Failed Energy Policy
by Jeffrey Folks
Issue 220– January 30, 2013
Throughout the recent campaign, President Obama boasted of having overseen a record increase in oil and gas production in the U.S. In an October 17th debate, he insisted that U.S. oil production had reached a 16-year high while natural gas production was “the highest it’s been in decades.” The President failed to mention that all of that increase took place on private lands, while new leasing on public lands had fallen to record lows in 2011 and 2012.
As Rob Bluey pointed out in The Foundry, oil and gas production on federal lands is down some 40% from 2000 levels. The implication is that, had been up to this President, U.S. oil and gas production would actually be down by almost half of what it had been a decade earlier. And seeing to it that it does not increase seems to be the President’s real agenda. Taking credit for production on private lands, over which he has little control (as yet, at least), was just reelection talk. Obama’s actions point in the opposite direction. And now that he has won reelection, Obama has dropped even the pretense of supporting fossil fuel development. Those who believe there is hope for a turnabout in White House energy policy are badly mistaken.
In the months since his reelection, the President’s campaign promise, or suggestion at least, of a new openness toward domestic oil and gas exploration has been followed up by inaction and silence. The suggestion that leasing on public lands would be increased has gone nowhere. If he had intended to increase leasing, one should ask, why had it not taken place during his first term? Clearly, Obama never had any intention of pressing for greater oil and gas exploration.
Instead, he has reverted to the left’s default setting on energy: opposition to all fossil fuels and support for unworkable alternatives. The administration’s first significant post-election “accomplishment” in the area of energy was winning renewal of tax credits for both wind and ethanol as part of the fiscal cliff agreement. This was accompanied by proposals for ever greater funding for green energy boondoggles like Solyndra and A123 Systems, along with demands for new taxes on oil and gas companies.
Clearly, the administration has it upside down on energy. American oil and gas companies are producing cheap and reliable energy that has helped sustain the current economic recovery, however tepid that recovery may be. Increased domestic production has dramatically lowered prices for both oil and gas over what they would otherwise have been. The decline in gas prices from $14 per mBtu to just above $3 has helped prevent the economy from falling back into recession. Lower oil prices—almost $20 lower than the North Sea Brent price Europeans and others pay—have also sustained growth. But if Obama had his way, with the prospect of 40% less production on private as well as public lands, Americans would be paying more than the $12 per mBtu for gas and $112 per barrel of oil the rest of the developed world pays.
By contrast, most of the green energy initiatives funded by the Department of Energy have been a drag on the economy. The government’s green energy loan program has leant tens of billions of dollars to hundreds of projects, partially on the pretext of “creating jobs.” One estimate has calculated the cost of those jobs at $23 million per permanent employee. Had those funds been retained by taxpayers, they would have circulated in the private economy either as spending or investment. Either way, those billions would have spurred economic growth. With most of the wind, solar, and biofuel projects funded by the Obama administration, the money has simply disappeared. As of Dec. 31, the S&P Global Clean Energy Index, a proxy for green energy investment returns, showed a cumulative return since Jan. 1, 2010 of minus 92%. Lest one think this is a short-term phenomenon, the five-year performance is actually worse.
Yet the President continues to push these kinds of investments while placing new obstacles in the way of those companies that actually have been successful. While the Clean Energy Index was tanking, the S&P/TSX Equal Weight Oil and Gas Index has shown a cumulative return of over 8% during the past three years (as of Dec. 31). More important for the American economy, domestic oil and gas companies have managed to increase production of oil to above 7 million barrels per day, levels not seen since 1993. Innovative drilling techniques have made possible even greater increases in natural gas production.
In response, the Obama administration has unleashed a multi-agency assault on these same domestic energy companies. The EPA has now scheduled further hearings on the environmental impact of hydraulic fracturing. The Interior Department has dramatically slowed permitting for deep-water drilling in the Gulf of Mexico and other areas. The Energy Department—surely a misnomer under its current director—has seemingly done all it can to reduce the production of energy in the U.S.
Yet another unresolved issue is the White House position on liquefied natural gas exports to non-Free Trade Agreement countries. Approval of LNG exports would spur increased natural gas production in the U.S., thus boosting economic activity and creating jobs. With White House approval, an estimated 8% of U.S. production would be exported by 2020. Refusal to approve exports will depress gas prices and thereby slow further exploration and production. The question is whether the President has the political courage to stand up to the environmental lobby and act on the behalf of the American people as a whole. Based on his past actions, there’s little hope he will.
The truth is that the President has done little in the last four years but obstruct domestic oil and gas production. Despite his campaign ploy of attempting to take credit for increased energy production, it is unlikely that his energy policy will change in his second term. Expect more attempts at regulation, more obstruction, higher taxes on energy producers, and more additions to the shameful list of federal “investments” in green energy.
If we’re not careful, the energy bonanza will pass us by. China and other nations are eagerly pursuing the latest drilling technology, and Obama is forcing American companies to compete at a disadvantage. The prosperity that could be ours will go to other nations, and the American people will be facing decades of subpar growth.
Jeffrey Folks is the author of many books on American politics and culture, including Heartland of the Imagination (2013).