June 18, 2012

On Obama's Energy Antipathy (Oil & Gas)

      The economy is struggling. The Recession ended in June 2009, but recovery remains anemic. Unemployment is above 8 percent and has been so for over three years, the longest period of such unemployment since the Great Depression, according to the Congressional Budget Office. Even after spending trillions of dollars in economic stimulus, the White House’s estimates of job loss and subsequent job creation have fallen greatly woefully below and above the real loss and creation, respectively.
      For example, the White House predicted that if the stimulus passed, national unemployment would be currently at no more than 6%. Despite every slight improvement – each loudly trumpeted as incontrovertible proof of economic recovery – the unemployment number remains stubbornly high. Additionally, gas prices are skyrocketing, as if to underscore President Obama’s precarious economic record. Average gas prices were at a mere $1.72 per gallon on his inauguration day. Today they are at $3.73 per gallon nationally. In California alone, the average price is for is $4.23 per gallon! It’s not only that gas prices rose, but they have risen drastically in a short amount of time. Prolonged increases drive inflation up and hiring down. According to economist Paul Dales, such a terrific spike in fuel prices has “the power to derail an economic recovery,” one which is, in his opinion, “not looking very strong already.”

      Considering these facts, it is astonishing that the Obama administration has consistently moved federal policy in the opposite direction. Since the Deepwater Horizon accident almost exactly three years ago, the White House has a record of opposing and blocking internal oil and natural gas development, two sources of energy on which the country is strongly dependent.


            First, take the White House’s actions in the Gulf of Mexico. Since the explosion and subsequent oil leakage at the Deepwater Horizon in April 2010, the Obama administration has blocked the leasing of new wells, stopped production in old wells, and increased regulations and restrictions for the remainders. They imposed an unwarranted total moratorium on all extraction operations in the Gulf, costing income for the people who were already most affected by the spill.
           Now, it has been fifteen months since the moratorium has been lifted, but the Obama administration is maintaining an unofficial “permitorium.” The White House has lagged in granting permits to new oil wells and renewing old ones which is forcing them to move shop or close down. A 2011 report from Greater New Orleans Inc. revealed that the Bureau of Ocean Energy Management, Regulation and Enforcement’s (BOEMRE) issuance of drilling permits is down 71% compared to the monthly average of the three years prior. At least eleven deepwater oil rigs have ceased operation in the Gulf of Mexico (according to the Pelican Institute for Public Policy), a full one third of the total Gulf deepwater oil fleet. Every loss of an oil rig has a multiplied effect on the Gulf’s economy. Restaurants, hotels, theaters, shopping centers, metalworkers, and marinas all suffer when fuel extraction jobs no longer support them. This does not even take into account the jobs in manufacturing America whose cost of production go up as a result. Plus, the oil industry uses as much steel as the automobile industry, so the lull in production negatively affects manufacturing and mining from both the supply and demand side.
           It’s not only hurting the Gulf’s pocketbooks; the federal government ends up suffering as well. IHS Global Insight estimates that between taxes, fees, rent, royalties, and bids, the federal government is forfeiting millions of dollars per day from reduced drilling activity. In 2009, all levels of government collected $19 billion. In 2010, that number dropped to less than $6 billion. That’s $12 billion less every year for the U.S. to use to pay down our crushing national debt.


            Second, in other regions of the country, President Obama’s attitude towards energy and job creation has been just as retrograde. In 2011, Shell Oil was forced to abandon its $4 billion, five-year investment project in the Arctic Ocean tapping into over 27 billion barrels of oil, all because of the capricious ruling of four board members in the Environmental Protection Agency (EPA) – each of them is an Obama appointee, and one has a history as an anti-oil activist. The Trans-Alaska pipeline which moves petroleum from Alaska to refineries in the Lower 48 currently pipes one third of its capacity, at 2.1 million barrels per day. Falling production is due to a myriad of regulation by the EPA and the Department of the Interior which have essentially stopped Alaskan gas and oil operations. In a state like Alaska, where oil & gas support over 43,000 jobs and create 60% of the state’s wealth, decreased production is no small issue.

            On the other hand, the Obama administration has also opposed the expansion of tar sand drilling in North Dakota and nearby Canada. In the Bakken field of North Dakota, experts predict the existence of anywhere between 4 billion barrels of oil and 24 billion. New techniques of drilling and better refining technology have resulted in an oil and natural gas boom in recent years. New oil fields are explored and ready to be developed in such states as Texas, Colorado, Pennsylvania, Oklahoma, and even California. The San Joaquin Valley oil fields were expanded by another billion barrels just last year. The Bakken drilling boom alone has created 30,000 jobs, not to mention plenty of royalties for landowners and tax money for North Dakota.
           However, the Obama administration has been both apathetic in licensing oil & gas wells and restless in raising barriers to production and supply whenever possible. Consider the Keystone XL pipeline. Canada has a similar advantageous situation in the tar sands in Alberta. Seeking to fortify U.S.-Canadian relations, the proposed 1,700-mile-long pipeline crosses the Midwestern states to connect Canadian oil sands with refineries on the Gulf of Mexico. The pipeline would deliver an additional 800,000 barrels of oil per day from Canada, the U.S.’s largest supplier of oil and would directly create 20,000 shovel-ready jobs. The Canadian Energy Research Institute estimates that the construction of the Keystone XL pipeline would create 179,000 jobs by 2035.
            Despite support from labor unions, TransCanada, and the state of Nebraska, President Obama has refused to sign the approval, lobbied Democratic legislators to oppose a bill providing for the funding of the pipeline, and finally, delayed giving presidential approval till after the 2012 election. With a single signature, President Obama could personally claim responsibility for the direct creation of thousands of jobs under his administration by approving the Keystone XL pipeline. Yet his administration continues to oppose it through inaction.


            Finally, this administration has been obstinate on developing our country’s abundant natural gas resources. America’s gas reserves are twice that of our petroleum reserves and our second largest domestic energy resource. Thanks to a massive glut of new exploration and drilling (to the tune of 100,000 new gas wells every year), natural gas prices are at an all time low. In 2009, the U.S. surpassed Russia as the largest natural gas exporter in the world.
           Much of this is due to a process known as hydraulic fracturing, or “fracking”, a process which allows extraction from previously unreachable shale gas and “tight oil.”  Thanks to fracking in the Marcellus shale formation in Appalachia, 57,000-plus jobs were added to the combined region of Pennsylvania, West Virginia, and New York in 2009, and over 72,000 jobs were added in 2010 alone. In terms of the worth of the region, the Pennsylvania Department of Labor and Industry estimates that the value added to West Virginia and Pennsylvania runs upwards of $4.8 billion. We save over $250 million per day versus 2008 thanks to lower natural gas prices since then. Manufacturers and private consumers alike benefit from lower energy prices. Home heating bills have been sliced in half by the wealth of natural gas in America, benefitting low-income families the most.
           Although President Obama has publically supported natural gas, the actions of the agencies underneath him do not support his rhetoric. He has been reticent about supporting fracking without further environmental impact assessments, and the Environmental Protection Agency has used its regulatory muscle to go after fracking companies, interfering with the traditional state prerogative to regulate natural gas. However, should he wish to improve his standing with voters, he would be wise to learn from the state of New York. The Empire State has a moratorium on the practice of fracking, but that could change. In January of this year, a bill was introduced to the New York Assembly which would end the state’s unconditional fracking moratorium – a move which the Manhattan Institute predicts will create 18,000 jobs in western New York and increase the state’s economic production by $11.4 billion. President Obama should similarly call off the overstepping of federal boundaries by the EPA and leave the prudent regulation of fracking to the states where the responsibility truly lies. In this manner, President Obama can truly lay claim to his boasts of increased production under his administration.


           What some have termed a “War on Energy” waged by the Obama administration is getting more difficult to deny each passing week. The EPA exploits its federal power to attack gas & oil producers around the country, and BOEMRE is hitherto still unforthcoming in offshore production licensing. Is it any wonder that unemployment and gas prices alike remain stubbornly high with these sorts of policies? President Obama articulates that his administration is one that supports an “all of the above” approach to American energy, but the statements of administration officials are not reassuring. In 2008, Secretary of Energy Stephen Chu opined that the U.S. ought to “to boost the price of gasoline to the levels in Europe” ($8/gallon); Secretary of the Interior Ken Salazar stated on the floor of the Senate in 2008 that he would oppose offshore drilling even if the price of gas went as high as $10/gallon. This is the wrong attitude on domestic energy for a jobs-hungry White House to take. Policies in this vein will only retard American energy independence and hinder job creation in our desperate economic state.

On the other hand, President Obama can still make a name for himself as a pro-energy president:
   First, he should bring permit approval rates for offshore oil rigs back up to historical levels. Quest Offshore Resources Inc. estimates that returning offshore activity to pre-moratorium levels would create 190,000 new jobs by 2013.
   Second, he should approve the Keystone XL pipeline proposal without another delay. The pipeline has withstood more than three years of review by more than a dozen federal agencies on every possible environmental and safety impact, and has been approved by the EPA, the U.S. Department of State, the Pipeline and Hazardous Materials Safety Administration (PHMSA), and the state of Nebraska. There is no reason postpone such a job-creating and economically-stimulating project, especially not during an election year.
   Third, he should rein in the regulatory burden which his administration is imposing on up and coming oil & gas producers. Every time the EPA throws its weight at independent oil & gas producers, it decreases the ability for the fuel industry to operate at full capacity and directly impacts the consumers without any cushioning. Almost 70% of the price of gasoline reflects the price of crude oil, but with every action President Obama and company have made it more difficult to increase domestic supply.


           If President Obama wants to be reelected this coming year, he shouls prove his critics wrong and be the Energy President this country needs.

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