The Call to Nationalize America’s Oil Reserves

2009 June 3

by Matt Deaton

Saudi Arabia did it. Venezuela did it. Heck, even Iraq did it. So why shouldn’t the US nationalize its untapped oil reserves too? Instead of letting a handful of undeserving private companies reap all those profits, why not use the money to fund healthcare, education, shelter for the homeless, food for the hungry–even to develop alternative, non-polluting energy alternatives? If it’s going to get used anyway, and if it’s just lying there, I say we the people should directly benefit, and at least this once kick all that “trickle down” nonsense to the curb.

When it comes to matters of private vs. public property, few people think EVERYTHING should be privately or publicly held. Even advocates of the most extreme communist society recognize that we still need our own personal tooth brushes–if for no other reason than hygiene. And even the most hard core Ayan Rand libertarian will agree that legislative buildings need to be publicly owned, even if they’re otherwise willing to auction off the commons. So almost everyone agrees that some middle ground needs to be struck. One that respects both our shared claim to what the earth freely provides, and our differing claims (at least partially) based on our differing degrees of sacrifice and exertion.

So notice that I’m NOT recommending the we commandeer EXXON’s oil rigs. Somebody put forth some effort to build that company and just taking it over without invitation or consent wouldn’t be cool. But unlike communist confiscation of private property, nationalizing the natural resources just lying in the ground on federally owned land (or off the coast) can’t be said to disrespect anyone’s hard work, past investment or entitlement. Nobody did anything to make that oil–it’s just there–so pumping it, selling it and funneling the profits into the national coffers can’t be said to “steal” from anyone. In fact, private companies drilling on public land and selling our own oil back to us at an incredible profit seems more like thievery!

I’m not neglecting the benefits of the trickle down status quo. Oil companies reap profits, hire employees, invest money–which contributes to the tax base, creates jobs and fuels the economy. But if ALL the new profits from our reserves were pumped directly into the federal budget, not just the percentage Uncle Sam currently skims off the top, think of all the extra good that could be done. Thus, not only is nationalizing our untapped oil reserves off the coast and in Alaska in our best interests, it’s legitimate.

I had the opportunity to run the idea by McCain’s would-be energy adviser, former CIA Director James Woolsey, during the ‘08 presidential election. To say the least, he wasn’t interested! Didn’t even seem to register as an option, though to be fair, I didn’t have time to share the full argument. But for those of you who just read the full argument, even if you typically trust your gut level “CAPITALISM=AWESOME; SOCIALISM=EVIL” reaction, take a minute to reflect. Nobody’s property is being plundered, and we all have a whole lot to gain. So contact your congressperson today!

7 Comments leave one →

2009 June 6

Chris Martin permalink

The costs for developing the resources far outweight the benefits. State governments unanimously reject coastal drilling any time it comes up in Congress. It’s not “just lying there” and it’s not “freely given”: offshore drilling eviscerates tourism and fishing industries fundamental to coastal economies, requires decades to implement with rigs and refineries, makes no appreciable impact on gas prices at the pump for consumers, and destroys natural storm buffers and erosion systems that stop floods and hurricanes at the shoreline for residents.

So there can be no public interest in developing the oil, because the government would lose far more than it would gain. The only entity that would have a rational incentive to drill would be a private company whose only interest is profiting from the sale of oil. For governments, these minute profits dissolve in a sea of debts to contractors, risks to residents, burdens on consumers, and losses in other industries.

In spite of all that, I do agree with you that we should nationalize the oil reserves in the outer-continental shelf–or keep them in public ownership, rather. I just don’t think we should develop them, and disagree with some of your assumptions about the benefits of drilling. By not selling the offshore leases to private companies, we protect the sustainable sources of wealth that would be lost if the reserves were to be drilled. We should nationalize the oil reserves to protect the wealth that’s already there from despoliation by the oil industry. Public drilling would be just as much an economic disaster for coastal states, and a zero-sum game for the national population, as would private drilling. But if nationalization could stop private drilling, then we’d all be better off (except for the oil industry).

Unfortunately, the Obama administration has already given several signs that it will go through with a “comprehensive” energy independence plan that includes the permits that President Bush signed in the last hours of his term in office. Further proof that our Interior Department is just one big orgy with the oil lobby ( http://www.nytimes.com/2008/09/11/washington/11royalty.html ).

2009 June 6

Matt Deaton permalink

Hey Chris–very glad to have your input.

You have a good argument, assuming your assumptions about a national oil company are correct. If it really would hurt more than help (through severe degradation of coastal fishing and tourism economies, storm buffers, or whatever), then leaving the oil right where it is would be the wisest decision. But I’m not totally convinced.

You cite coastal state reps’ opposition as evidence that it would be a bad idea for the nation on whole. While I can see how drilling might hurt vacation spots and fishing, a big enough oil field (or two) could prove profitable enough to recoup those losses and then some–at least on whole (Florida might still take a hit). I’m not sure how oil rigs would make coastal areas more susceptible to hurricanes and floods, but if that’s true, those potential losses would have to be considered too. So I think you bring up an excellent point–that I should back off of my “nationalize and drill” recommendation until taking a look at some reliable revenue vs. costs projections. If you know of any such projections, please share–I’m certainly willing to change my mind.

One thing I neglected was the possibility that it might be in our long-term interests to leave the fossil fuels where they are for environmental concerns. That might very well be the case, though I did suggest that the profits from a national oil company could be used to fund renewable fuel research. But the underlying principle I’m really pushing is that the people should decide how public resources are used, and directly reap the benefits when they are. That principle is consistent with drilling, as well as with NOT drilling, depending on whatever’s in the public’s expressed best interests. (I’m fudging a little in that last phrase, since the public’s expressed preferences aren’t always in their best interests.)

So that’s the bigger question–whether we should drill at all. But IF it’s inevitable that we ARE going to drill, which you suggest, I think I’d still prefer that those profits go directly into the public coffer, rather than directly into some Oil Company CEO’s pocket. At this point, maybe nothing can be done to stop that, but perhaps a public accustomed to drilling and desperate for cheaper fuel would be more supportive of a national oil company than keeping the reserves on reserve. Perhaps not.

2009 June 7

Chris Martin permalink

The oil fields available aren’t big enough to recoup the losses. According to the Department of Energy, the United States consumes twenty million barrels per day [1], and there’s just under four thousand million barrels in federal offshore reserves [2]. That’s less than one year of oil. For one year of oil, we would ruin our coastlines. A profit-maximizing multinational corporation certainly would make that trade, but that doesn’t mean it’s in the national interest. The government has even published mandated reports that say the impact on the population will exceed the profits, no matter who the profits go to [3].

On erosion, it’s no so much the offshore rigs as the inland canals and pipelines that erode the landscape. This makes floods worse and lets hurricanes get farther inland before they dissipate, since all the swamps that would otherwise absorb them have eroded away. Hurricane Katrina never actually made it to New Orleans, but since the wetlands south of the city had been ripped apart to lay natural gas pipelines, there was nothing to hold back the rising water that flooded the city. Before the pipelines, the swamps had always saved the city from severe storms. Pipeline networks dramatically accelerate coastal erosion, particularly in coastal wetlands where the earth is already unstable. As a result, Louisiana loses about thirty square miles of its wetlands territory each year, putting less and less terra firma between us and the hurricanes [4]. At some point, that in itself becomes a violation of human rights, since the developer is willfully causing increased fatalities in the event of extreme weather.

The problem, then, is that drilling is not consistent with a rational use of public resources, where a rational use of public resources does more good than harm. No matter who the profits go to, they are far outweighed by the costs. This is how multinational corporations operate in the world, whether it’s coastal Louisiana or coastal Nigeria [5]. A net loss for the host nation can be a good idea for a multinational corporation, but that doesn’t make it a good idea for the host nation. It would be like declaring ownership of your own body, then raping yourself. An undrilled coast is valuable for the population; a drilled coast is a burden on the population and a profit for the developer, but if the population is the developer, then the burden per capita outweighs the profit per capita.

As it is, we’ll have to just wait for the outcome of the big fight this September, when the Obama administration decides whether or not it will enforce Bush’s order to drill. They’ll either let it go through and start the drilling, or keep delaying it for further review. Perhaps I’m overestimating the power of the oil lobby in assuming that the first outcome is inevitable, but if the Appalachian Apocalypse is any indication, the Obama administration has yet to improve on an energy policy based on the principle of sacrifice zones [6]. Who knows, though? Maybe Obama will be harder on oil than he is on coal, and I’m just being pessimistic.

[1] “Petroleum Basic Statistics” – Energy Information Agency – 2009
http://www.eia.doe.gov/basics/quickoil.html

[2] “Crude Oil Proved Reserves, Reserves Changes, and Production” – EIA – 2009
http://tonto.eia.doe.gov/dnav/pet/pet_crd_pres_dcu_RUSF_a.htm

[3] “Impacts of Increased Access to Oil and Natural Gas Resources in the Lower 48 Federal Outer Continental Shelf” – EIA – 2007
http://www.eia.doe.gov/oiaf/aeo/otheranalysis/ongr.html

[4] “Louisiana Coastal Wetlands: A Resource At Risk” – US Geological Survey – 1995
http://marine.usgs.gov/fact-sheets/LAwetlands/lawetlands.html

[5] “Oil Industry Braces for Trial on Rights Abuses” – New York Times – 2009
http://www.nytimes.com/2009/05/22/business/global/22shell.html?ref=world

[6] “Our Black Future” – NYT – 2006
http://www.nytimes.com/2006/06/23/opinion/23goodell.html?_r=1&oref=slogin

2009 June 9

Matt Deaton permalink

Alrighty then… so it looks like I should delete my article, or post your reply in its stead

Really, excellent argument. Only two rejoinders:

1) So you’ve convinced me that given available estimates, drilling off the shore would be a bad idea, even if the profits went straight to the taxpayers. We can leave open the possibility that those estimates might be mistaken or could change with new discoveries, but as they stand, only a private, self-interested company would benefit from drilling–not the American people at large.

But what about ANWR? Are the numbers as straightforwardly depressing for a national oil company drilling there?

2) IF there was no stopping drilling off the coast, despite the fact that it would be on whole foolish, I think I’d still prefer the resulting profits go directly into the federal budget. So IF the drilling’s going to happen, a national oil company ought to be the one doing it.

2009 June 9

Chris Martin permalink

1) According to USGS, there’s 7.7 billion barrels of oil in ANWR ( http://pubs.usgs.gov/fs/fs-0028-01/fs-0028-01.htm ). According to CIA, the United States consumes 20.1 billion barrels of oil per day. So the ANWR reserves would last us about 8 hours. The refuge is also a critical habit for carbon-fixing old growth forests and caribou migration, which stabilizes the flora and fauna populations in the area. Destabilizing the habitat would disrupt local economies and, again, make no appreciable impact on energy needs.

We’d be much better off building a strong national renewable energy company. Maybe the government could seize GE? It’s also going to be vital to include the oil industry in the big green revolution, because nobody else but Exxon has a trillion dollars just lying around to be spent on the future. “Public-private partnerships” (hopefully with an emphasis on sustainability) seem like the governing institutions of tomorrow.

2) I agree, if the reserves are to be exploited, let the people living in the burdened communities at least receive the profits as compensation. You could say that exact thing is finally happening, in way, for the Ogoni struggle against Shell in the Niger Delta. The Supreme Court recently awarded $15.5 million in damages to the family of human rights activist Ken Saro-Wiwa in a case against Shell:

“Saro-Wiwa’s son: Justice is always hard won”
http://edition.cnn.com/2009/WORLD/africa/06/09/saro-wiwa.transcript/

And I would argue that the situation unfolding in Peru warrants the same reparations:

“Peru’s Deadly Battle Over Oil in the Amazon”
http://www.time.com/time/world/article/0,8599,1903707,00.html

Any money that Shell made in Niger or that foreign investors make in Peru should be redistributed to the communities who endure the burdens of “modernization,” especially the families of assassinated indigenous leaders. But the ability of any state apparatus to enforce this redistribution, especially considering the complicity of government in this exploitation, is uncertain.

In principle, however, the only rightful owners of any resource, and profits from its development, are the people who live on the land. I’m in favor of mineral rights, above and beyond conservation for its own sake: if a private or national oil company were to purchase these rights from the host community at a fair price, then they can drill all the want; and if the host community wants to get their own land drilled, they can enter a contract with an oil company to do so.

I’m more concerned about justice between a multinational corporation and a local economy than between humans and caribou. (Although a sustainable local economy would probably indirectly benefit the caribou, since it would produce less pollution and so on.) When the benefits outweigh the costs for all affected parties, then drill, baby, drill.

2009 September 19

Peter Muldoon permalink

Excellent debate.

One of the results of corporate control of oil supplies is the influence these entities have over energy policy; they are generally against any policy that will result in a reduction in the use of oil. Whether government control of oil reserves would change that is a question that should be addressed.

I do think that government control of oil production would inevitably lead to massive corruption and inefficiencies. It’s really just not something that government is good at directing. But the argument that the public should see more return on the exploitation of its resources is valid. This could be accomplished by raising tax rates on oil company profits, or, better yet, adding a surcharge to each barrel pumped.

Oil companies will argue that this will reduce their ability to invest in exploration, as bringing new rigs on line is prohibitively expensive without the ability to make large profits. And a decrease in oil exploration will lead to shortages and higher prices. But while true, this isn’t necessarily a bad thing.

Oil prices need to rise, They are artificially low now, because the negative external costs associated with oil consumption (such as environmental, foreign policy, and political costs) are not included in the production cost.

The problem, from an economic standpoint, is measuring these externalities. When the unlikely but nonetheless possible potential cost is the total destruction of all human life, cost/benefit analysis no longer works.

2009 November 6

Matt Deaton permalink

Good suggestions as always, Peter. Rather than turning extraction and production directly over to the feds, just up the surcharge.

Chris’s points still weigh heavily though. Bring on the alternative energy!