The Obama Energy Plan: A Progress Report Critique

This is an overview of the Obama Energy Plan released in March 2011 as a Blue Print for a Secure Energy Future.  A year later, the White House released a progress report highlighting their accomplishments. My commentary is designed to compare and contrast President Obama’s stated energy strategy with the Romney Energy Plan.

The Obama Energy Plan begins with a practical statement of the energy problem most Americans face from rising gasoline prices at the pump that ripple through the economy raising the cost of everything we buy.  The President’s blue print says rising prices are being caused by rising global energy demand from places like China and India.  He says the inoculation against rising prices is to control more of our own energy resources and embrace a diverse mix of fuels in our energy portfolio.

Every president since Richard Nixon has called for America’s independence from oil, but Washington gridlock has prevented action again and again. If we want to create a more secure energy future, and protect consumers at the pump, that has to change.”

So far so good, it is hard to argue with the President’s goals.  And the truth is, as the president’s one year progress report states, we are actually making progress toward the goal of reducing our energy imports and expanding domestic energy production.  The question is whether this progress is the result of the President’s policies and actions—or is he merely taking credit for the changes taking place in the energy sector of the economy despite his efforts?

The 2011 Blue Print said:

America produced more oil last year [2010] than we had in the last seven years. We’re taking steps to encourage more offshore oil exploration and production – as long as it’s safe and responsible. And, because we know we can’t just drill our way out of our energy challenge, we’re reducing our dependence on oil by increasing our production of natural gas and biofuels, and increasing our fuel efficiency. Last year, we announced ground-breaking fuel efficiency standards for cars and trucks that will save consumers thousands of dollars and conserve 1.8 billion barrels of oil.”

The 2012 Progress Report said:

“Domestic oil production has increased every year President Obama has been in office. In 2011, U.S. crude oil production reached its highest level since 2003, increasing by an estimated 120,000 barrels per day over 2010 levels to 5.6 million barrels per day.

Since 2009, the United States has been the world’s leading producer of natural gas. In 2011, U.S. natural gas production easily eclipsed the previous all-time production record set in 1973.

Overall, oil imports have been falling since 2005, and net imports as a share of total consumption declined from 57 percent in 2008 to 45 percent in 2011 – the lowest level since 1995. “

The President’s progress report is factually correct, but is completely unrelated to his policies and actions.  Domestic energy production has been increasing because high oil prices make it attractive and profitable to do so.

Advances in horizontal drilling and hydraulic fracturing technology by risk taking American business made it possible for many more companies to participate in the energy exploration and production business onshore in the shale deposits America is blessed to have when. These firms were not big enough to compete with the super majors in the deep water drilling in the Gulf of Mexico so they took risks that paid off for all of us in the shales.

High natural gas prices a few years ago drove the E&P focus on natural gas development and the results have been spectacular driving natural gas prices from record highs to record lows and today we have not only abundant supply but more gas than we can actually use creating pressure to export natural gas as LNG.

The President deserves substantial credit for not following his environmental base to interfere with hydraulic fracturing to prevent the growth of fossil fuel production.  Today we see domestic energy production growth increasing across America, but 96% of that growth in E&P activity is taking place because it is on private lands beyond the reach of Federal regulation.  Energy development in the Gulf of Mexico was actually stalled by the Federal moratorium on new drilling after the BP oil spill.  The Department of the Interior’s agonizingly Byzantine environmental review and permitting process for energy development on public lands has produced little beyond press statements by comparison.

Meanwhile, fracking is being successfully regulated without substantial environmental problems by the states.  The private market is busy correcting the over production of natural gas because the current low prices make it hard to make a profit.  So E&P firms are shifting to natural gas liquids and oil production in the shales seeking higher prices.  Left alone the market will find equilibrium and hopefully oil prices will come down as domestic oil production increases and gas prices will rise to market clearing levels.

Doing nothing is the best thing President Obama can do for the domestic energy production market right now, to be candid so let’s give him credit for not messing it up.  But the President is the beneficiary of a well-functioning private sector growth market in domestic energy production that is happening on his watch despite his policies, regulations and actions.

All of the Above Sources Strategy. The President’s Blue Print talks about providing choices to reduce costs and save energy by calling for “ expanding cleaner sources of electricity, including renewables like wind and solar, as well as clean coal, natural gas, and nuclear power keeping America on the cutting edge of clean energy technology so that we can build a 21st century clean energy economy and win the future. “

I’ll spare you another discussion of Solyndra and the implications of government bureaucrats and politicians picking winners and losers in a roulette of politically correct technologies.  The President’s Blue Print policy of innovating our way to a clean energy future is about picking winners while his regulators savage the losers like coal to the death of a thousand regulations.

The result of the president’s policies on this score has been to undermine the baseload generation in American’s energy mix by accelerating the retirement of coal power plants.  Admittedly, low natural gas prices are the President’s friend in this battle against fossil fuels.  But even the Sierra Club which once favored natural gas fired generation in its jihad against coal as a “bridge fuel” worries that low gas prices will mean more gas fired generation will be built. While 40% cleaner than coal, gas-fired generation is not the wind and solar future they imagined. That is why the President calls for investing more in renewable energy.

For the rest of us, achieving 40% reduction in greenhouse gas emissions with no technical risk and at much lower prices than wind and solar seems like a clear winner.  It would be politically incorrect for the President to take credit for this market reality so he repeats the ‘wind and solar is my friend’ mantra and pockets the emissions reduction achievement as his own.

And then there are vehicle efficiency CAFÉ standards.  Having bailed out the auto industry, the President’s policies are focused on changing the types of vehicles we drive to reduce gasoline consumption and encourage the use of PHEV cars and trucks.  This sounds great on paper and there is no arguing with the success of the Toyota Prius.  Perhaps, other offerings as good as the Prius will come to market.  But forcing a bailed out General Motors to bet the farm on Chevy Volt is proving to be a risky bet when consumers decide with their wallets that there are better values for $40,000 even with a $7,500 tax credit.  GM stock is trading at about half the market price required for the Government to recoup its “investment” in our most iconic car company.  Raising the ante further with higher CAFÉ standards seems like doubling down on a losing hand.

The President’s Blue Print for a Secure Energy Future is more about politics than energy.  His policies seek to manage the market to achieve the desired policy outcomes.  His achievements are taking credit for the result of the market pushing back.

 

Comments

  1. avatar JigarShahDC says:

    Gary I really like your posts, don’t usually agree, but I like your communication style.  On this post, a few problems that you seem to gloss over.  In 1999, oil was roughly $20/bbl.  Today the American people pay over $500B more annually.  The problem is that $20/bbl was only possible with conventional oil.  Today we have peaked on conventional oil and unconventional oil needs an oil price of $60-$80/bbl to make their numbers work — barely.  America needs to lead the world at getting oil demand back down to 80 million barrels per day of oil demand — that will drive oil prices down to $35-40/bbl.  I don’t think it is possible to get much below that given oil inflation since 1999. I am not saying this has to come from solar and wind, in fact it cannot since one is transport and the other is electricity.  On transport a very tiny, insignificant amount of oil can be offset using electricity.  Others argue that biofuels create more problems than they solve.  This leaves natural gas as a transport fuel and efficiency.  Drilling more is fine, but if we send oil prices down most of this (as you point out) will dry up.
     
    I simply don’t see how the world is better off with $100 oil and high commodity prices.  It is the government’s responsibility to look for ways to reduce these costs by making sure capitalism runs more efficiently.

  2. avatar JigarShahDC says:
  3. avatar SidAbma says:

    Gary. What you totally missed out on was how efficiently natural gas can be consumed. Natural gas can be consumed to almost 100% energy efficiency.
    Instead of hot exhaust gases, COOL exhaust can be vented into the atmosphere.
    CO2 reduction numbers~ Ask the DOE. For every million Btu’s recovered and utilized back in the building or facility, 118 lbs of CO2 does NOT go into the atmosphere.
    And then there is the WATER conservation.
    All these energy savings are created with the technology of Condensing Flue Gas Heat Recovery.
    Why does America continue to allow our industry and commercial buildings to blow all this HOT exhaust energy out of their chimney’s? Global Warming?
    Increased energy efficiency = Profit
    Increased energy efficiency = Reduced Greenhouse Gas Emissions
    Increased natural gas energy efficiency will also provide WATER ~ water conservation
     
    Is this one a hard one to grasp? America wants a Secure Energy Future ~ Right?