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Energy: Dejà Vu at the SOTU

We’ve heard it all before, except now the message has been repackaged to deal with the evolving reality in the Energy Sector. In “fossil fuels”, we have two big success stories: the Shale Revolution and the continued success of domestic oil development. What we didn’t hear much about was rebuilding the economy based on Green Jobs. The new Green Economy had more than a few stumbling blocks (Kaiser/Solyndra and exploding Chevy Volts).

Of course, we heard not a peep about Keystone XL.

I keep circling back to the central irony of the Obama Presidency: Obama could have been the Energy President. Clean, responsible North American energy security is within our grasp, and nothing would jump-start our economy faster than to make that commitment. Think Kennedy/Space Program or Nixon/China: every president since Nixon has promised progress on energy, and now, the president in 2012 is in a position to deliver.

But will he?

It would mean making workable compromises with industry. It might mean giving in on ANWR. It might mean telling the anti-development Luddite environmentalists who have loyally backed him to go pound sand. It might mean acknowledging that we’ve been sold an elitist bill of goods in Global Warming. It might mean backtracking on alternative energy giveaways.

Ain’t gonna happen.

Anyway, back to the State of the Union:

Right now, American oil production is the highest that it’s been in eight years. That’s right – eight years. Not only that – last year, we relied less on foreign oil than in any of the past sixteen years.

President Obama continues to take credit for the increase in oil production over the last couple of years. The production increase is not due to any Federal policies; it is due to risks taken by private companies, mostly on private lands in North Dakota, South Texas and elsewhere. Were it not for hostile Federal policies in the Gulf of Mexico, production in 2012 might be 500,000 barrels a day higher than is currently expected. Further reading: Shameless White House Takes Credit for Oil Production Increase.

But with only 2 percent of the world’s oil reserves, oil isn’t enough.

This is at least the third time I’ve heard President Obama revisit The Big Energy Lie™, the notion that the nation’s “Proved Reserves”, at 2% of the world total, represent some kind of limitation on its production capacity. Not true. Our reserves are low because we’ve chosen to import rather than drill at home; it’s our resource potential, and our resolve to help ourselves, that are important. Further reading: The Big Energy Lie, The Big Energy Lie, Revisited.

The development of natural gas will create jobs and power trucks and factories that are cleaner and cheaper, proving that we don’t have to choose between our environment and our economy. And by the way, it was public research dollars, over the course of thirty years, that helped develop the technologies to extract all this natural gas out of shale rock – reminding us that Government support is critical in helping businesses get new energy ideas off the ground.

I have no idea what the President is talking about here. This is my thirty-fourth year in the industry. For a time in the early ’90s, I served as an industry advisor to the Gas Research Institute, which did direct research funds (derived from a small fee on interstate pipelines) to private and university research. In my mind, the major advances in drilling and completion technology happened because of innovations and initiatives on the part of the private sector, and independent oil and gas companies in particular, as opposed to Department of Energy initiatives.

If any reader is aware of DoE research projects that deserve some of the credit for the Shale Revolution, I’d love to learn of it. Federal Production Tax Credits were successful in assisting unconventional gas technologies (see: A Tale of Two Subsidies), but tax credits are not “public research dollars”.

Our experience with shale gas shows us that the payoffs on these public investments don’t always come right away. Some technologies don’t pan out; some companies fail. But I will not walk away from the promise of clean energy. … I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here. We have subsidized oil companies for a century. That’s long enough. It’s time to end the taxpayer giveaways to an industry that’s rarely been more profitable, and double-down on a clean energy industry that’s never been more promising. Pass clean energy tax credits and create these jobs.

Production Tax Credits worked for unconventional gas because it reduced the risk in developing a technology that had the potential of being successful once the credits ended. Alternative energy cannot survive without the credits. Big difference.

“Doubling down” on Solyndra is a sucker’s bet. Putting wind and solar energy on perpetual life support is foolish. At some point, they need to be successful in the marketplace on their own merits, or die.

Favorable cost-recovery tax treatment for oil investments are not “subsidies”. Since 1913, Congresses have seen the value of encouraging domestic oil production, but President Obama would single the industry out for punishment by taking away tax incentives that are common across many industries. Further reading: Obama’s Softheaded Energy Policy (2011 SOTU), SOTU From an Energy Perspective (2010), How Much Will It Cost to Repeal Oil ‘Subsidies’

Cross-posted at My Blog.


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