Buried Treasure

By Cliff May
Thursday, December 08, 2011

America is in economic distress. The crisis threatens our national security because a nation that is weak economically cannot be strong in other ways. If only we had an untapped source of wealth, a nest egg we could crack and use to grow the economy, create jobs, raise Americans’ standard of living while providing the resources needed to defend the nation from its enemies.

Oh wait: We do.

Where is it? It’s is in the ground, under the seas, in our garbage and our agricultural waste. Start with “shale oil” and “shale gas” — really oil and natural gas layered within sedimentary rock. Large shale oil fields have been found in South Dakota, Nebraska, Kansas, Montana, Ohio, Pennsylvania, New York, West Virginia, and elsewhere in the U.S. and Canada.

Until recently, this buried treasure was expensive to access. Now, however, revolutionary new technologies are changing the cost equation. The deposits can be precisely located, so fewer holes are needed. Horizontal drilling makes it possible to reach additional deposits underground up to 6,000 feet away from the original hole. Next comes hydraulic fracturing: using pressurized water to free the hydrocarbons and bring them to the surface. One drawback: The water may pick up heavy metals and other toxic byproducts, so it must be either disposed of or cleaned. Even more recently, however, another variation of fracking has been developed: Instead of water, propane gel is used to release the trapped oil and natural gas. Underground and under pressure, the gel turns into vapor and returns to the surface where it is collected for recycling.

Often misunderstood: “Shale oil” is not the same as “oil shale.” The former can be accessed by fracking, the latter — which contains a much lower percentage of organic matter more densely encased in rock — cannot. So while shale oil is already producing fuel and profits, the technologies to commercialize more plentiful oil shale have not yet been developed.

But the point is this: Working together, America’s scientific innovators, entrepreneurs, and investors can conquer this subterranean frontier. They can make other fuel breakthroughs as well — more on some of those in a moment. And if they do, it will enhance both economic and national security.

Government policies could help. At the very least, they could be designed not to hinder. In particular, policy makers should set three high priority goals: (1) Make transportation fuels more abundant, more diverse, and cheaper. (2) Dramatically reduce the West’s dependence on fuel produced by regimes hostile to the West and decrease, as much as possible, the wealth we are transferring to such regimes. (3) Encourage the development of a free and highly competitive fuel market — something we do not have now.

Let me be clear: Elected and appointed officials should not pick winners. The role of government should be to regulate responsibly and efficiently while clearing bureaucratic roadblocks, getting incentives right, and accepting with relief — rather than reflexively dismissing — competent studies that find no basis for serious environmental harm.

Case in point: the Keystone XL pipeline. Despite having been given a clean bill of environmental health, this project is being delayed by the Obama administration until after the next presidential election — if ever. Building it would create at least 20,000 new construction jobs in the short term and perhaps ten times that many over the long run. Not only will the pipeline not cost taxpayers a dime, it will produce tax revenue. And, once completed, Keystone XL would bring 750,000 barrels of oil a day from Canada which has an estimated 175.2 billion barrels in its “oil sands” — a viscous form of petroleum mixed with sand, clay, and water. American workers would then refine that oil into higher value products for sale at home and abroad.

A sensible, all-of-the-above fuel policy also would encourage full resumption of drilling in the Gulf of Mexico (creating at least 200,000 jobs), expanding drilling in Alaska, and accelerating exploration and development in the Arctic Ocean — projected to hold 20 percent of the world’s undiscovered oil and natural gas. Federally owned lands should be opened to oil and gas leasing as well. Instead, however, the U.S. Department of Agriculture last month suspended the auction of leases on more than 3,000 acres of federal land in the most economically depressed region of Ohio.

What would it mean for American workers were improved policies in place? A study by the consulting firm Wood Mackenzie estimated that better federal energy policy would create more than 1.4 million jobs over the next 20 years as well as billions in new tax revenues.

A word on natural gas: Thanks in large part to the new technologies discussed above, its cost has been decreasing even as gasoline prices have been rising. And according to some estimates, Europe has shale gas reserves comparable to those in the U.S. The economic uses of natural gas at present include making electricity and providing fuel for a growing fleet of modified, commercial heavy-duty vehicles (thereby decreasing the demand for gasoline and bringing down the price).

But natural gas also can be made into methanol, an alternative liquid fuel. Automobiles can be inexpensively adjusted so that they run perfectly well on methanol — energy researcher Robert Zubrin spent 41 cents to make his car methanol-friendly. It’s possible as well to make methanol from coal (of which the U.S has huge supplies, 270 billion tons, to be exact) and from urban garbage and agricultural waste (of which we have never-ending supplies).

There’s more: Such “flexible-fuel vehicles” can be powered with ethanol — which should not be subsidized when produced in the U.S. or subject to tariffs when produced by farmers abroad. Instead, ethanol should compete with other fuels on an even playing field.

Something you probably don’t know because so much misinformation has been so widely propagated: More than 90 percent of the corn grown in the U.S. is used for animal feed — not human consumption. If you turn the proteins and oils from that corn into high-quality animal feed, what you have left is corn starch. That can used to unnaturally fatten cattle so that the beef we consume contributes more cholesterol to our diets. It also can be used to make fructose, a very cheap form of sugar that junk food manufacturers adore. Or it can be used to make ethanol to fuel vehicles. As former CIA director Jim Woolsey — now the chairman of the Foundation for Defense of Democracies, the policy institute I run — puts it: We can choose to use corn starch as a transportation fuel or we can continue to use it to increase childhood obesity and diabetes. Tough call, don’t you think?

Sugarcane can be used to make ethanol, too — they’ve been doing that for years in Brazil and every service station there offers it and all the cars can run on it. It is possible to make ethanol as well from crops grown on marginal land, including in Africa where subsistence farmers are desperately in need of products they can sell for cash.

Implementation of all-of-the-above fuel policies would provide something else: an insurance policy. A successful terrorist attack on a Saudi oil facility, the next Middle East conflict, a descent into chaos of one or more major oil-producing countries — such events could easily push the price of oil past $200 a barrel, which would knock an already sputtering global economy into a tailspin. Is it not obvious that we should be preparing for such contingencies and that doing so requires enlarging the supply of fuel and diversifying the sources from which it is derived?

Not to everyone. What’s more, keeping oil prices high and entrenching the West’s dependence on foreign supplies are priorities for Russia, Iran’s rulers, and other members of OPEC, the cartel which, as Zubrin has noted, long has limited “its production rate to 1973 levels of 30 million barrels a day.” Why? Because keeping supply low at a time of rising demand means higher prices.

Lucian Pugliaresi, president of the Energy Policy Research Foundation and a former staff member of the National Security Council under President Reagan, has noted that if “we can alter the long-term price of crude oil by $20 a barrel — let’s say to $80 instead of $100 — the savings in our import bill alone would be $100 billion per year. This would immediately foster economic job growth.” And getting the price down further, to say $60 a barrel, would make it impossible for Iran to continue spending on nuclear weapons and terrorist groups abroad without lowering the already abysmal living standard of those Iranians who are not members of the ruling elite. That could spark renewed civil unrest — possibly leading to regime change from within.

Have I not said enough about the environment? Rational people know that energy development and economic growth are not incompatible with protecting air, groundwater, and endangered species. More than 1.2 million wells have been fracked to date and there has not been a single documented case of contaminated drinking supplies as a result. Nor do rational people respond to concerns over “global climate change” by impoverishing their fellow countrymen and making them more vulnerable to their enemies. But too many powerful and well-funded environmental groups are not rational. They are doing everything they can to block energy development and the economic growth — and the jobs and the security — it can provide.

And they ignore this reality: Giving up economic gains and jobs in the name of “saving the planet” will not bring forth a greener Earth. Canadians will exploit their oil sands whether or not we allow the Keystone XL pipeline to be built — the fuel will just be consumed in China rather than in America.

Meanwhile, Mexico, Cuba, Canada, and Russia are, or soon will be, drilling in waters near America’s shores. “In a few years, the U.S. could wind up in a regrettable position,” Alaska senator Lisa Murkowski recently warned, “exposed to all the risks of offshore development but with no control and none of the rewards. . . . Regardless of our relations with neighbors, it’s not realistic to expect them to match our requirements if we are not demonstrating that they are both workable and profitable.”

The reality we face is this: Fuel policy has become inextricably intertwined with economic policy and national-security policy. Yet we have coherent policies for none of the above. By all means, let’s limit government, cut spending, and get serious about tax reform. But also remember: America was built using scientific, entrepreneurial, and natural resources. Those resources could revitalize America now — unearthing buried treasure, converting garbage into liquid gold, providing opportunities for people willing to work, raising revenues without increasing tax burdens, supporting successful programs to assist those in need, and arming the brave Americans who defend their country from the enemies we have been self-destructively funding for decades.

And if you don’t believe rich and growing nations are more adept at environmental protection, I suggest you take your next vacation (if you can still afford one) in a country that is poor and has a shrinking economy.

If only we had politicians who understood all this and could make the case convincingly to voters. Oh wait. Maybe between now and next November we’ll discover that we do.