Time Tries to Salvage Obama’s Gaffe

Barack Obama’s suggestion that we can’t drill our way out of the current energy shortage, but we can solve the problem through tire inflation, has been the source of much hilarity. We did the math here, and found that it would take approximately 11,308 years of tire inflation to equal the energy we can obtain by developing our own petroleum resources.

Now, remarkably, Time magazine has rushed to the defense of its candidate, arguing that “Obama is right.”

The author of the article, Michael Grunwald, mixes apple-and-orange statistics to try to create the false impression that there is more to be gained by inflating tires than through offshore drilling:

The Bush Administration estimates that expanded offshore drilling could increase oil production by 200,000 bbl. per day by 2030. We use about 20 million bbl. per day, so that would meet about 1% of our demand two decades from now. Meanwhile, efficiency experts say that keeping tires inflated can improve gas mileage 3%, and regular maintenance can add another 4%. Many drivers already follow their advice, but if everyone did, we could immediately reduce demand several percentage points. In other words: Obama is right.

Grunwald is trying, through sleight of hand, to conceal certain basic facts: Obama said that tire inflation could save energy equal to “all the oil that they’re talking about getting off drilling,” not just the outer continental shelf; the outer continental shelf, ANWR and Rocky Mountain oil shale contain an estimated one trillion, 28 billion barrels of oil–an estimate that is undoubtedly low–while the maximum savings that could be attained through tire inflation and tuneups, assuming that every single vehicle in America is driving around with semi-flat tires and has never had a tuneup, is a mere 420 million barrels per year.

But there are more devious errors lurking behind Time’s claim that “Obama is right.” Notice the curious formula that Grunwald uses to quantify the energy potential of the outer continental shelf:

The Bush administration estimates that expanded offshore drilling could increase oil production by 200,000 bbl. [barrels] per day by 2030.

That equates to 73,000,000 barrels per year. Which may sound like a lot, but amounts to only four-tenths of one percent of the OCS’s 18 billion barrels. That made me curious. Further, why is Time not only putting out an absurdly low number, but also talking about the year 2030? The implication seems to be that the oil wouldn’t flow until then, or maybe wouldn’t peak until then, but such a claim would be ridiculous.

To get to the bottom of the puzzle, I tracked down the source of the statistic that Grunwald attributes to the “Bush administration.” I’m pretty sure this is it: the Annual Energy Outlook 2007 with Projections to 2030, as published by the Energy Information Administration. This graph, I’m confident, is the source of the “200,000 barrels in 2030” claim:

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As you can see, the projected recovery from OCS drilling in 2030 is around 200,000 barrels. EIA projects recovery to begin around 2018, but as, once again, you can see from the graph, EIA projected that only a tiny percentage of the 18 billion barrels (at least) under the OCS would be recovered.

The explanation, obviously, is the set of assumptions used by the EIA in creating its forecast. The forecast was not based on the amount of oil that the OCS actually contains, it was based on the amount that was predicted to be economically remunerative at the then-prevailing price of oil. The EIA report makes this explicit:

Although a significant volume of undiscovered, technically recoverable oil and natural gas resources is added in the OCS access case, conversion of those resources to production would require both time and money. In addition, the average field size in the Pacific and Atlantic regions tends to be smaller than the average in the Gulf of Mexico, implying that a significant portion of the additional resource would not be economically attractive to develop at the reference case prices.

Aha! The obvious question, for anyone with the most rudimentary understanding of economics, is, What are the reference case prices? Here they are:

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That’s right: the EIA, writing in early 2007, assumed that oil prices would decline from their 2006 peak; that in 2008, the price of crude oil would be around $60 a barrel; that it would continue to decline until around 2013 to a low of about $50 a barrel; and that the price would then gradually increase to a little under $60 a barrel by 2030. Those were the assumptions on which EIA concluded that it would not be economically profitable to get most OCS oil out of the ground.

Earth to Michael Grunwald: that isn’t what happened. The EIA was wrong. Currently crude oil is at around $120 per barrel, not $60. At the elevated prices we are now experiencing and are expected to experience in the future, vastly greater quantities of OCS oil (or ANWR oil, or shale oil) can profitably be exploited, and those resources can make a vastly greater contribution to our economic well-being.

When we read wildly inaccurate reporting in the mainstream media, it’s often hard to tell whether the reporter is incompetent, or is deliberately trying to deceive. You can make your own guess. For now, suffice it to say that Time’s attempt to rehabilitate Obama’s tire-inflation gaffe is a failure.

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