American Politics Threatens Energy Future

American Politics Threatens Energy Future

This opinion piece presents the opinions of the author.
It does not necessarily reflect the views of Rigzone.

It appears that America's energy security, and by extension its national security, will worsen in the short term. Blame it on the decades old political game of empty promises, both Democrat and Republican. Energy has become an unfortunate ideological slogan trumping its enormously important role in a society and economy such as the United States.

It's disappointing that in this juncture of sluggish economic growth and high oil prices President Barack Obama and his challenger Gov. Mitt Romney insist on promising panaceas to improve America's energy future.

Both candidates are focusing on energy independence, which makes for great sound bites but is foremost unattainable, and arguably not even in America's best interest. Obama is sticking to his green energy pitch and to cutting back on oil imports, while Romney is proposing regional energy independence.

The problem with both is that they don't address the biggest concern in term of energy security: prices. Cutting back on energy imports is great, but it doesn't address the damage caused by high energy prices to America's economy.

After all, how can America defend its global interests –whether it's Iran's nuclear program, a rising China, or a resurgent Russia- with its economy in shambles? Will reducing oil imports, while still paying between $100 and $130 a barrel, help reestablish U.S. economic might that for decades allowed it to exert its power diplomatically and militarily?

Number crunching

The most disappointing part of the empty energy pledges made by both candidates is that cutting oil imports does very little to address oil prices. U.S. oil production costs, thanks to regulations and environmental compliance, are some of the highest in the world. Neither candidate, especially Obama, want to address an environmentalist movement. The EIA is predicting a flat demand of liquids through 2020 as increased domestic production offsets decreasing imports.

That means the American economy will spend just about the same amount of money in liquid fuels through 2020, regardless who is elected or how successfully the candidates meet their promises, albeit more domestic production allows for more of that money to stay home and for more jobs to be created.

Still, neither of the candidates has come even remotely close to addressing rising oil prices as a result of an ever tightening global oil supply and demand balance and increasing geopolitical concerns undermining oil development plans throughout the world.

According to multiple private and government reports, every $10 increase in the price of a barrel of oil sustained over a year translates into a GDP contraction of 0.2 percent and around 120,000 less jobs. If sustained for two years, the exponential effect translates into a GDP contraction of 0.5 percent and around 410,000 less jobs.

Furthermore, the U.S. and global economic growth strains if it spends more than 9 percent of GDP on energy, a rare episode with two precedents, the first after the Iranian Revolution when global prices spiked and the second right before the global crisis of 2008 when prices reached nearly $150 a barrel.

After a lull, prices in 2012 are once again rising toward the 9 percent of GDP mark, illustrating just how dangerously the global economy is flirting with another downturn.

The fact that Obama is considering releasing oil from the country's strategic reserves illustrates just how concerned Washington is about rising oil prices, as well as just how hamstrung it is to address the issue.

But it's simply misleading to offer Americans energy policies that just address oil imports, and not a long term solution to rising oil prices that are seriously undermining the U.S. economy and security.

The failed pitches

If reelected, Obama is promising to extend and embolden current policies to cut down on oil imports and to promote alternative forms of energy. "If you choose this path, we can cut our oil imports in half by 2020 and support more than 600,000 new jobs in natural gas alone," Obama said in the Democratic convention.

But it's unrealistic that the U.S. can halve current imports of nearly 8 million barrels of oil per day (bopd) to lows not seen since 1986, so it's safe to assume that Obama's commitment referred to some other time frame, most likely 2008, before the first year of his administration began.

If that's the case, Obama is promising to cut imports to around 5.5 million bopd by 2020, which is still unlikely, although not impossible. In its 2012 Outlook through 2035 released in June, the EIA predicted net crude imports would plummet 4 million bopd by 2020 from 2008 to around 7 million bopd.

Furthermore, Obama had already committed himself to cut imports one third by 2020 from when he took over. The more bullish promise simply reflects the reality that he has already accomplished his goal. The U.S. already cut its oil imports by slightly less than one third.

The thing is, Obama can't take credit for this. The two main reasons for plummeting crude imports between 2008 and 2020, equivalent to around 2.5 million bopd) are almost entirely the result of increased domestic crude production (equivalent to a 1.7 million bopd) and from fuel production (equivalent to 0.5 million bopd). The remainder comes from other non-petroleum sources.

The credit for increased domestic crude production goes to the private industry operating in private lands after years of developing new technologies to extract tight oil from shale formations. And as for renewable fuels, it's true that government subsidies have spurred production, but it's not Obama's doing, and it's debatable whether there is even a net gain from biofuels, considering the cost of production.

As for Romney, his campaign promise is simply ludicrous. He pledged that by 2020 the U.S. would only import energy from Canada and Mexico. That means very little because it doesn't address oil prices whatsoever and very little in terms of net oil imports. It just suggests that it's safer to depend on two countries, rather than a myriad of them.

This goal is unachievable from just about every point of view. Canada will indeed increase export capacity by 2020, but most analysts expect any additional supplies will offset falling exports from Mexico. That means that the U.S. would have to increase current domestic liquids productions by at least an additional 3 million bopd. (Who is advising Romney on energy?)

Romney says this is achievable by opening up exploration acreage and transferring regulatory oversight to the states. This is highly debatable simply from a technical standpoint, but the biggest firewall is that it would require bipartisan support and a reassessment on environmentalism, a nonstarter.

Cala is roving correspondent and Economides is Editor-in-Chief of the Energy Tribune


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Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
Deborah Dirk-Haley | Nov. 7, 2012
Everyone needs to be aware of this, I realize that everyone wants this country to stop using so much Petroleum. The truth is, plastic, cosmetics, medicine, fabrics, clothing, all are made from some type of Petroleum. Batteries to run the Wind Mills are made up of some kind of chemical made from Petroleum. The Solar Panels everyone is so in love with, each panel is made from some kind of chemical made from Petroleum. Good Luck in trying to eliminate or cut the usage of Petroleum.

Lois Myers | Oct. 25, 2012
We must get ridiculous EPA and other govt regulations, plus taxes, off the backs of independent US oil companies who drill in America-- they drill about 80% of our domestic oil, not the major oil cos, who drill about 80 % overseas. Ever since 1983, in aftermath of Pres. Carters pushing thru Congress the dreadful Windfall Profits Tax, the TX charts and the US charts prove the continual downward spiral of TX & US oil production. In late 80s some oil cos tax was removed, but not enough, & damage was already done to kill most of our small oil cos. Therefore, the price of oil has risen in America, even though oil is part of a global-economy now. However, to reverse this trend, we MUST rapidly increase our own US oil production, so that our oil prices will fall, and when that happens, all segments of our domestic US businesses will have more profits, so that they will be able to hire again. And people will save more on heating/cooling their homes, hence more money in their pockets to save or invest. Trucks will get products to markets with less cost. Additionally, almost all products are directly derived from some form of petroleum-based products, so prices of all kinds of goods will fall-- tires, housing materials, food (fertilizers help grow food), to clothing, plastics, computers, etc. Our entire economy will start to turn around again, and our economy will once again have an upward-spiral snowballing effect! Oil is the Number 1 Product in our Economy, but since we no longer have control over it-- we lost it in 1980-- how in the world will we ever be in control of ANYthing in our economy!? Including the US Dollar! The price of a barrel of oil is closely tied to the value of the US Dollar; it is inversely-proportional: when the one is up, the other is down, and conversely. With the price of oil being so high now, the value of the US Dollar has plummeted. Our economic solution is NOT to print more dollars, as Bernanke has suggested-- which would only cause more inflation than we already have, by the government printing too much money for this very reason-- BUT to increase ASAP our own US oil supplies. That MUST have an effect on lowering the price of oil, by Law of Supply & Demand. After we regain control of our US economy, by way of this way, then we should be able to explore and grow into alternative sources of energy, but for now OIL is KING in our industrialized nation, and when in Rome, do as the Romans do! Its time America gets smart! For more info on this, see my "K.I.S.S. America Plan" on my website, which I'm keeping there for next election cycle, in case those "guys" don't get it right in DC! I lost the 2012 Primary, ran against 11 men, in one of the 4 new TX Districts-- on a grass-roots campaign with no knowledge of how to do a PAC Kit, until last month, so very limited funds. With this new District including the largest petrochemical refining complex in America, I was the only Candidate who had worked for an oil producing company! + 18 more yrs working experience on Houston Ship Channel, & in/out almost all refineries.

NavSin | Oct. 25, 2012
I'm not an expert by any means, but don't totally agree with the experts writing this article. The US needs to become more energy savvy and efficient - their love for the SUV and big gas guzzlers needs to stop. Also, green energy and natural gas are good options to try to achieve some of the targets for energy independence. Obviously the US also needs to look at its own energy local industry and improve not just on production, but safety and environmental concerns as well. I think Government policy must focus the oilfield of tomorrow to where it will benefit the people not just of the US but the world. SO Obamas policies seem to be a lot more realistic than Romneys for making this happen. As far as getting the oilprice down, its not gonna happen unless we find new petroleum basins in much more friendly parts of the world, problem is there are just not enough resources (people and equipment) and its taking too long.

Larry | Oct. 20, 2012
I may not be as savvy as everyone else; however, I track regularly the price of a barrel, and the corresponding Anadarko weekly supply increase and decrease. Also I remember an article several years ago when the Saudis were asked about the quantity left from their source on the world stage of supply? As usual the Saudis failed to answer. All of this is just political rhetoric during an election year; I work in the industry, the closer to November we get, the worse it gets in the slow down. This time there seems to be more questions than answers regardless who ends up in the White House.

Jason | Oct. 19, 2012
There is simply no way the states would be able to safely regulate the Oil & Gas Industry without massive federal funding.

Jack Nelson | Oct. 16, 2012
Half the price of gasoline, in Brazil at least, no problems with explosions, as many uneducated Americans have posted on other websites. Just using what the country has a very good supply of. No problem. Brazil is self sufficient, the US imports. If I ever get my personal finances correct I will be back in Brazil very quickly.

Jack Nelson | Oct. 16, 2012
Why is natural gas for vehicles being so ignored in the US?. 1985 I saw personal cars in Holland filling up with natural gas. Dont remember exactly what years, when I was in a company provided car in Brazil, with driver, filling up with natural gas. Half the cost of gasoline. I know the US has a fairly large supply. The oil companies complain about the low price. Perhaps it is because it is not used like it could be? Sorry, but the US will be an importer of fuel for vehicles until the people wake up to what the country has, and can use.

BDS | Oct. 16, 2012
IF the US can switch even a small percentage of vehicles to CNG and LNG, the US COULD be energy independent in 10 years. There is zero doubt in my mind. The EIA estimates are always 2-3 years behind and constantly changing. The US is increasing crude production daily and this trend will continue and increase over the next decade. If you combine the increased production with the decreased demand due to CNG and LNG switching of vehicles, it is entirely possible to become a next exporter of energy within the next 10 years. Had the US govt insstead used the funds for all of their green energy projects for CNG/LNG fueling stations along with mandates for equally priced CNG/LNG vehicles, the US could have been energy independent in a matter of years.

Ben Calvin | Oct. 16, 2012
More US production keeps money and jobs in the US instead of the Sutan of Brunei and other famouns democrats in Venezuela, Ngieria KSA etc etc. It is good. As far as Obamas threat to dump oil from the SOR, it is typical political short term gamesmanship. Dont equate Obama with Washington. Get the government out of the process and let the markets work.

Dave | Oct. 15, 2012
You are describing the problem and not offering anything. Its time Americans started to think outside the box just a little bit. If the US stopped using 3 million Bbls per day tomorrow the price would collapse for a while. You need intelligent thinking to work out how to use the demand side of the equation. It could be done if there were a will to do it. T Boone Pickens is a good starting point. I like Romneys position as it at least allows for the possibility.

jerry lummus | Oct. 15, 2012
OK, sounds great! - lets get those pesky energy prices down pronto. Now, again, what was your plan to do that?


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