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ACTUALLY DOING SOMETHING ABOUT $100 OIL |
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Written by Dr. Jack Wheeler
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Friday, 09 November 2007 |
Yesterday
(11/08), the Wall Street Journal ran an article giving ten reasons Why
$100 Can't Float. They were good,
persuasive reasons. Yet taken together,
they were not sufficiently persuasive as they ignored the political dimension
of the problem.
Put in a
nutshell, we have near $100 oil instead of energy independence at a fraction of
the cost because Congress is an obstacle rather than a solution to the problem.
Right here in
America, we have enormous energy reserves of coal, natural gas, liquid oil, and
oil shale. The Green River Basin
(mostly in Colorado) alone contains a billion barrels of oil per square mile in
a thousand square mile deposit - a trillion barrels in all, enough to supply
total US oil consumption (at the current level of 20 million barrels a day) for
137 years.
And Shell
Oil has developed an "in-situ" (in-ground) process to extract it.
Then there's
coal - we have more of it than anywhere else on the planet. Just counting up the largest and most
accessible deposits, with new coal-to-oil technology producing two barrels of
oil from one ton of coal, we have 400 billion barrels - another 55 years'
supply.
And there's the
gigantic supplies of natural gas on our continental shelves, as we saw in The Natural Gas
Solution.
With foreign oil
now so expensive, it should be easy to produce our own energy at far less
cost. And it will be easy if Congress
does three things:
1. Eliminate the depreciation schedule.
We're about the
only country in the world that forces companies to write off the cost of their
capital assets over years, sometimes decades, instead of letting them be
expensed. It's like loaning all those millions or billions to the IRS at
zero interest.
That's why Intel
will build a chip plant in China and not here because in China they can write
off the entire cost right away. So if you want energy companies to spend
billions in new refineries, in-situ oil shale extraction or coal-liquefaction
plants, etc., abolish the depreciation schedule and let them expense the
capital cost.
But if Congress
allows expensing just for energy-related investments, enormous distortions will
result, vast sums flowing into energy boondoggles and starving other investment
sectors. The only rational, legitimate
way (the way Congress is allergic to) is eliminate depreciation period.
2. Establish a mechanism to prevent
predatory price drops by OPEC.
Remember when
oil went to $10 a barrel in 1999? That
was done on purpose by the Saudis to wipe out investments in competing energy
production.
The best way to
protect such investments would be a tax holiday for any domestic energy
production (including "proceeds taxes" imposed by various states via the
constitutional grounds of affecting inter-state commerce) triggered by a drop
in foreign oil below a certain level.
3. Allow the Secretary of Energy to waive
environmental laws and override judges' attempts to enforce them regarding
energy production on federal lands.
Along with the
depreciation schedule, the biggest obstacle to increasing domestic energy
production is enviro suits blocking it.
By some miracle, Congress created the model for this by giving the
Secretary of Homeland Security the authority to waive enviro laws regarding
building US-Mexico border fences in the 2005 Real ID Act.
Thus, when a
federal district judge agreed with suing enviros and ordered a delay in border
fence construction last month, DHS Sec. Chertoff invoked his authority and overruled the judge. The fence will be built despite the judge's
decision.
Much of the
coal, gas, oil, and oil shale deposits are on federal land. The only way to extract them is to get the
enviros and enviro judges out of the way.
The day Congress
enacts these three things, speculators will panic and the price of oil will
plummet. Don't be surprised to see them
in the first Energy Bill proposed by President Giuliani.
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