December 13, 2009
The Obama Energy FiascoBy Jeffrey Folks
Whatever happened to President Obama's urgent campaign appeal to "free America from dependency on foreign oil"? In eleven short months, the Obama administration has made more mistakes on energy policy than did Jimmy Carter in his entire term, and that's saying something.
If the president wishes to free America from dependence on foreign oil, he should be encouraging the production of reliable energy supplies in this country. What has he done to encourage more production of coal, oil and gas, and nuclear energy? The answer is that he has done nothing. All the president has done, including promotion of aggressive new EPA enforcement intended to address the fictitious "problem" of climate change, discourages new exploration and production. The result is that our future supplies of energy are at risk.
Not only has the president done nothing to promote new supplies of energy, but he has also done much to impede them. American oil companies are now afraid to pursue new exploration because of the onerous regulatory, tax, and environmental policies being proposed or already set in place by the Obama administration and Congress. Meanwhile, just as Obama's assault on the domestic oil industry has blocked new exploration, foreign companies are buying up leases and bringing new supplies online. As a result, America will be even more dependent on foreign suppliers than it was before Obama became president.
It is not just the widely reported fact that foreign oil companies are buying oil and gas rights in the Gulf of Mexico, with the Chinese and Cuban state-controlled companies drilling "just 90 miles off our shores." A broad array of foreign energy companies are gaining a lock on new resources around the world just as American companies under pressure from Obama's EPA and the Democratic Congress. Russia continues to expand its oil production and now supplies half of Europe's natural gas needs. India's Reliance Industries has disclosed a vigorous plan to acquire new oil and gas resources, through both exploration and by acquisition of non-Indian companies. Already, Reliance controls oil and gas properties in Oman, Yemen, Columbia, Peru, and East Timor, as well as in South Asia. Iraq has set in motion plans to triple its oil production, but not for the benefit of the countries that liberated it. Petrobras, the state-run Brazilian oil company, has rights to some of the world's largest new offshore discoveries -- this at a time when the Obama administration has reneged on its campaign promise to allow extensive offshore exploration on the U.S. continental shelf. The Spanish oil company Repsol has made one new discovery after another and now states that it intends to participate in Brazil's offshore production. The major Italian energy company Eni has announced acquisition of promising oil properties in Uganda. The Norwegian company Statoil Hydro has bought extensive leases in the Gulf of Mexico. At the same time, Statoil Hydro is proceeding with development of arctic exploration, while American companies are effectively barred from exploration and development of promising tracts -- and in the case of ANWR, of proven reserves. Is this what Obama means by freeing America from dependence on foreign oil?
What major new discoveries of oil and gas have been announced in North America since the Democrats took control of Congress in 2006? Other than sizable natural gas fields (including the Barnett shale in Texas and the Haynesville field in Louisiana), which the EPA and state environmental regulators are doing everything possible to place off-limits, the answer is none. There has been no major development of Rocky Mountain oil shale because, it would seem, Secretary Salazar does not wish it to proceed. There's been no exploration of offshore continental shelf in the Atlantic, Pacific, or much of the Gulf of Mexico because federal policy has blocked even the preliminary surveys that would reveal what enormous riches lie beneath our own waters.
What lies beneath might well match the huge new finds in Brazil: oil and gas that will power the Brazilian economy for decades and make Brazil a significant oil and gas exporter for the first time. If similar discoveries were made in this country, income from lease sales and royalties would go a long way to balance the budget of coastal states and ensure economic growth for all Americans. Yet Obama refuses to allow new exploration because of his political indebtedness to the environmentalist lobby.
Even the nation's Gulf of Mexico leases are being bought up by Chinese, Norwegian, and other foreign oil companies, in part because of the uncertain environmental and tax policies under which America's own oil companies must operate. Some American companies are even being forced to auction off the leases that they now own. Devon Oil of Oklahoma City recently announced its intention to sell off the bulk of its international lease holdings, and there can be little doubt that some of this at least will go to foreign companies. Those companies, their hundreds of thousands of workers, and the nations in which they are headquartered will grow rich at our expense.
Instead of promoting exploration and development of energy resources by American companies, Obama seems fixated on passing new regulations specifically designed to retard new production. In a time when gasoline prices are once again rising and weighing on the budgets of ordinary Americans, Obama seems determined to restrict exploration and thus force prices up farther. His administration has turned a deaf ear on the pleas of energy companies who actually know how to produce more oil and gas. Perhaps this is because no senior member of Obama's administration has any actual experience in the private energy sector. If anyone did, he would know that new taxes, such as the proposed cap-and-trade legislation, do not lead to more domestic production, but they do point to more dependence on foreign oil.
Meanwhile, the EPA threatens action against refiners, oil and gas producers, and coal companies. Already it has curtailed Appalachian mountaintop coal operations, resulting in the loss of thousands of jobs at a time when the national unemployment rate is over 10%, with the rate in Appalachia considerably higher. Apparently, Obama is more interested in pleasing United Nations climate change groups and the International Energy Agency than in saving jobs. This fall, the IEA's executive director, Nobuo Tanaka, stated that "catastrophe" will result if a climate change agreement is not reached by December 2009. It would be interesting to know how Mr. Tanaka arrived at such a precise deadline for averting the end of the world. Could it have anything to do with the Copenhagen climate change meeting planned for that same month?
As reported by the Wall Street Journal, part of the so-called catastrophe that Mr. Tanaka has in mind is the rising cost of oil to $190 a barrel by the year 2030. And yet, oddly enough, most of the proposals for the Copenhagen conference would have the effect of reducing new production of oil and gas by imposing draconian carbon taxes. If Mr. Tanaka is truly worried about the future price of oil, he ought to be encouraging new production instead of taxation and regulation. If governments are to be involved in energy policy at all, which they should not be, then they would do well to subsidize further exploration and production of oil and gas. At the very least, they should get government and the environmental lawyers out of the way.
The commonsense solution to rising energy prices is an energy policy that supports new expiration and production. It's not really that difficult to figure out that when supplies dwindle and are subjected to higher taxation, future prices will rise. Yet the Obama administration, even with its brilliant scientist directing the Energy Department, is unable to comprehend what every ordinary citizen understands.
The world's great energy companies, known as the "super majors," were once largely headquartered in the United States. Now they are being challenged, and soon, if our government's policies fail to be corrected, they will be supplanted by foreign suppliers like Petrobras and Sinopec. Already, several important oil exploration and drilling companies have announced plans to leave the United States. Halliburton, the nation's largest driller, has set up dual headquarters in Dubai, while smaller companies have relocated entirely to Switzerland and other low-tax nations. As the burden of taxation and regulation becomes even more onerous, especially with the threat of a punitive cap-and-trade bill, more companies -- potentially even the largest ones -- will relocate, and they will take tens of thousands of jobs with them.
The fact is that Obama's energy policies are making us look like the world's suckers, and for good reason. The rest of the world's nations talk of climate change legislation while quite sensibly going about their business buying up all of the oil and gas leases they can find. Only in this country, and with this administration, does the obtuse idea prevail that one nation should proceed with unilateral carbon reduction. The academic schmucks, including one Nobel prize winner (not the president) who directs our energy policy, think that we can impede our oil and gas businesses, lay ruin to our coal industry, block the building of new dams and nuclear plants, and still compete with countries like China and India. These countries are making prudent provision for their future energy needs by buying up vast tracts of resources that the Obama administration has in effect placed off-limits for domestic oil companies.
Obama is fond of speaking of future environmental catastrophes that might arise from global warming (now officially termed "climate change" since there doesn't seem to be any warming taking place). However, the real catastrophe facing the United States is the loss of access to adequate energy resources. Unlike Al Gore's mystical vision of the seas rising and then parting to make way for windmills and solar farms, the resource catastrophe that we now face is real, and its effects are imminent.
Without adequate energy resources, we can expect a future of rising prices and short supplies. Rising energy prices will lead to inflation throughout the economy, fewer jobs, less wealth, and less consumer spending. In the absence of cheap power, we can foresee the decline of our economy and with it the decline of military force necessary to defend ourselves against future enemies. With his policy of blocking development of fossil fuels and nuclear energy, Obama has set the country on a perilous course. In one way or another, every citizen of the United States will pay for the irresponsible anti-growth policies of this administration.
Dr. Jeffrey Folks taught for thirty years in universities in Europe, America, and Japan. He has published ten books.