Obama’s Faulty Fuel Gauge on Energy Policy

Obama’s Faulty Fuel Gauge on Energy Policy

David McNew/Getty Images

President Obama would like to reassure Americans that turbulence in the Middle East and soaring oil prices are not going to drive us all to the poorhouse. Moreover, he would like to appear on top of the situation, which is tough.  We are deluged daily with images of overwrought Libyans in battered pick-up trucks launching rockets at one another. Do we really know who these rebels are, or why they are constantly firing their Kalashnikovs into the air? (Or, where all those bullets eventually land?)

The entire Middle East appears
about as stable as an ice floe.

It’s hard to feel confident about our energy security when the entire Middle East appears about as stable as an ice floe. Unfortunately, the availability of imported oil and its cost is still extremely important to the U.S. In February alone we imported over half the oil we consumed, at a whopping $31 billion. And, that’s just one month.

Mr. Obama is in a fix, especially since he and his colleagues at the Interior Department can’t settle on an energy source they like. They appear snake-bit, having championed nuclear power before the Fukushima disaster began to unfold, and deepwater drilling in the months leading up to the Deepwater Horizon spill. If you’re prone to anxiety attacks and live in proximity to one of our larger dams, you might not want to review the Interior Department’s new-found affection for hydropower, outlined on its website.

Almost in desperation, Interior Secretary Salazar has thrown in his lot with hydropower, the subject of a new report. According to the new study, the Bureau of Reclamation has the potential to increase hydropower generation at numerous existing sites. The memo was produced as the department scurries to come up with ways to meet President Obama’s drive to meet 80% of our energy needs with clean sources by 2035. The fact that hydropower has been in use since the 1800s and only accounts for some 7% of our power needs could make a lesser person pessimistic about its future potential, but at least it’s clean and green.  

This is like leasing an apartment from
the government for $ 20 million and the
government refuses to give you the keys.

The Interior’s other recent report focuses on oil leases, in an attempt by the Obama administration to explain that it has not prevented our oil industry from aggressively drilling for domestic reserves. The study claims that the oil industry is sitting idly (and selfishly) on vast amounts of leased acreage; consequently, its complaints that the government has not put important new acreage up for lease are disingenuous.  Specifically, the report notes that some 70% of the acreage under lease is not currently being drilled.

What Secretary Salazar failed to mention is that he included in the “inactive” category blocks where the industry may be in the process of carrying out seismic or other surveys and also some acreage where the industry would like to drill, but where no permits have yet been granted. As Erik Milito of the American Petroleum Institute – an industry lobbying group – put it, “The report completely whitewashes the fact that in many cases, the reason these leases have no exploration plans is that BOEMRE [Bureau of Ocean Energy Management, Regulation and Enforcement] is sitting on those plans. This is like leasing an apartment from the government for $ 20 million and the government refuses to give you the keys– then the government proceeds to complain because you are not occupying the premises.”

The truth is that leases are granted to oil companies for a five or ten-year period; if no drilling takes place, the lease is turned back to the government. Also, lease areas are small and often cover only a fraction of a promising formation. Sometimes a company will drill a dry hole on one block and that failure will eliminate its interest in a sizeable area. The fact is that only about 30% of the acreage leased will turn out to be productive, so that at any point in time a good portion will lie fallow. Oil companies do not know ahead of time which blocks will produce oil and gas; that’s why it’s called exploration.

For President Obama to champion
deep oil production in Brazil while
simultaneously prohibiting exploration of
our own deep-water prospects, is a disgrace.

The other fact that’s important to this debate, and also obvious, is that the oil industry has explored the most promising acreage onshore over the past century, and has now also drilled a lot of the best prospects in the shallow waters of the Gulf of Mexico. By the way, this is true around the globe. The cheapest most accessible prospects have been explored, which is why the industry has ventured into deeper waters and into more difficult formations.  The acreage that oil companies wants to explore lies primarily in the outer continental shelf, of which only 2.4% is presently under lease. Milito says that 85% of our estimated offshore resources are off limits to drilling. The Interior Department, of course, knows (or should know) all this, which is what renders its report purposefully misleading. 

Our dependence on foreign oil has been a constant refrain of political leaders in the U.S.  As President Obama has pointed out, we need a long-term plan to free us from the uncertainty and cost associated with that dependence. So far, Mr. Obama’s efforts on this front have proved as unsuccessful as those of his predecessors. That will continue unless he drops his antipathy to the oil industry and recognizes that we need to pursue our domestic resources – and all other energy sources -- as energetically as possible. Yes, it carries a certain risk – political and environmental. However, for President Obama to champion deep oil production in Brazil, as he did in his recent visit to that country, while simultaneously prohibiting exploration of our own deep-water prospects, is a disgrace. Ditto for the Interior Department’s duplicitous posturing.

Related Links:
U.S. Retail Gasoline Prices up 7% in March (The Wall Street Journal)
Mr. Obama’s Energy Vision (The New York Times)
Obama on Energy:  “None of this would have happened without government support.” (Reason)