Snatching Energy Security Victory from the Jaws of Energy Disruption Defeat

BAKKEN SHALEI always cringe a little when I hear calls for a new comprehensive energy strategy.  It always seems to me it is such an oxymoron.  Energy bills in the United States are like the Farm Bill, the Highway Bill and other excuses to lard up a legislative Christmas tree with so many ornaments of spending largesse that the entire thing collapses of its own pork.

So now that oil prices are spiking expect to hear renewed calls for a comprehensive energy policy.

Resist this temptation to sin again, people!

Oil prices are going up because of Middle East unrest and Libya is but the latest of corrupt regimes being challenged by their own people seeking a better life for themselves and their children.  As important a moment in history as this is for the democratic aspirations of people—this post is about our domestic energy strategy needs.

The best energy strategy the US government could pursue is to get out of the way!

While the Administration hints that it might tap America’s strategic petroleum reserve to ease spiking gasoline prices, unconventional oil production records are being set every month in the Bakken Shale in North Dakota.  That state also has the lowest unemployment rate and the fastest job growth rate of any state.

We are not having a peak oil problem.  We are not at risk of running out of oil here at home or anywhere in the world.  New technology, much of it developed here in America, is leading the way to new unconventional oil and natural gas supplies.  Conventional oil E&P—the big pools of oil extracted by drilling straight down in shallow or deep water and sticking a straw into the pool is the history of the oil business but not necessarily its future.  This is good news!

Unconventional oil and gas deprives OPEC and national oil companies of their monopoly. American technology is—for now until the Chinese reverse engineer it—the best in the world at finding, exploring the potential and producing this unconventional resource.  Just like the idled rigs left hanging by the Federal moratorium on deep water drilling in the Gulf of Mexico are moving off-shore around the world where they can work and make profits so will America’s unconventional oil and gas technology if we frustrate it’s productive use here at home.

Oil price volatility is driven by speculation and swing productive capacity. America’s energy security depends upon policies that deprive our adversaries of control over our economy. The simple truth is that oil prices are being set by the perceived availability of swing productive capacity of as little as 4-5 million barrels of oil per day out of the total world consumption.  America has the capacity to produce that much incremental oil—and more—from domestic sources.  It is not enough to be completely energy self sufficient but it is plenty to frustrate speculators and despots and deprive OPEC and other would be monopolists of the capability to jerk us around.

That brings me back to the current oil price spike and our Government’s dithering.

Domestic energy production is good for the nation but undermines the Administration’s political goals. After the BP oil spill in the Gulf of Mexico the government responded by ‘never letting a good crisis go to waste’  pursuing its long sought agenda of frustrating further oil production.  This was in furtherance of an even more sacred goal of undermining fossil fuel use, reducing greenhouse gas emissions, and using the government control over energy to redistribute income and choose industrial winners and losers.  These government policies do NOT improve environmental sustainability but they do make America’s more energy dependent and cede control over our economic and security future to speculators and foreign oil monopolists.

Having a national comprehensive energy policy that locks up America’s own energy resources makes market manipulation in the name of green industrial policy possible.  It is better for America NOT to have an energy policy than to have a bad one.

The markets are a cruel mistress.

A funny thing happened on the way to America’s energy transformation.  The market beat the government to the punch.  New technologies like horizontal drilling and hydraulic fracturing made pursuit of smaller, fragmented rivers of oil and gas deposits practicable and profitable.  So when the BP spill gave rise to the perfect excuse to back off more deepwater drilling, the market was already at work making deepwater drilling less attractive economically than the thousands of opportunities in the shales across North America and around the world.

The original focus was on natural gas but low gas prices have shifted the emphasis in unconventional plays from dry gas to liquids and now much of the drilling is bringing to market more domestic oil than we have seen in a generation.  The government’s intent to drive a stake through the heart of fossil fuel E&P has been frustrated temporarily by the success of unconventional oil & gas.

So that brings us back to Libya, oil price spikes and America’s energy policy. The Federal Government finds itself today in a very unflattering and increasingly untenable position:

  • The US Government is obstructing easy to get oil production in the deepwater gulf when we need it most. Politicians seeking re-election are going to be asked what are you doing to bring down high gasoline prices.  Accountability for the loss of thousands of Gulf coast oil industry jobs is also costing politicians dearly.
  • Oil companies are not as convenient a target when their rigs are idle and many are moving elsewhere in the world taking their jobs with them in pursuit of what oil rigs do—-drill, baby, drill.  The ripple effect of the loss to yet another industry moving offshore in search of markets hurts everyone.
  • Domestic energy production is one of America’s best sources of job growth. Look at what is happening in North Dakota.  Listen to the stories of Appalachian farmers able to hold onto family farms because E&P companies are leasing drilling rights for unconventional oil and gas in places like the Marcellus Shale.
  • The US Government looks feckless dithering over whether to help the rebels in Libya overthrow the dictator when even the wimpy Europeans are calling for a no fly zone while here at home it scrambles to explain its delay in issuing new drilling permits to a Federal judge ready to hold it in contempt.

Meanwhile, Bakken sets production records and Barnett, Eagle Ford, and Hainesville are in full production mode while Niobrara, Horn River, Marcellus and Utica plays ramp up.  States struggling to avoid virtual bankruptcy sit on millions of dollars of potential revenue from severance taxes, royalties and sales and income tax revenues from the recycled energy production money that would circulate in the economy from domestic energy production.

America has a comprehensive energy policy that is working de facto but not de jure. That policy is to leverage our wide range of natural resources to find a sustainable balance of fossil fuel, renewable energy and new technology to restore America’s competitive economic position in the world, create jobs, grow tax revenues to help reduce the deficit and our national debt—–all done the old fashioned way by hard work, investment and perseverance—-and not a single earmark!