THE COSTS OF WASTED RESOURCES

Nov. 12, 1990
Another U.S. oil industry hope has run aground. Ever since the Exxon Valdez spill of 1989, industry leaders have looked ahead to "the next oil crisis" as their best chance to improve federal oil and gas leasing. That crisis has now entered its fourth month. And leasing policy just got worse.

Another U.S. oil industry hope has run aground. Ever since the Exxon Valdez spill of 1989, industry leaders have looked ahead to "the next oil crisis" as their best chance to improve federal oil and gas leasing. That crisis has now entered its fourth month. And leasing policy just got worse.

In the weeks before the spill, Congress seemed more inclined than ever before to approve leasing of the Arctic National Wildlife Refuge Coastal Plain. But 258,000 bbl of crude afloat in Prince William Sound smothered the mood. When Sen. Frank Murkowski (R-Alas.) tried to push a leasing provision earlier this year, colleagues talked him out of it. Not even loss of oil from Iraq and Kuwait has warmed Congress to Coastal Plain exploration. In another act of leasing intransigence, lawmakers last month not only extended budgetary moratoriums on most Outer Continental Shelf leasing but also added acreage off the Florida Panhandle to the off-limits inventory.

It should worry industry leaders that Congress can witness a 4.3 million b/d international crude supply interruption and still not act as it must on behalf of domestic production. But leaders shouldn't surrender hope.

ANOTHER CHANCE

The next chance to improve leasing policy will come from the national energy strategy under preparation at the Department of Energy. Recent statements by key DOE officials sound encouraging. Last month Linda G. Stuntz, a DOE deputy undersecretary shepherding the strategy, stressed the importance of the free market but called it insufficient as an element of energy policy with Congress blocking so much OCS leasing. That stance improves on the Reagan era version of free market energy policy, in which the administration did nothing while Congress crimped exploration and production at nearly every turn.

Oil industry leaders should try to capitalize on the Bush team's subtle improvement. They can begin by trying to convince most of the federal government that a crisis exists. Prevalent official thinking on the oil market after Aug. 2 goes like this: The world lost 4.3 million b/d of exports from Iraq and Kuwait, but other producers have mostly made up the loss so there's no problem. Never mind that the world is now producing about all the oil it can and that to achieve balance the market had to pare consumption with higher prices. Never mind the resulting economic strains.

Prevalent official thinking is wrong. There is a crisis, and to pretend otherwise is irresponsible.

Industry leaders also should resist the perception that federal leasing benefits oil companies and no one else. As DOE points out, leasing is crucial to energy policy, a chief aim of which must be to accommodate a long term shift to the age of renewable fuels. Policy shouldn't try to accelerate the process; rather, it should make the transition as efficient as possible. That means letting the market work. And it means avoiding waste.

WASTING A RESOURCE

The U.S. wastes resources when it prohibits leasing. It raises the possibility that economically recoverable oil and gas will remain in the ground forever, that something more costly will be consumed instead, and that economic progress will suffer proportionately. More immediately, not leasing means producing less and importing more, which boosts U.S. reliance on foreign suppliers and the chance that the country must resort to war to defend its economic lifeline.

An unexplored, undeveloped natural resource represents waste with or without a Middle East crisis. The country shouldn't have to go to war to make Congress recognize the costs.

Copyright 1990 Oil & Gas Journal. All Rights Reserved.