling, because the cost of a tar-sand
refinery depends on technology, and technology costs always fall.
Bacteria, for example, have already been successfully bioengineered to
crack heavy oil molecules to help clean up oil spills, and to mine
low-grade copper; bugs could likewise end up trampling out the vintage
where the Albertan oil is stored.</font></p>
<p><font face="Verdana, Times" size="2">In the short term anything
remains
possible. Demand for oil grows daily in China and India, where good
government is finally taking root, while much of the earth's most
accessible oil lies under land controlled by feudal theocracies,
kleptocrats, and fanatics. Day by day, just as it should, the market
attempts to incorporate these two antithetical realities into the spot
price of crude. But to suppose that those prices foreshadow the
exhaustion of the planet itself is silly.</font></p>
<p><font face="Verdana, Times" size="2">The cost of extracting oil from
the earth has not gone up over the past century, it has held remarkably
steady. Going forward, over the longer term, it may rise very
gradually, but certainly not fast. The earth is far bigger than people
think, the untapped deposits are huge, and the technologies for
separating oil from planet keep getting better. U.S. oil policy should
be to promote new capital investment in the United States, Canada, and
other oil-producing countries that are politically stable, and promote
stable government in those that aren't.</font></p>
<font face="Verdana, Times" size="2"><i>Messrs. Huber and Mills are
co-authors of "The Bottomless Well: The Twilight of Fuel, the Virtue of
Waste, and Why We Will Never Run Out of Energy," just out from Basic
Books.</i>
</font><br>
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