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Obama’s green-tinted glasses distort energy picture

What could possibly go wrong?

If you’ve used put gasoline in your tank recently, you’ve noticed the per gallon price steadily rising:

The national average pump price increased nearly 3 cents overnight to $2.391 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. Gasoline prices ticked higher every day this month.

A good part of the reason for the escalation is seasonal in nature. Pump prices always rise just before the Memorial Day weekend which marks the start of the summer “driving season.”

But there’s more to it than that. Various factors are at play, including recent refinery fires, optimism in the equities markets and the strength of the dollar. A new report from the U.S. Energy Department on Wednesday said crude-oil stockpiles dropped by 2.1 million barrels for the week that ended Friday. One factor keeping prices lower was the glut of oil sitting in storage tanks around the nation. As those supplies get drained down, we should expect to see gasoline above two dollars for quite a while.

With oil above $60 per barrel and climbing, the oil companies are talking about ramping up exploration and production activities again. Once the price moves into the $70 to $80 range, they move beyond just talking and start doing. But they will be looking for and extracting oil in pretty much the same places where they left off when oil prices dropped through the floor.

Congress lifted its ban on drilling off certain areas off the Gulf, Pacific and Atlantic coasts last year, but billions of barrels of the oil there continue to be untapped because the Obama administration has postponed development there. It’s not only offshore drilling where the administration is holding up development. Interior Secretary Ken Salazar, after only one week in office, canceled 77 Utah oil and gas leases.

In the face of the roadblocks to new domestic activity thrown up by President Obama and his administration, the oil companies are looking elsewhere:

The potential for Western oil producers to sign new exploration and production deals with resource-rich nations comes as oil majors are finding it increasingly difficult to find new reserves — in part from limited access — and boost production. Big Oil output, in fact, has largely been in decline in the past few years.

And it doesn’t look like the Obama administration is going to open up any new acreage at home anytime soon.

“That brings into question: Can you produce more here?” said John Felmy, chief economist for the American Petroleum Institute, the oil industry’s trade association. “Certainly, (U.S. producers) would love to do that first and foremost, but they’re not going to sit on their hands.”

The Obama administration is in love with the idea of green energy, and so it gives substantial tax subsidies to wind and solar. And it seems to be doing plenty to discourage domestic production of fossil fuels. This week, for example, the oil industry was heard complaining about Obama’s proposed increases in their taxes by $70 billion over 5 years. For a president who constantly declares that the U.S. must reduce its dependence on foreign oil, this seems self-defeating:

“If we don’t increase our own oil production in the U.S., our dependence on foreign oil won’t go down,” said Marathon Oil executive Woody Pace.

One of the problems with green energy is that it will take years before it can realistically account for a significant share of the nation’s energy mix:

“We all have hope for green energy, but it is going to take time — and in the meantime, oil and natural gas will have to be the bridge to the energy future,” says Cathy Landry, a spokeswoman for the American Petroleum Institute.

If Obama won’t allow energy producers to get that oil and gas at home, they will have to get it from other countries more willing to derive revenues from their wealth of energy resources:

“If you penalize oil and gas, and add taxes, it is going to make it much more difficult and more expensive. That means U.S. jobs are exported and we won’t get the revenues from royalties,” said Landry.

Indeed, the leaders of other nations seem to have a less myopic energy view than the the Obamunists who refuse to remove their green-tinted glasses:

Anticipating a robust future, other countries such as China and Brazil have continued to look for oil while we continue to research . . . switch grass.

Brazil is often touted as the world’s ethanol success story, but it turns out to be more one of fantasy than reality. In the U.S. the ethanol experience should have served as an object lesson in how things can go wrong when politicians hastily seize upon a green-appearing solution which seems to be the ideal one at the time. Unfortunately, little of value was learned from the ethanol fiasco by those who are making the nation’s energy decisions.

Daniel Yergin, chairman of IHS CERA, an energy consulting firm, says current spare capacity is equal to the combined total output of Iran and Venezuela — or the combined exports of Iran, Venezuela and Nigeria:

These are three of the most unstable nations on the earth, and two of them are implacably hostile to the U.S. This does not bode well for our economic and energy security.

Despite the Obama administration’s takeover of two-thirds of the Detroit automakers, its efforts to redefine the American car and it’s determination to put too many of the nation’s energy eggs in the green basket, our oil and natural gas energy needs will grow:

A study by ICF International, commissioned by the American Petroleum Institute, finds that our domestic energy resources placed off limits by Congress in ANWR, in Rocky Mountain shale and in the Outer Continental Shelf could generate more than $1.7 trillion in government revenue and create thousands of new jobs.

The irony is that in North America we have enough oil to ensure our energy and economic security. The U.S. and Canada together hold 15% of the world’s proven reserves, and that’s not even including the potential of American oil shale and Canadian oil sands — which are massive.

Oil men know what those in charge of our government won’t admit. American consumers will pay the price, which can spike in the short term because of future shortages.

Despite the president’s empty words that the U.S. must sharply curtail its use of foreign oil, the nation will be dependent on other countries for the lion’s share of oil and gas to meet its needs for decades to come.

Yergin says that as the economy emerges from the recession and spare capacity declines, “the oil market could tighten again in the first half of the next decade.” This could send more shock waves through our economy, adversely affect energy security, and, as the editors of IBD point out:

The result could be another recession where we drive to the unemployment office in our government-designed clown cars.

See also: “Obama’s push toward green has some Texans seeing red” in The Dallas Morning News and “The Great Ethanol Scam” in BusinessWeek.

- JP

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