No easy answers for U.S. oil problems - East Valley Tribune: Business

No easy answers for U.S. oil problems

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Posted: Tuesday, March 25, 2008 4:08 pm | Updated: 11:34 pm, Fri Oct 7, 2011.

The outlook for increasing domestic oil production is bleak, even with higher prices on world markets.

But the crude oil picture for the United States isn't totally depressing because the production outlook for liquid gold is better in nearby Canada and Mexico. And even supplies from distant countries with hostile governments may not be as tenuous as they seem.

That's the view of two oil-industry lobbyists interviewed by the Tribune at an exhibit at the Arizona State Capitol on Tuesday.

The U.S. continues to be a major crude oil producer at about 5.5 million barrels a day, but the chances of increasing that number aren't good, said John Felmy, chief economist for the American Petroleum Institute in Washington, D.C.

Much promising oil-producing land in Alaska and the lower 48 states is controlled by the federal government and is off-limits for environmental reasons. The only major new production areas open to the industry are in the deep waters of the Gulf of Mexico, which are difficult to exploit, he said.

Some old fields are being reopened, but it's too soon to know if production from them can be increased, he said. "It's flat," he said of U.S. production.

But the outlook for North America as a whole is better, he said. Canada, the largest foreign supplier to the U.S., is tapping into giant oil sand reserves. Fifty-five percent of United States crude oil supplies come from North America if our two neighbors are included, and only 15 percent comes from the Middle East, he said.

And Felmy said Americans shouldn't be too worried that some of its oil comes from countries with hostile governments.

"Many of those same places have growing populations and growing economies, and they desperately need the money," he said. "We are in this together."

In fact, there's still plenty of oil in the world, he said. It's just that it's increasingly in hard-to-reach places and will take more time to develop.

While that might not be much encouragement for motorists filling up on $3.20-a-gallon gasoline today, it does offer long-term hope that supply and demand eventually could come into better balance.

"This is the fifth time we have supposedly run out of oil," Felmy said. "But each time higher prices dampen demand and increase supply."

Crude oil capacity has, in fact, been expanding in recent years in both OPEC and non-OPEC countries, he said. But demand is increasing so rapidly in China, India and other developing economies that the price has risen anyway.

In the short term, the best hope for consumers is to use vehicles that run on alternative fuels or get better gas mileage, said Joe Sparano, president of the Western States Petroleum Association.

He insisted that Big Oil has no objections to alternative energy, and many oil companies are getting into such businesses as solar, wind, biofuels and improved batteries.

"Our industry would like to see our current products used and augmented by any and all renewables - as long as they are scientifically sound, technically feasible and cost-effective," he said.

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