Massive hydraulic fracturing proves a point I made more than five years ago

Maybe you remember it. Whether you remember or not—remember this: I was right then, and I’m still right, now. In the post linked above, I attempted to explain how advances in technology change not only how we estimate energy reserves, but also our ability to extract and exploit reserves once believed to be inextractable and unexpolitable. The recent advances in massive hydraulic fracturing technology have led to significant increases in the efficiency of current and expected future extraction methods. These advances have also led to changes in how we estimate reserves in the ground.

The result? The shift in the Production Possibilities Curve that I predicted in May 2010. These advances have also positioned North America as the global leader in proven oil and gas reserves, and a long run drop in oil and gas prices.

Here are some excerpts from the May 2010 post:

What the doom-and-gloom crowd don't tell you about is the economic concept of production possibilities, time and the effect technological change has on production.  This is not an oil only concept.  It applies in every market.

I'm an economist, so I can't have a discussion on economics without a chart.  To the right is what's called the Production Possibilities Curve.  The vertical axis, C, represents capital (plant, equipment, etc).  The horizontal axis, L, represents labor. Any point on one of the curved lines represents a mix of capital and labor that produces the same quantity of a good or service.  It doesn't matter if the good or service is oil, gas, coal, legal services, cars, buildings, widgets, software or blog posts--substituting more labor for capital will not increase production any more than substituting more capital for labor.  Certain industries, like oil production, are very capital intensive.  Oil producers spend hundreds of billions of dollars on capital but don't spend as much on labor.  Conversely, legal services are labor intensive.  What this means is that most industries have mixes of capital and labor that are defined by the nature of the industry itself, rather than the decisions of the producer.  The producer may fiddle a little here and there with the mix, but his or her industry most likely determines the general neighborhood of the mix.

What the producer will not do is produce an amount that falls to the left or below the curve.  The profit motive causes the producer to add more capital and labor until the curve is reached.

What the producer cannot do is produce an amount that falls to the right or above the curve, and the limit is imposed by the state of technology at the time the production commences.  This is important to understand.  The production possibilities chart I have presented here shows two curves--one for period t and one for period t+1.  As a result of the growth of technology between the two time periods, the same mix of capital and labor is capable of producing a greater quantity. Only a change in technology can cause the entire curve to shift out and up (conversely, only external intervention in the market can cause the entire curve to shift in and down, but that's a blog post for another day).  And, technology tends to have a larger impact on capital-intensive industries than labor-intensive industries, because technology tends to affect the productivity of capital more than it does the productivity of labor.  That is, more efficient capital tends to make labor more efficient, but more efficient labor has a much more limited effect on the productivity of capital.

These are basic tenets of microeconomics and are—or should be—taught to every sophomore economics student (we don’t let freshmen take economics).

What is great about such tenets is that empirical data tend to demonstrate how effective they are in describing economic phenomena, and what you are seeing in the explosive growth of energy production and the precipitous decline in energy prices constitutes all the empirical data you need to reach the most reasonable, most logical conclusions.

When I published my 2010 paper, the “peak oil” folks and Paul Ehrlich neo-Malthusians came after me with vitriol. How dare I say that we would never run out of fossil fuels!

 Read that 2010 post. It’s a chapter right out of a Microeconomics 205 lecture.

Five years later, I’ve been proven right.

And I’ll be right in another, 5, 10, 15 years. The data don’t lie. People do.

Should we drill for oil and gas in Antarctica?

First things, first:  Is there any oil there?

It appears that there is oil and gas in Antarctica.  In fact, there's a whole bunch of the stuff down there:

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Antarctica is considered to be part of the theoretical super-continent known as Gondwanaland, which separated near the end of the Paleozoic era and consisted of South America, Africa and Australia. And, because it once was completely covered in vegetation, many scientists believe it may hold one of the last supergiant oil fields yet to be discovered. The continental shelf of Antarctica is considered to hold the region's greatest potential for oil exploration projects, and although estimates vary as to the abundance of oil in Antarctica, the Weddell and Ross Sea areas alone are expected to possess 50 billion barrels of oil - an amount roughly equivalent to that of Alaska's estimated reserves. However, Antarctica's extreme conditions make oil field accessibility in many areas economically problematic.

Nevertheless, following the energy crisis of the 1970s, several oil companies looked to Antarctica as a possible solution to future world oil shortages by announcing plans to exploit the continent's resources. The necessary conditions for economically-sound oil production projects were beginning to ripen along with high oil prices and demand, and improved drilling technology. However, Antarctica's extreme conditions make oil field accessibility in many areas economically problematic.

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That's 50 billion barrels, as estimated in the 1970's, based on 1970's estimating techniques, which themselves are based in part on 1970's drilling and extraction technology.  Chances are good that there's much, much more extractable oil than that down there.  And, that's just the offshore fields.  No one really knows what the landside geology is really like.  There might be many times more oil, gas and coal beneath the one-lush landscape.

Unfortunately, all that black gold is off limits.  For now.  The developed world accepted the 1991 Madrid Protocol, a treaty that went into effect in 1998 and which bans exploration for oil, gas and other minerals in Antarctica until 2048. That's only 32 years from now, which is about the time for an infant born today to have reached the educational and work experience necessary to be the Master Driller on the first Antarctic exploratory well. 

China and Russia were both signatories to the Madrid Protocol, but who really thinks those two countries are going to wait until oh, 2044 to begin staking out parts of the continent for oil and gas exploration?  

Guess what, sports fans.

Gimme some feedback in the comments.

Obama's Deepwater Horizon commission has its objectivity questioned by... Senate Democrats

My what a tangled coalition we weave, when first we practice to deceive.

US Senator Mary Landrieu, D-LA, managed to force the Senate Energy & Natural Resources Committee to form a bipartisan congressional committee to investigate the causes of the deadly Deepwater Horizon explosion, fire and ongoing oil spill in the Gulf.

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On the same day the White House commission investigating the Gulf oil spill announced its first meetings -- July 12-13 in New Orleans -- a Senate committee cast what amounted to a no-confidence vote on the commission's objectivity.

The Senate Energy and Natural Resources Committee voted Wednesday to create a congressional bipartisan commission to investigate the spill, with Sen. Mary Landrieu, D-La., and others saying a separate panel is needed because the White House commission has four environmental advocates -- three members and the executive staff director -- but no oil industry representation.

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The Times-Picayune is being kind in suggesting that the commission's objectivity is in question. As soon as the panel members were named, this blog noted the panel's conflicts of interest. Those people shouldn't even be within spitting distance of a panel charged to investigate engineering and safety failures.  They're long on left-wing policy, short on any real smarts.

Ostensibly, the regime's panel has the task of identifying the root causes of the accident that took down the Deepwater Horizon, and coming up with a regulatory framework designed to prevent such accidents from occurring.  While that panel was to review evidence, conduct investigations and hold hearings, the Department of Interior was to enforce the now-neutered six month deepwater drilling moratorium.  That moratorium was struck down last month by a Federal Judge and remains unenforceable.

But the panel wasn't completed until June 18, and won't hold its first meetings until July.  There was no way the panel could have legitimately and objectively completed its work within the six month timeframe of the moratorium.  So, the question is that, given the regime's selection of panel members and the extremely tight six-month schedule, what was the regime's motive? Hmmmm.

The fact that a Senate committee dominated by Democrats like Maria Cantwell, Byron Dorgan and Bernie Sanders voted to create its own bi-partisan commission is a telling.  When even a staunchly partisan committee like Energy & Natural Resources is doing an end-around the White House, it doesn't speak very well about party harmony.

Congressional Democrats are strategically distancing themselves from the President, as polls continue to show growing public dissatisfaction with his performance in handling the oil spill response.  His overall job performance has been tanking since April and he's quickly turning into poison on the campaign trail.

Gimme some feedback in the comments.