George P. Ahearn, Phd
Co-founder and Former President and CEO
GEO Specialty Chemicals, Inc.
Florida legislators resist the economic oil boom and debate a fracking ban in their state believing that oil and sunshine don’t mix.
A recent commentary in the local press of Southwest Florida, suggested renewable energy is the future, but the author reluctantly resigned himself to the fact oil is the preferred energy source for now.
We may add that “now,” based on the pace of progress made in renewables such as solar, wind, geothermal, and biofuels, may well be the next century. The oil and gas industry has made great strides in finding, producing, and transporting hydrocarbons which has further extended the life and lowered the cost of these energy sources.
As a result we have greatly reduced the footprint of this energy source, and along with nuclear energy, we now have the answer to the next generation of energy production. But our government spends about $22 billion/year subsidizing these expensive and inefficient renewable alternatives, which the previous administration thought was tax money well spent. Give me a break!
Crude oil production in the U.S. is poised to approach a 44-year record high next year despite the recent price decline. Much of that production is from “sunk costs” and, therefore, is not a drain on cash flow.
For example, the average operating cost of a producing well already in the ground is $20/barrel plus or minus $5, and unless the price goes below that level (which is not likely) that production generates capital that companies need to repay debt, fund additional drilling, pay out dividends, and buy back shares.
The U.S. is one of the lowest cost producers in the world, too. For example, ExxonMobil recently said they spent only $12.72 to extract a barrel of oil in the U.S., some operators have even lower costs. This is why U.S. output will continue to rise, despite the recent price plunge.
The U.S. crude bonanza is set to reach 10 million barrels/day in 2018, according to the U.S. Department of Energy. Most of this increase is a result of the fracking revolution which came from the development of directional drilling technology in shale rock and previously believed depleted reservoirs.
Shale deposits in Pennsylvania, Texas, and North Dakota have economically benefited jobs, schools, and services throughout those states. In Pennsylvania alone, more than $630 million has been distributed to communities since 2012 and $224 million in 2014 alone. The state and local tax bounty to Pennsylvania has totaled $2.1 billion thus far.
However, we have some Florida legislators introducing a bill to ban these kind of recovery techniques in Florida, as a result of lobbying efforts from our more extreme environmental groups here in Southwest Florida. This is in spite of the fact the alleged risks are very manageable and no significant environmental event has been attributed to these new techniques in the years of their use.
Our oil success is now altering the geopolitical and economic landscape of the world, as OPEC no longer dictates the price of crude oil which is now governed by the free market. Exporters such as Russia and Venezuela are in economic chaos at these lower prices and have lost their leverage in the world. Every extra barrel we produce is one less barrel we need to import.
All this, and we still have politicians willing to exclude Florida from this opportunity because of the mere perception of environmental risk and the idea that oil and sunshine somehow don’t mix. They should look at California and Texas. The irony is vivid, since the greatest threat to our panther population is the automobile, but I don’t see any legislators banning cars. That’s because we need cars. We also need cheap energy, jobs, and more sources of revenue, but apparently not in Florida.
Editor’s Note: It’s also worth noting oil is, effectively, captured sunshine, as are gas, biofuels and most other forms of energy. Check out Tom Gillespie’s “Concentrate, Please” series of posts to learn more.
George P. Ahearn was the co-founder and President, Chief Executive Officer, and Chairman of GEO Specialty Chemicals, Inc. from its inception in 1993 until he left in 2005. The company specializes in water treatment, additives, and chemical process aids. Prior to that time, he was President and Chief Operating Officer of the Hall Chemical Company, a maker of specialty metal-based chemicals from 1988-1992. Mr. Ahearn was employed for 28 years by Exxon Corporation and Exxon Chemical from 1960-1988, holding various executive positions in research and the business.He was appointed in 2014 to the Board of Directors of Economic Incubators, Inc., a joint venture between Collier County and Enterprise Florida a business accelerator to assist the growth of entrepreneurial companies in the area.