Ukraine Crisis Means Drill, Baby, Drill
Russia’s invasion of Crimea is a tipping point event
that will further spur the American oil boom. The European Union (EU) and United States in 2008 threatened to slap economic
sanctions on Russia for invading Georgia. But after a while the criticism faded and threats of sanctions were quietly
dropped, because the EU is almost entirely reliant on Russia for energy supplies.
A similar situation is unfolding today as the
EU and U.S. are again making empty threats that they will stop exports of Russian
oil and gas as punishment for invading the Ukraine. But due to the latest humiliation by the
Russians, a consensus is emerging that will demand the United States and its
North American partners “drill, baby, drill” for national security.
Twenty years ago on January 1st, the United States,
Mexico, and Canada implemented the North American Free Trade Agreement. The volatile Persian Gulf at the time supplied
35% of U.S. oil, and most “experts” argued the world was approaching “peak oil”
extraction point where supply would then dwindle rapidly. Although many Americans label NAFTA a failure,
it was highly successful in generating greater economic cooperation to
prioritize and develop North America’s vast energy resources.
The United States since the 1950s was known to have the
world’s largest potential oil reserves with over 900 billion barrels. But the cost of production with traditional techniques
made the bulk of drilling opportunities uneconomical. But U.S. oil production has more than doubled
since 1994, due almost entirely to the success of the shale revolution’s advanced
extraction techniques that revitalized mature oil fields and opened up
unconventional plays. While oil production
cut America’s trade deficit by hundreds of billions of dollars, the greatest
boon has been in tapping America’s immense natural gas reserves. The 50% increase in supply led to a 60% cut in
natural gas prices and put the U.S. on the path to become the world’s largest
global exporter of liquefied natural gas.
After a two decade effort to unlock Canada’s unconventional
oil sands deposit, the nation’s production has more than doubled. Canada is now the
sixth-largest global oil producer. Close
to two-thirds of Canada's 3.8 million barrels per day (BPD) of oil is exported
via pipeline to the U.S., making Canada by far the largest supplier of crude to
America. Canadian tar sands production is
constrained by a lack of low cost pipeline capacity for export to the U.S. It is estimated that within 5 years of
approval of the Keystone XL Pipeline, Canada could increase production by another
2 million BPD.
Mexico was slow to join the energy boom but intends to catch
up fast. Since the nationalization of
oil in 1938, production from vast oil reserves has faltered due to lack of
investment, corruption, and incompetent management. The Mexican Constitution made it nearly
impossible for foreign companies to participate in any part of the energy
supply chain, leading to technological stagnation and decreasing production. Mexico’s production today is about 3 million BPD,
after the nation dropped since 1970 from the 5th to the 10th
largest producer. But Mexican constitutional
reforms passed in 2013 now allow foreign joint ventures. U.S. corporations are expected to dominate the
process since they command the best technical expertise for deep-water offshore
and unconventional onshore production that could add another 2 million BPD within 10
Influential liberals are becoming incensed that the Ukraine humiliation
may be a tipping point event that will spur oil and gas drilling. Apple CEO Tim Cook became so unhinged regarding
North American oil and gas drilling he threatened to commit corporate “hara-kiri” by suggesting: “Climate change deniers should get out of
After ultra-liberal Cook
took over Apple from founder Steve Jobs three years ago, he hired Lisa
Jackson, former head of the EPA, to lead the company's “sustainability” efforts. More than
three-quarters of Apple’s worldwide facilities, including all of its
data centers and Cupertino, CA headquarters are now run on solar, wind,
geothermal, or hydro power. But while
Cook focused on liberal political correctness, his legacy is largely comprised
of incremental improvements in established products, tweaks to the supply
chain, and more corporate transparency. Apple’s
stock price seems to have recognized Cook’s leadership by dropping $179 from its
September 2012 high of $705 to $526 today.
Russian President Vladimir Putin humiliated President Barack
Obama by grabbing Crimea, in spite of Obama’s threats that “we will stand with the international
community.” As Joel
Pollack at Breitbart wrote: “It is
hard to recall a more complete setback for American power. Jimmy Carter’s
response to the Soviet invasion of Afghanistan was more convincing.” The only option that the President and his Democrat
allies have for redeeming themselves before the November mid-term elections is
to declare “drill, baby, drill” for national security.
The author welcomes feedback @ firstname.lastname@example.org.
Chriss Street is teaching microeconomic at University of California, Irvine
this spring from March 31 – June 8, 2014. Call Student Services at (949) 824-5414 or visit http://unex.uci.edu/courses to enroll!