Drilling

Maybe I’m a cynic, but it seems that many people have trouble connecting reality with the ideal. Energy, as an issue, is a top of priority worldwide. However, it’s a small part of a larger cycle.

Industrialized economies rely on a consistent interworking of supply and demand. Successful economies are incrementally matched with rises in demand for goods and services, i.e. energy.

As of July, with record high oil prices, the term “green” became volatile. Green energy and green collar jobs became part of the vernacular, especially among politicos in the United States.

The City of San Jose, Calif., is now calling itself the “capital of America’s clean tech revolution.” Mayor Reed claims to have a “green vision,” and the city is now pursuing the country’s top green companies to locate within San Jose.

Tesla Motors, a manufacturer of high end electric sports cars, recently moved to San Jose bringing with it 1,000 new “green collar jobs.”

What exactly defines a “green collar” job? The most likely answer is any manufacturing position concentrated on so-called sustainable energy systems or components. Solar and wind energy are the big ones. For transportation purposes, biofuels, hydrogen, and electricity are most often proposed as alternatives to fossil fuels.

Wait a second…did someone say electricity? What generates electricity? Would it be coal? Or, even crazier, could it be natural gas? Aaah, so what comes first…the chicken or the egg?

The important point here is that alternative forms of energy are good. At some point in the future, fossil fuels will no longer be profitable to find or to produce. While experts disagree on exactly when this might take place, both sides of the energy industry must stay on course to determine a safe path to the future. The oil industry is the only bridge we have to the ideal world proposed as the “green revolution.”

Our modern scenario is much like the early 19^th century when wood provided most economies with a major source of energy. One would wonder if a “peak wood” theory was devised from this era? However, the introduction of coal supplanted wood as a much better source of energy. Later oil would do the same, and is now the highest net energy resource we know.

Technology and innovation will improve our means of reaping more benefit from all known sources of energy in the future. For now, we must concentrate our efforts on oil and natural gas. The problem with a “green revolution” is that many of its supporters are under a false impression that alternative forms of energy will supplant our current demand for fossil fuels. Many tout this change as if its possible right now. It’s not.

What are the current drivers of improved infrastructure and mass manufacturing in today’s industrial environment? The answer is fossil fuels.

Green energy will have a place in today’s market as long as the oil and gas industry is healthy. At $147/bbl, wind and solar are feasible endeavors, but at $58/bbl investors are wise to proceed with caution. The expectation of a wide availability for investments and job creation within the “clean tech” industry will be short lived if the price of oil remains low.

Could “green tech” be the next big bubble? Hopefully, it won’t suffer the same fate as many of the previous examples like the dot.com or the sub-prime real estate markets. It is possible that an extended slump in the oil and gas market could prevent many “clean tech” start ups from getting off the ground.

To provide sustainable energy sources for the future, industries should understand that it will take collaboration between those who wish to break away from the dependence on fossil fuels and the operators and service companies who currently produce these resources. It is very unlikely that the former will survive without the continued performance of the latter.

As a rule, children are not political animals. When they do have political slants they are typically derived from verbal and nonverbal queues displayed by the adults around them – namely parents.

It was 1980, and I had just started the second grade. We were returning to school the day after Ronald Reagan had secured a landslide defeat of the incumbent Jimmy Carter. As a seven year old boy, I officially didn’t have a dog in that fight although, according to my father’s reaction to the election results the evening before, it was obvious that I shouldn’t be celebrating.

My father is a life long union democrat who espoused on many occasions that anyone claiming to be a “republican” while wearing a hardhat and carrying a lunch pail to work was undoubtedly a moron, point taken. Today, I understand the difference between facts and opinions, but as a young boy I assumed my parents were right about everything.

The next day at school we filed into the classroom just after the first bell. One of my classmates was a bit overzealous at Reagan’s success the night before. He was jumping up and down and attempted to high five me on the way to his seat. I wasn’t sure if my dad could beat up his dad, but I saw first hand that his dad’s president had given a good beating to ours.

I wasn’t much for debating in those days. Besides, how many talking points does a seven year old know? I used the only form of rebuttal I knew (thanks to three older brothers), and I punched him in the eye. He fired back with equal force and it was only minutes before Mrs. Fisher had us both by the ear marching us down the hall to the principal’s office.

If memory serves me correctly, one of us showed up with a shiner the next day. I’d like to say it was “the other guy” but quite honestly there have been too many scuffles in the last thirty years to recount the damage associated with each. Fortunately for me, that was the first and last time I ever came to blows over politics.

The point of this story is not to examine the validity of any specific political party. This week will present us with a new President – Barack Obama or John McCain. Regardless of how you vote, opportunities for change exist in either platform.

I’ll admit that the Reagan years were tough on my family. “Trickle down economics” was more aptly described as “trickle from.” Nevertheless, we survived and things improved over time. The lesson I’ve learned is that the US is best characterized as a diverse and robust endeavor.

Where the oil and gas industry is concerned, 2008 has been a very good year. Although things are now cooling due to a looming financial crisis and warnings of a coming recession, the industry will subside. July brought record high prices for crude. It was a time when every official in Washington could be found – soapbox in hand – proclaiming the need to “do something about these high prices!”

As Mark Twain said, “be careful what you wish for…you just might get it.” Today, the price of oil is less than half of its July peak. Gas prices in Houston are down to $2.20/gallon. Politicians have lost their grip on the debate; finger pointing is no longer a valid response to the nation’s major oil companies. This is a positive development. In spite of public perception, those of us who work in this industry understand the importance of independent oil companies. They are fighting a good fight when compared to the amount of available resource areas. More than three-fourths of the world’s hydrocarbons are controlled by national oil companies.

Offshore drilling is now gaining ground in parts of the US that have been closed off for nearly two decades. As a point of interest for political intervention, it should be noted that the first President Bush instituted the original ban on these areas – a Republican.

While it’s easy to assume that most candidates will toe the party line once in office, where energy is concerned we should keep an open mind. The basis of this industry is cyclical. High prices are good, too high prices become a problem. The object is to find a balance that sustains a profitable margin for operating companies while providing consumers with a market that doesn’t appear to be spiraling out of control.

The numbers show that $4/gallon kills demand for transportation fuel. Some of this demand will be lost forever. Now we have to be concerned about low prices. How will they affect industry projects and related job markets? What will become of the move toward alternative sources of energy? Time will tell.

Our new president could be democrat or republican. There’s no reason to assume that one is right and one is wrong for our industry. Energy is a big issue within our modern political discourse. Provided that a candidate is rational with some degree of common sense, the oil and gas industry will maintain its growth in the years to come. There should be no reason to come to blows over the election’s outcome.