The Right Energy Path to American Prosperity

Mark Green
Posted June 23, 2015

We spend a good deal of time trying to highlight the enormous potential of American energy – in terms of jobs, growth to our economy, greater energy security and more. It’s a big deal. The ongoing U.S. energy revolution is a game-changer – built on safe, responsible domestic oil and natural gas development.

Yet, there’s a caveat: Energy development hinges on energy policy. And as the 2016 election cycle nears, it’s difficult to overstate the importance of choosing policymakers who: (a) recognize the generational opportunities being afforded by American energy, and (b) understand the need for policy paths and regulatory approaches that will sustain and grow our country’s energy renaissance.

Take a look at chart below:

These are the major findings in a new Wood Mackenzie study, which show in clear terms the stakes for all Americans in choosing the right leadership for the country’s energy future. Wood Mackenzie analyzed and compared the impacts in seven major areas of a future characterized by pro-development policies (green column) and also one characterized by regulatory constraints (red column).  

Pro-development policies would include more access to energy reserves, more efficient permitting of projects, timely approval of infrastructure, a free-market approach to the export of liquid natural gas (LNG) and lifting the decades-old ban on domestic crude oil exports.

Unfortunately, the regulatory-constraints scenario is the current path we’re headed down, which includes a number of recently enacted regulations and several proposals from the current administration: EPA’s proposal for more restrictive ozone standards, the Bureau of Land Management’s new fracking rules, the Pipeline and Hazardous Materials Safety Administration’s new rule on tank car safety, the Bureau of Ocean Energy Management’s blowout preventer rule, the Fish and Wildlife Service’s Sage Grouse protection rules, new EPA rules on refinery emissions, EPA’s new definition of “Waters of the U.S.” under the Clean Air Act and the Renewable Fuel Standard.

Certainly, the colors selected for the two scenarios in the chart above aren’t subliminal. According to the study, pro-development policies will lead to more oil and natural gas produced, more jobs supported, increased GDP, more revenues for government, greater income for Americans and their families and household energy cost savings. At an event unveiling the study, API President and CEO Jack Gerard said the findings make “clear the potential reward of pro-energy development policies and the possible long-term economic harm that could result from many of the regulatory constraints and barriers to energy production, transportation and refining imposed or under consideration by the government.”

The full impact of the contrast between the two policy paths is seen in the differences between the stats in each category of the chart:

• Oil and natural gas production – Wood Mackenzie estimates that by 2035 the pro-development path would result in an increase of 8 million barrels of oil equivalent per day (MMboed) over projected baseline output, while the regulatory-constrained path would result in a decrease of 3.4 MMboed below the baseline. The difference for America: 11.4 MMboed.
• Jobs supported – By 2035 the pro-development path would result in 2.3 million jobs supported over the baseline, Wood Mackenzie estimates, compared to a decrease of 830,000 jobs below the baseline under the regulatory-constrained scenario. The difference for America: 3.1 million jobs.
• Economy – Pro-development policies: increase of $443 billion in annual GDP by 2035 over the baseline; regulatory-constrained path: decrease of $133 billion in annual GDP. The difference for America: $576 billion in GDP by 2035.
• Revenue to government – Pro-development: increase of $122 billion in total annual revenue to government over the baseline by 2035; regulatory-constrained path: decrease of $18 billion. The difference for America: $140 billion.
• Cumulative revenue to government – Pro-development: increase of $1.08 trillion from 2016 to 2035 over the baseline; regulatory-constrained path: decrease of $500 billion. The difference for America: $1.58 trillion.
• Total household income – Pro-development: increase of $118 billion in annual household income by 2035 over the baseline; regulatory-constrained path: decrease of $43 billion. The difference for America: $161 billion.
• Average household energy expense – Pro-development: average annual energy cost savings per household of $360 by 2035; regulatory-constrained: added average annual energy cost per household of $242. The difference for Americans: $602 per year.

These figures reflect the wide disparity between these two policy paths. The comparison underscores the need for U.S. policymakers to choose the right path – more likely if Americans choose the right policymakers. Gerard:

“The study vividly illustrates what’s at stake putting into sharp contrast the tremendous difference between the benefits we could accrue from pro-energy policies and the negative effects of policy decisions that are anti-energy. … In terms of U.S. production, the difference is 11 million barrels of oil equivalent per day, which for context, is approximately the current rate of liquid production of Russia. The difference in job creation is over 3 million jobs or greater than the population of our nation’s third largest city, Chicago.”

Gerard referred to the “American energy moment,” which has seen the United States become the world’s leading energy producer. He credited innovations in hydraulic fracturing, horizontal drilling and the world’s best refinery sector and America’s unique private property and free-market system. These have produced the U.S. energy revolution despite the absence of forward-looking energy policies set out by government. Gerard:

“We’ve achieved this level of success by focusing on science and the facts, not political ideology. As should our nation’s energy policy decisions. Policy decisions that affect North American energy production should transcend political parties. Because achieving global energy leadership and energy abundance and security is not a Blue State or Red State issue; it is an economic growth, American prosperity and national security imperative.”

To advance America’s energy revolution, industry needs policymakers who will partner with it to safely and responsibly develop our energy potential, he said. Gerard:

“We must demand that those who represent us reject the outdated anti-energy political orthodoxy of those who advocate for a regressive energy policy that keeps fossil fuels in the ground and demands and expects our society to embrace a substantially lower standard of living to satisfy their ‘off-fossil fuel’ agenda. We must make it clear to our elected leaders that we expect them to pursue energy policies that advance our nation’s economy, energy security and national security interests, and not to let the energy policy discussion become just another partisan talking point, because our energy future is too important and fundamental to our way of life and standard of living.”

Gerard hosted a panel discussion of energy topics that included Laborers’ International Union of North America (LiUNA) General President Terry O’Sullivan, American Association of Blacks in Energy President and CEO Paula Jackson, Retired Rear Adm. Don Loren, national liaison for Vets4Energy and Small Business & Entrepreneurship Council President and CEO Karen Kerrigan.

LiUNA represents working men and women, many of whom help build energy-related infrastructure. O’Sullivan said the partnership between union members and the oil and natural gas industry is critically important:

“From my perspective and my organization’s perspective (sound energy policy) is about economic security, it’s about national security, it’s about jobs, jobs, jobs – jobs for today, jobs with a future.”

Loren, deployed to the Persian Gulf seven times during his U.S. Navy career, emphasized the link between energy security and national security and said the greatest threat to America’s energy revolution is a lack of vision and leadership:

“Sound energy policy and national security are inextricably linked. You cannot make energy decisions and institute energy policy without taking into consideration the national security imperatives associated with those decisions.”

Jackson and Kerrigan talked about energy’s ability to create opportunity for historically disadvantaged groups and the entrepreneurs who form the backbone of American business. Jackson:

“All of the above means all fuel sources, but it also means that we need to be economic participants … All of the above means how do we make sure that all Americans have an opportunity to participate in an industry that really does create a pathway to the middle class, so that my children, my family members, my friends, those in my community that have not had the same opportunities that I have had are able to do so.”

Kerrigan said 90 percent of oil and natural gas extraction businesses are small with fewer than 20 employees. The energy sector is one of the few in the U.S. that is creating chances for small business startups, she said:

“When there is a growing, vibrant energy sector, you’re going to have growing, vibrant small business opportunities, more opportunities for job growth quality. … The other issues is new business creation and entrepreneurship, something that we need more of in this country. Entrepreneurship right now is at a low point … The bright spot is energy and the energy sector. There’s robust business creation in that sector …”

Gerard kicked off API’s 2016 “Vote4 Energy” initiative whose goal is to persuade more Americans to see their vote, at least in part, through an energy lens. The campaign will try to guide the energy discussion away from the “partisanship and political ideology and demagoguery that argues for less,” he said. Gerard:

The goal is a “rational, thoughtful and consumer-focused discussion on American 21st century energy abundance, security and leadership so that whomever the next president of the United States is, or which party controls Congress, governor mansions and state legislatures, that they too appreciate the tremendous energy opportunity we have today and sustain it by getting our nation’s energy policy right. … Our campaign captures the fundamental energy policy question we face, the heart of America’s energy policy discussion and decision: whether to pursue an American future of energy abundance, self-sufficiency and global leadership or take a step back to the era of American energy scarcity, dependence and economic uncertainty.”