Comprehension Checking the Fact Checker

As I've been reading the Washington Post more I've come to rather dislike their fact checker. It often seems deliberately obtuse. What set me off to write about it is the combination of their post on oil with Charles Krauthammer's rather daft screed against Obama's oil policy.

First, the Fact Checker. It claims that Obama's use of the fact that we have 2% of the proven oil reserves but consume 20% of the oil is a non sequitur. Against the specific argument being made by his opponents, that the US should approve more oil and gas drilling to lower the price of oil, I don't see how this is a non sequitur.

First of all, we simply don't have large enough reserves to lower the global price of oil. Second of all, we consume so much that even if we did ban exports to try to force domestic prices to diverge from international we simply consume too much to do this in a sustained fashion.

Now, if you think the argument he's arguing against is a non sequitur itself then I'll grant this is a non sequitur as well.

But that's not the approach the Post takes, it tries to spin things so that Obama's argument seems independent of the GOP message that Obama is trying to rebut; this approach seems to me far more of a non sequitur if your purported purpose is fact checking (and after reading many of these I'm beginning to consider taking a more systematic look at the fact checker, they are so frequently deliberately obtuse regarding the obvious intent of messages that I'm tempted to look for a consistent bias but so far I've been too lazy to be motivated to do this in a consistent and defensible manner). It goes into a bunch of gobbledygook about new oil discoveries and technology. However, oil discoveries have been slowing since 1965, new oil discoveries have been very slow indeed in mature oil producers like the United States. Oil discoveries have been slowing decade by decade and are at a relative crawl over the past two decades. Since the 1980s oil discoveries have become slower than total production, and this trend is accelerating.

The Fact Checker then spends a considerable amount of time on discussing non-traditional oil resources such as oil shale and shale oil (yes, these are two very different things). It is true that hydraulic fracturing was a major technical advance that significantly expanded our oil reserves, however, that is not the norm for technical advances (and even then, this added less than 1 year's consumption of oil reserves, though far more natural gas). Usually, technical advances are driven by price, as oil becomes more expensive technical hurdles are quickly overcome to access more expensive oil. This is important because the reserves that the Fact Checker spends so much time on are all reserves that are not counted because extracting them is too expensive at current prices.

It is a complete non sequitur to mention these reserves when the article is nominally trying to claim that " But in the context of higher gas prices — which is how the president often uses these figures now — it just is not logical to compare consumption to 'proven oil reserves.' This is a lowball figure that does not begin to describe the oil known to be within the U.S. borders." While it is true that the US has much larger oil reserves with other estimation methods, proven oil reserves are precisely the correct ones to use in the context of high oil prices. The reserves not included are almost all reserves accessible only at much higher oil prices.



To go on a brief digression about oil shale, the US does have the world's largest oil shale reserves. However, there is nothing "tantalizing," to use the Fact Checker's term, about these reserves. Oil shale is basically oil that is contained within rock at low concentrations. Accessing it requires baking large amounts of the rock to extract the oil. This is a very expensive process, roughly as expensive as coal liquefaction. The nature of what this is means there won't be any breakthroughs similar to hydrofracking, it's expensive because it involves hauling tons of rock to a facility and processing it not because it is simply in a hard to reach place (like shale oil). Undoubtedly, these reserves do mean the US is very likely to be a top world oil producer at some point in the future, but not anywhere close to current prices. Some of these reserves are profitable at around current prices, if this production is brought online it could likely stabilize prices near current levels. But it can't lower them, the production cost is too high. For comparability, since these prices may seem low, oil production costs are around $11.25 a barrel in the US and $8.88 abroad. These reserves are completely meaningless in the context of current oil prices, though they are important to putting a ceiling on possible future increases. The Fact Checker's mention of them seems entirely obfuscatory to me since they have no bearing on the options available to the US in the context of the current price of oil.

I won't go into much detail regarding Krauthammer's piece. I'll just pick up on one little quote: "So: Decreasing U.S. demand will lower oil prices, but increasing U.S. supply will not? This is ridiculous. Either both do or neither does. Does Obama read his own speeches?"

There is absurd. The US doesn't have sufficient oil reserves that are extractable at current prices to alter the global price of gas. US consumption is one of the highest in the developed world, if we can get this down we will ease pressure on current stocks as well as significantly impact future projections. Oil prices are high primarily because of growth in the third world, if we can lower our consumption we can offset this and alter future projections. This will lower both current prices and future prices.

As I said above, the US does have considerable reserves accessible at much higher prices. But this is irrelevant. While I share a fair number of doubts about how low the price of green energy can get, it is a certainty that existing fossil fuel resources will require much higher prices to be viable (projections I've seen put oil at $200 a barrel by 2030, at current prices, and these estimates have consistently proven too conservative because of rapid growth in the third world, we will probably see $200 barrels sooner than this). There is a chance that green energy sources can develop rapidly enough to  maintain our current levels of energy prices, there is no chance whatsoever that alternative sources such as coal liquefaction and oil shale can, even if you leave the environmental costs out of it.

It seems to me that it is Krauthammer that has a rigid, fatuous, fantasy driven energy policy. We do have the fossil fuel resources necessary for another century or so of use, but cheap production is probably a thing of the past. Existing reserves are there, but they are very expensive and there is no plausible path for technical development to make them much cheaper (crushing up tons of rock is just plain expensive, barring matter energy conversion or something else out of Star Trek, this ain't changing). Green energy may be a long shot, but if the desire is for current energy prices this Hail Mary pass is all we have left. Most likely, we're going to be stuck with expensive fossil fuel energy for the foreseeable future but it is just plain idiotic to defend this outcome, unless, of course, you're an interested party.

I'd also not that there are very good reasons to keep American oil in the ground. There is considerable evidence that OPEC is overstating its 2P reserves (oil that is 50% likely to be recoverable at current prices) by considerable amounts. If this turns out to be the case we may see oil prices skyrocket temporarily since there will be a long lead time in converting production over to oil shale and coal liquefaction. If we don't have our own reserves this will mean considerable infrastructure will be useless during the transition phase. It is essential we have reserves to avoid this bottleneck.

An important point to note in this discussion is that public and private interests diverge considerably. Right now, private interests have considerable bargaining power because high gas prices are putting pressure on governments but there remains a significant amount of reserves that could potentially be parceled out. If a bottleneck does occur because of OPEC overstatement of reserves oil companies are likely to receive very considerable subsidies to start up alternative production rapidly.

However, if private interests don't get these oil concessions now and the transition is more orderly than government gets the upper hand in negotiations. Oil producers will need reserves currently held by the state to maintain production at current facilities while they gradually bring on line alternative supplies from oil shale and coal liquefaction. In this case, the government will be able to drive a very hard bargain with the oil companies and has a considerable chance of managing to smooth the price increases, preventing the oil companies form reaping windfall profits in the event of a bottleneck. It is very important to keep these considerations in mind during these debates, the oil companies know they are powerful right now relative to the state but that this will almost certainly change in the future as cheap to extract sources dry up and as their production shifts to alternative resources.

[Apologies for the low quality links. I haven't read extensively on this subject in years and wasn't willing to take the time to find better quality sources. What I found on wikipedia and these other sources are broadly in line with what I've read elsewhere so I figured it was good enough to make my point.]