A New Energy Plan
Research for Online Investors

by John Dalt

3/30/11

The President appeared this morning at Georgetown University to call for the U.S. to cut its oil imports by one-third over the next 10 years.  Many economists believe higher gasoline prices will act as a brake on the economic recovery.  The President’s ‘new’ energy policy emphasizes increased domestic production, natural gas use in transportation, vehicle fuel efficiency, and increasing alternative fuels research.

This is against the backdrop of the administration’s moratorium on deep-water drilling in the Gulf that has stretched on now for almost eleven months.  Only in the last three weeks, under a court order and being cited for contempt, has the Interior Department issued any licenses for deep-water exploration.  Domestic production was up slightly last year, but the increase in production can be attributed to two events.  The increase in horizontal drilling in shale formations that are discovering oil as well as gas, and the Thunder Horse Field in the Gulf of Mexico in 2008.

Thunder Horse was discovered in 1999 with 520 ft of pay zone at a drilling depth of 25,770 ft.  The custom built floating platform sits in 6,300 ft of water.  The field is managed by BP (75% owner) and Exxon Mobil (25% owner).  Thunder Horse is the world’s largest production semi-submersible platform ever built.  Thunder Horse is the Gulf of Mexico’s largest discovered field.  This one platform produced 250,000 barrels of oil PER DAY in March 2009 from multiple wells.

This one project finally came on line in 2009 after years of exploration and time to build the custom production platform.  It was delayed by Hurricanes Dennis & Katrina in 2005.  You can read about Thunder Horse.  This one platform is the poster child for production taking ten years from offshore wells.  It is also the perfect example of why deep-water drilling is so important.  This one platform’s production pushed total U.S. production into positive territory in 2009, ending a multi-year decline.

According to the Energy Information Administration (EIA) here are the Crude Oil Production totals for the last five years.

Year   Barrels of Oil

2005 = 1,890,106
2006 = 1,862,259
2007 = 1,848,450
2008 = 1,811,817
2009 = 1,956,596*
2010 = 2,011,855

*Thunder Horse began full production.

Thunder Horse is 150 miles Southeast of New Orleans.  Forbes has great article from August, 2010 on America’s Biggest Oil Fields.  It is a good read and puts our production problems in perspective.

The President’s other proposals to reduce our country’s dependence on foreign oil may meet with some success.  Natural gas for transportation is a great idea and Westport Innovations (WPRT) that builds natural gas powered engines is up 13% today.  Clean Energy Fuels (CLNE) that builds the infrastructure to fuel the vehicles is up 9% today.

Increasing fuel economy is an easy target, but difficult goal.  E=MC2 requires a reduction in mass or an increase in fuel efficiency.  Reducing mass means more exotic materials that cost more.  Efficiency means more expensive engines.  The free market will not support vehicle cost increases more than the savings in fuel costs.

I have an electric car.  The cost to plug it in and charge is less than two cents per mile.  The planned battery replacement cost is twice what the cost of gasoline would be.  Do you want to buy it?

Producing fuel from algae may be on the horizon.  Some claim it is.  The simple fact remains; the U.S. has the largest oil reserves in the world…but chooses not to produce our own oil.  The government places large tracts off limits for political reasons.  We will never be energy independent while the chickens run the hen house.  It is a form of national fratricide, done by well meaning people that simply do not understand the cost to society of high energy prices.

How many of the nation’s elderly live a subsistence living on a fixed income, reduced even more by the high cost of energy?  What would it mean to minimum wage employees to have a chance at a good job in the oil field?  How much would it improve the personal budgets of every American if the country produced more oil than we could use?  Wouldn’t our economy be more competitive if energy were plentiful, and cheap?

Pardon me for stating the obvious.  Restricting oil production has always been about control.

To the mailbag:
Your comments on inflation and the CPI are on target.  Try living without food and energy!---paid up subscriber T.D.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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