Roadblocks to Progress

Mark Green
Posted January 6, 2016

State of American Energy Report 2016

During this week’s State of American Energy event API President and CEO Jack Gerard described the economic and energy security gains generated by the U.S. energy revolution and the policies needed to create opportunities for the oil and natural gas industry to continue them.

Today let’s focus on some of the things Gerard identified as potential impediments to American energy. These include ideological opposition to progress, anti-consumer initiatives like the Renewable Fuel Standard (RFS), anti-market programs like the administration’s Clean Power Plan, government red tape and regulatory overreach.

Opponents of Progress

Gerard pointed to the drawn-out battle over the Keystone XL pipeline – one that turned on its symbolic importance to anti-oil advocates rather than the project’s merits and factual analysis – as a template for future fights. Gerard:

“Still and in spite of all of these facts and a wealth of other evidence to the contrary, there are an ardent few who continue to believe that keeping our nation’s abundant energy resources in the ground is a credible and viable national energy strategy. … Emboldened by their ability to stop the Keystone XL pipeline, anti-fossil fuel advocates have set their sights on all energy infrastructure projects. Their arguments against this energy infrastructure project were not based on its economic merits or true environmental impact.”

The facts on infrastructure are compelling. An IHS study found that needed energy infrastructure in this country could spur $1.15 trillion in private capital investment, support more than 1.1 million jobs nationally, contribute $120 billion to U.S. GDP and increase revenues to government by more than $27 million through 2025.

But there also are local and regional impacts from the lack of adequate infrastructure. A recent report found that without additional infrastructure in New England, the region’s households and businesses would pay $5.4 billion in higher energy costs between 2016 and 2020. Gerard:

“If you look at those who live in New England today … you're paying 69 percent more than the national average.  And why is that?  Merely because we can't get that clean-burning natural gas to you today.  If we could build pipelines, if we could build infrastructure, then we're allowed to compete and you'll see a huge benefit not only in the clean-burning fuel being put into those regions, particularly in New England, but lower cost to the consumer.”

Renewable Fuel Standard

Gerard called the RFS a “relic” of America’s era of energy scarcity and uncertainty. Today it threatens to require more ethanol in the fuel supply than can be safely blended as standard, E10 gasoline, while raising environmental and food-for-fuel concerns (not to mention a real challenge for the nation’s honey bee population). Forcing fuels with higher ethanol content, such as E15 and E85, into the marketplace isn’t the answer, either. Gerard:

“[T]here is very little consumer demand for high ethanol fuels. According to the EIA, the annual amount of E85 sold in 2014 is less than 1 percent of annual gasoline demand. The reason is simple: ethanol is less energy dense than gasoline and, as a result, provides fewer miles per gallon. The laudable goals of the RFS – less dependence on imported fuel, lower gasoline prices and reduced emissions – have largely been achieved through industry innovation and market forces. It is well past time that we end or significantly amend the RFS. It is relic of our nation’s era of energy dependency that poses a direct threat to our nation’s economy, risks reversal of important environmental improvements and could raise energy costs for American consumers.”

Clean Power Plan

The administration’s plan is being touted as a flexible program to advance environmental protection, but the White House’s own talking points boast that the “rush to natural gas is eliminated.” It’s an example of government helping favored fuels, without regard to what consumers want. It also ignores the significant progress in reducing U.S. carbon emissions – largely with increased use of clean-burning natural gas. Gerard:

“I would hope that there would be more consideration where we don't pick winners and losers, but we actually allow all energy sources to compete in a true all-of-the-above energy strategy.  The president has often commented, or used to comment I should say, that he’s for an all-of-the-above energy strategy. We couldn't agree more with him. Those more carbon intensive fuels should be able to compete with all other forms of fuel, but the fuels that cost a lot, we shouldn’t tip the scale or put a finger on the scale in behalf of one form or another because it happens to be our favorite fuel.  To allow consumers to benefit should allow natural gas to compete on a level playing field with all other forms of energy.”

Red Tape (Federal Leasing and Permitting)

Crude oil production on federally controlled land was flat between 2009 and 2014. A Congressional Research Service report found that non-federal oil production rapidly increased – lowering the federal share of U.S. production from 36.4 percent to 21.4 percent. Gerard talked about the contrast between the two as a function of “political ideology, not geology” – that is, federal leasing and permitting policies that result in uncertain production timelines that hinder energy investment and development. Gerard:

“The oil and gas reserves don't go to that line of federal and state land and stop. They typically cover both basins.  But there's a reason that dollars aren't being invested to drill on the federal land, and that's generally because there's great uncertainty. The costs are much higher associated with it. And so you see the capital investment dollars, just like any other industry, it's going to go where it can get its best return for the littlest investment.  And that's what's happening in energy in the United States today.”

Regulation

Gerard said industry, already heavily regulated, faces nearly 100 pending regulations that are being advanced by the administration as the president tries to make the environment one of his defining legacies. Yet, emissions are falling, and efficiencies are increasing. And the administration seems unaware of the fact that the United States is leading the world in emissions reductions – even as its energy revolution unfolds. Gerard called it the “U.S. model.” He urged the president to embrace and advance its results:

“The things we have focused on primarily is the science and the data.  Why?  Because we think that is the story that's not being told today, that the reality is the U.S. is the leader.  We believe the president should've gone to Paris, said, you know what, I have a case study right here in the United States with one of the world's largest economies.  We are able to grow our economy, put people to work, it's not going at the rate any of us would like, but the economy is growing, put people to work.  At the same time, our carbon emissions are at 20-year-low. We believe that story should be told because we think it will help reorient other thinkers about the solutions to the challenges of our time, like climate.”

The United States has generational opportunities because of its new energy abundance and its increased self-sufficiency. But we need policies that sustain and grow safe, responsible development of the oil and natural gas upon which our modern economy is based and will continue to be based for decades to come. At the same time, unnecessary obstacles to development should be rejected by policymakers – whose No. 1 energy responsibility is to ensure the long-term security of the fuels that make modern living possible. Gerard:

Anti-development initiatives and programs “underscore not only how energy policy affects energy production, but also how changes in energy production affect the lives and livelihoods of us all. And that highlights a central fact that is often lost in the energy policy debate – that energy from fossil fuels is and for decades to come will be fundamental to our society – and as a result, the policies we put into place in that area will have repercussions beyond the wellhead, pumping station or refinery. They have real-world impacts on American families, small businesses, our environment and communities.”