The American Public Is Slightly Less Dumb

It's possible American democracy isn't a failed system backed by the votes of undereducated mongoloids; it's just very time-lagged, at least according to this survey.

Let's back up. In my schoolboy days, back at Vanderbilt, I took a geology 101-type class in anticipation of my entrance into the oil and gas reserve acquisition business in which our professor took an informal survey to determine our support for drilling for oil in the Alaska National Wildlife Refuge (ANWR), where the somewhat endagered caribou make their home.

This was one of those auditorium size classes with 100+ students and only about three hands shot up in support of such drilling. Mine was one of them, because I'm a ruthless, speciocidal bastard, especially with regard to mammals that we don't eat on a massive scale.

The good professor then explained that there was ~$125 billion worth of oil in them thar hills on an estimated ultimate recovery basis, which we, as socially responsible citizens, had to weigh against the fate of the indigenous caribou, who would be allegedly harmed if a few rigs desecrated the icy hellscape there. I guess Blitzen et al were too important a consideration for the class, but the professor and I believed otherwise at the time.

That was 2003, when oil was trading at about 20-buck-a-barrel. Now that West Texas Intermediate is trading over $140 per barrel, those reserves, on a non-discounted basis, should be worth about $875 billion. Especially since the forward price curve on that light, sweet, and I must say, delicious, WTI isn't deeply backwardated.

I don't have a engineering report on the area, so I don't know the discounting convention or even a reserve/production ratio, but let's cut that in half to discount for present value and get a little back-of-the-envelope calc going. That's a $437 billion PV. Cash in the ground. Enough to cover half of the Iraq war to date. Let's gross that up to $500 billion because oil recovery techniques have improved in the last five years (a conservative gross up), so now we're talking 3-4% of our GDP, depending on which metric you believe. That's what they call in the metric system a "shitload."

Some very benighted politicians have blamed speculators for the run up in prices. We'll get to why this is one of the dumbest theories since intelligent design later, but the reason energy prices are high is because supply at price (p (t-1)) is less than demand at price (p(t-1). My former employer, Matt Simmons, called* this years ago, which is why your friend Mikey P got into that oil and gas game right out of college, after having seen the good Mr. Simmons present at the Coronado Club** in Houston as a 3rd year at Vandy.

Look, I'd be just fine with the American public continuing to restrict drilling in Alaska, in the East and West Coast offshore, and in our national parks--that's money in my pocket. Hell, I'm kind of supporting Obama in '08 because his energy plan is so retarded*** in the fact that it diverts resources to--I'll even say "speculative"--energy sources over proven conventional ones. Bad for the old USA but good for Mike Pemulis and his hometown of Houston. That's a trade I'll always make, at least till I own my own jet and/or ostrich boots become the business footwear norm nationwide once again.

*Blogger's being gee with hyperlinks here, just google the guy.

**Not the strip club, the eating club.

***control-F "solar" on this one.