News:- Double Blow for American Oil Dependency Hopes

From WSJ.com

EPA
The last few days have seen a double blow to American hopes for reducing its heavy dependence on imported oil.

1st, on Tuesday the U.S. Geological Survey cut by 90% its estimate of the undiscovered hydrocarbon reserves beneath the National Petroleum Reserve on Alaska’s North Slope–the richest region for onshore oil production in the country.

2nd, one of the largest oil and gas producers in the American, Royal Dutch Shell, revealed that the Deepwater Horizon accident and subsequent drilling moratorium will significantly reduce for several years its oil output from the Gulf of Mexico–the richest offshore area in the American It also unveiled its third quarter results.

Already unrealistic hopes that the American could mitigate the profound economic and security implications of weaning itself off foreign oil by dramatically boosting domestic output are more remote than ever.

The news from Alaska is actually even worse than its seems on first reading. The USGS cut its oil reserve estimate for the NPRA from 10.6 billion barrels of oil to 896 million barrels, because new wells show that much of what was assumed to be oil reservoirs in fact contain gas, which has a lower energy content.

Of course, gas reserves have value, but their development can be very difficult to justify in such remote locations. Two major Alaska oil producers, ConocoPhillips and BP, have been debating for years how to monetize the huge gas reserves they hold in North Slope oil fields, but have so far failed to find an economic solution. Their plans to build a $35 billion pipeline to carry the gas to towns and cities in the lower 48 states are being reassessed and may never come to pass.

The reappraisal of the NPRA also raises questions about how much oil really lies beneath the perennial bargaining chip in the contest between environmentalism and energy security, the Arctic National Wildlife Refuge.

On Thursday, Shell revealed that the moratorium on drilling imposed on the Gulf of Mexico in the wake of the Deepwater Horizon disaster will have an impact on its ability to produce oil from the region for several years.

The company’s output is already 10,000 barrels of oil equivalent (boe) a day lower than it would have been without the moratorium, because it has been prevented from doing development drilling to boost output at existing fields. That shortfall will be at least 40,000 boe a day in 2011, a fall of 15% from the expected level, and could rise further because of anticipated delays in the issuance of new permits now that the moratorium has been lifted, said Shell’s Chief Financial Officer Simon Henry.

Other companies have yet to disclose whether they will also suffer a 15% cut in their potential production from the region, but everyone has suffered similar effects from the moratorium.

The impact of this on the American economy could be profound. The Gulf of Mexico produced 1.6 million barrels of oil a day in 2009, almost 30% of total American crude oil production.

Shell’s operations in Alaska have also taken a hit. Its plans to drill in the promising Beaufort Sea off Alaska’s north slope are on hold for at least 12 months after permits to drill this year were withdrawn after the Deepwater Horizon disaster. Applications have been resubmitted, but the process may take longer than expected, Henry said.

Shell has not even resubmitted its even more contentious applications to drill in the neighboring Chukchi Sea.

The prospects of a dramatic boost in domestic American oil production look slimmer by the day. If the country is serious in its intention to wean itself off foreign oil, it’s time to switch the focus from billion-barrel reserves to miles per gallon.