Independents must help decide their own destiny by becoming more involved in geopolitical action.(2005 Midyear Meeting Politics of Energy)

Publication: Oil and Gas Investor

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COPYRIGHT 2005 Hart Publications, Inc.

Geopolitics will play a more influential role than geology in shaping America's energy future, and if history provides any insights into future political behaviors, America's independent oil and gas producers must be prepared to determine their own destiny.

After vowing more than three decades ago at the height of the Arab Oil Embargo to never again become overly dependent upon foreign oil, why does the U.S. today rely on foreign supplies to satisfy 56 percent of its crude demand, television commentator, businessman and best-selling author John Kasich asked rhetorically in an address at IPAA's midyear meeting, before adding, "In fact, we're in worse shape today!"

Kasich said U.S. crude oil and refined product imports were helping to balloon the U.S. trade deficit, in essence bleeding the national economy while helping fuel it. "The Chinese and the Indians are competing and they've got great economies," he said. "We've got to get ourselves out of this. So why haven't we?"

Amy Myers Jaffe, the Wallace S. Wilson Fellow for Energy Studies and coordinator of research at the Baker Institute Energy Forum, Rice University, pointed out that global crude oil markets today are much tighter than during the embargo. "When we had the so-called crisis in 1973, OPEC still had about 3 million barrels per day (b/d) of spare capacity," Jaffe said. "Today, OPEC has only about 1 million b/d of spare capacity."

That clear structural shift is the fundamental reason why oil prices are higher today, she added: Little or no spare production capacity to make up for any loss of supply...

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