My Lunch With Big Oil

Things are going very, very, very well for my secret source, Mr. Big Oil. At our liquid lunch recently, he explained to me how offshore drilling in Virginia is a side show at best.

No one knows how much oil is really out there. Existing estimates show that if all the oil off the East Coast were tapped, it would last the U.S. maybe six months.

What will Virginia really get out of it? Who knows, despite the pandering of prominent state Republicans and President Bush’s call to end a drilling moratorium that has lasted nearly three decades.

Mr. Big Oil points out that Virginia will actually get little from any projects because of the way royalties and littoral boundaries are set up. One wonders anyway why there hasn’t been a significant oil project in the state since the 1950s. And if anything actually goes today, it won’t start operations until maybe 2020. Who knows what the energy demand picture will look like then?

The point, Mr. Big Oil says, is to get something, anything, off the East Coast to drive a spike through the heart of the moratorium so Big Oil can concentrate where they really want — namely Alaska, California and the Gulf of Mexico. For the real skinny, read my column in Bacon’s Rebellion.

Peter Galuszka

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  1. Larry Gross Avatar
    Larry Gross

    Here’s the deal:

    We open up offshore in Va to drilling – with the following 2 proviso’s.

    1. -the oil can only be sold in Va

    2. – it can only be priced at the cost of extraction plus a reasonable profit

    OR .. a 50% tax is applied to each barrel sold on the world market.

    no.. step back quick before you get nailed by the stampede –


    this is all about pandering… if we REALLY wanted and needed this oil why would we NOT put restrictions like these so that it would truly benefit Virginia drivers?

    the people behind the drilling don’t get a rat’s behind about the impact of high-priced oil to the consumer. They are much more concerned with the “benefits” of high-priced oil to ..investors.

    and the folks who are wishfully thinking otherwise are basically shilling for nabobs.

    I cannot believe what a bunch of rubes we are on this issue.

  2. Anonymous Avatar

    “why would we NOT put restrictions like these so that it would truly benefit Virginia drivers?”

    It is probably against federal law.

  3. Larry Gross Avatar
    Larry Gross

    that would be fine.

    Virginia would say that as long as Federal Law prevented them from acting in the best interests of it’s citizens.. that they’d stand pat.

    It would be very interesting to see which of Virginia’s elected Congress would support a law to do that.

    I think we’d start to find out pretty quick what their real positions were.

  4. Anonymous Avatar

    “High prices at the pump are taking cars off the road and reducing air pollution.

    The Federal Highway Administration estimates that vehicle travel decreased by 16 billion miles during the first three months of the year compared with the same period in 2007.

    The decrease in travel nationwide is equivalent to removing 1.3 million cars from the road for a year and 7.1 million tons of carbon dioxide, a greenhouse gas, from the air.

    That’s about the same amount of carbon dioxide a large coal-fired power plant spews into the air every year.”

    Big oil keeps getting smaller.

  5. Scott Leake Avatar
    Scott Leake

    In the case of Virginia, it’s not oil. It’s natural gas, a deposit the Interior Dept. and Congress estimate whoud produce royalties to Virginia of upwards of $200 million a year. And that’s after the feds take their first cut.

  6. Anonymous Avatar

    Scott Leake,
    That’s interesting information about the $200 million. Do you have a URL so I can get more information?

    Peter Galuszka

  7. floodguy Avatar

    Oil? I thought Kaine, J. Warner, M. Warner and Webb were all interested in the natural gas fields off Virginia’s coastline? And from what I’ve, unlike oil, there’s alot of natural gas reserves there.

  8. Anonymous Avatar

    On gas: that’s what Mr. Big Oil said. Maybe the politicians should pay attention.

    Peter Galuszka

  9. floodguy Avatar

    Any affect either in production or price will not be seen till b/n 2017/2030.

    Approval today will take till 2012 for the regulatory and environmental hurdles to be met.

    From then leases are awarded and another 5 years is the expected wait time for drillers to obtain equipment and setup before the first drop of oil or natural gas is obtained.

    Unlike oil, however, OCS natural gas reserves have the potential to increase domestic production by 18%, while oil’s increase would only net a gain of 1-3%. Part of the reserves in natural gas in the Mid-Atlantic region is in Virginia waters.

    If electric generation is ever going to transfer off of coal, then natural gas has to part of the solutions to accomplish that. All 5 of Virginia’s major political players, (six if you count Gilmore) all believe the same. Any plan for the energy’s future, Virginia or the nation, which considers no new increases in natural gas consumption, is a pipedream.

  10. Larry Gross Avatar
    Larry Gross

    Interesting. T. Boone Pickens sez we should build wind for electricity and use natural gas for vehicles.

  11. Groveton Avatar

    “The way the Interior Department has it set up, Virginia’s share of offshore rights is very tiny compared to other states such as North Carolina or Massachusetts. They’d lap up most of the gravy.”.

    Why is that?

  12. floodguy Avatar

    @ Larry, Pickens is merely a capitalist. Beside, when it comes to wind, west Texas is a whole different world than Virginia. Renewables which have a strong tendenancy for intermittency in the mid-Atlantic, will need considerable reliable backup sources. And as far as peak generation, it seems to me all new capacity is generation from gas and it is highly likely old peak, diesel and other oil types, will be retired and replaced with gas. Neither he, nor Al Gore for that matter, have provided any details as to how their proposals would transform our energy makeup. All we have so far are bold statements.

    Also Pickens Mesa Power wind project, like most other wind farms, has trouble with transmission connections. 85% of proposed wind in generation planning queue’s have no proposed transmission connection in transmission planning queue’s. I think this is Pickens’ way of raising the transmission issue, no different than Gore regarding reducing carbon-generated electricity.

    Right now Pickens has ordered 1000MW worth of turbines from GE set for delivery by Q1 2010. He has a buyer for that power, but no transmission connection plan is proposed. Whenever that occurs, it will probably take a good 3 to 5 years until it is constructed.

    @ Peter, considering how much damage high oil prices can cause, would it not be prudent to expand domestic production, not to decrease the price, but to keep the price from running away to $300-400/bbl by the year 2030? Is the environmental risk to marine and seashores weighed more than the damage $300-400/bbl would cause? I don’t personally know, but that’s where I think the argument is, not the pandering argument of whether drilling will relieve today’s high oil prices. I say, let competition in the free markets decide. If America consumes less oil, big oil while have to weigh those factors.

  13. Anonymous Avatar


    If, in 2030, we are still in the same oil consumption patterns driving big SUVs in widely scattered housing patterns and if we have not shifted to a dramatically different less-carbon, less-hyrocarbon consuming demand picture, then the pittance of what will probably be available off the coast of Virginia won’t make one hell of a lot of difference. We’ll be doomed anyway.

    Peter Galuszka

  14. E M Risse Avatar
    E M Risse


    Convex (NC) vs concave (VA) shorelines.

    As I recall Jim Bacon did a post on this but that is the bottom line.


  15. Larry Gross Avatar
    Larry Gross

    any plan premised on maintaining or increasing consumption levels of oil is doomed to fail.

    I could buy the idea that making offshore available is a good strategy if it was being promoted as part of a bigger – plan – and my idea of a “plan” is not handing-waving about “ideas” about what we “could” do.

    That’s my biggest complaint with the pro-drill folks.

    They basically are saying – “to hell with the future – we need to do something right now”.

    I’ll take a plan like Pickens before I take the “plan” advocated by the pro-drillers which is no plan – basically let’s fly by the seat of our pants until we crash and burn.

    In my opinion – the pro-drill folks and the pro-SUV folks are one and the same….

    they are not about solutions at all but just advocates of consumption at any cost.

  16. Anonymous Avatar

    I don’t recall the Bacon piece but The Virginian-Pilot ran an editorial recently commenting on the shape of the shore vis a vis royalties.
    Peter Galuszka

  17. Jim Bacon Avatar
    Jim Bacon

    Ed has a good memory, I posted an item back last September, “The Catastrophic Consequences of a Concave Coastline.” There’s a map showing how Virginia’s offshore territory tapers off to a narrow point, swallowed up by Maryland and North Carolina.

    As I concluded at the time, “Virginia got the short end of the stick on this one. Administrative boundaries that extend due east would have yielded Virginia a much larger share of the continental shelf. Where were our congressmen when these decisions were being made? Is there some way to appeal the inequitable distribution of offshore territory and resources?”

  18. Anonymous Avatar

    Gas is more expensive than coal, therefore renewables will compete with gas before they compete with coal, and that will help keep the price of gas down.

    The more renewables you have the more it keeps the price of gas down and the better it can compete with coal.

    Otherwise coal wins hands down, unless you have draconian new regulations against coal.

    There are more BTU’s in Illinois coal than in all of Saudi Arabian oil. Floodguy has already noted that price of energy will be a driver in environmental decisions. If push comes to shove, it will be coal at $2-6 per million BTU compared to Gas at $6 to 20 /MMBTU.

    For $3-$10 per million BTU you can do a lot of cleanup.


  19. Anonymous Avatar

    Jim Bacon:

    “Where were our congressmen when these decisions were being made? Is there some way to appeal the inequitable distribution of offshore territory and resources?”

    That’s what Mr. Big Oil says in my column.

    Peter Galuszka

  20. Jim Bacon Avatar
    Jim Bacon

    I haven't made up my mind about the off-shore drilling yet. My sense, based upon what I've seen so far, is that the oil resources are too meager and the risks of spills are significant enough, that there's not much point in pursuing that avenue.

    But the natural gas picture is quite different. Gas is far cleaner and — I think this to be true — doesn't pose the same environmental risks as oil. Heck, gas can't spill, can it? It might leak into the atmosphere, but it can't ruin a shoreline.

    Over the next 10 years, even as Virginia moves to greater exploitation of wind and nuclear power, we'll still require natural gas for peak-load generation. Interestingly, while the price of oil is set by global markets, because oil is so fungible, the price of natural gas varies somewhat by geography, depending on where it is produced and how much it costs to transport to a particular location. Having a nearby source of natural gas for Virginia power generation, it would seem to me, would be beneficial.

    You may be correct in your theory that the oil & gas companies have put Virginia offshore drilling into play politically as a ploy to crack open drilling rights in Alaska, California and the Gulf. I don't know. It's a plausible idea, but it's probably unverifiable in the absence of a real-life "Mr. Big Oil" to spill the beans.

    But the supply and demand projections for Virginia natural gas consumption should be readily available. Perhaps someone should consult the Kaine administration's Virginia Energy Plan to see what it has to say about the future of natural gas in the Old Dominion.

  21. Anonymous Avatar

    But Jim,
    “Mr Big Oil” is real.

    Peter Galuszka

  22. Jim Bacon Avatar
    Jim Bacon

    Oh, you’re kidding. I didn’t realize that. I thought “Mr. Big Oil” was a literary conceit!

  23. Anonymous Avatar

    That’s what I tell all my editors about my sources.

    Peter Galuszka

  24. floodguy Avatar

    @ Peter: A dramatically different petroleum consuming nation by 2030, hmm, lets say I bet we will be a dramatically different energy consuming nation by then, or on the verge thereof.

    Also, there’s no oil worth drilling off Virginia. I think our major state politicans are promoting exploring for a full inventory of the natural gas reserves there.

    While we as a nation may decrease our gasoline driven vehicles per capita, overall, with demand from an increasing population and an expanding economy, combined with an increasing % of foreign oil dependency each and every year, I don’t think it unwise, from an energy independency point of view, not to increase our domestic oil production from somewhere. This doesn’t necessarily mean we are doomed if this is the case; and by doomed I think you mean by a warming climate, correct?

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