A Civics Lesson on Government-Private Collaboration
Energy in the Time of Elections: Claims and Counterclaims
Where there's oil and gas, there's milk and honey.
That is the thrust of the American Petroleum Institute's report to the platform committees of the Republican and Democratic parties. It was previewed in Washington on May 15 by API President and CEO Jack Gerard, the oil industry's man on Earth, known for his tough attitudes to just about everything, but the Obama administration in particular.
In unveiling the report at the National Press Club, Gerard declared that the recommendations were without political slant and were delivered to both parties’ platform committees without favor; although it is generally known that the oil and gas industry — and Big Oil in particular — cares not a jot for the Democrats. In a slip, while reading a prepared statement, Gerard referred to the “Democrat Party,” which is a term used by conservative commentators and members of the Republican Party who cannot stand the thought of Democrats having a monopoly on the word democratic.
As expected, and in line with other recent utterances, Gerard called for accelerated leasing on federal lands, demanded more sensitive regulation, and declared his belief that the United States is potentially the greatest energy producer on Earth.
The White House shot back at API almost immediately, claiming it is the oil the industry that is lagging not the government.
Not to be outshot, Gerard said, “Once again, the administration is trotting out claims about idle leases to divert attention from the fact it has been restricting oil and natural gas development, leasing less often, shortening lease terms, and going slow on permit approvals—actions which have undermined public support for the administration on energy. It is also increasing or threatening to increase industry’s development costs through higher taxes, higher royalty rates, and higher minimum lease bids.”
Even if the administration is right this time, it has a hard sell ahead.
In the case of natural gas, there has been a giant windfall from shale seams; but that has been coming for some time, and the administration can take no particular credit. Similarly, oil imports are down from 57 percent to 45 percent, reflecting increased domestic production, something that helps more with the balance of payments than the price at the pump.
Gerard admitted that while natural gas prices are at historic lows because of new recovery and drilling technology, oil is priced internationally and that is no help to American consumers. API and its chief tend to conflate oil and gas to make a point. Likewise, they like to include Canada in “North American” energy.
But the energy claims of the administration are even harder to follow and more dubious. It likes to confuse fossil fuels – coal, gas and oil — with electricity and, in particular, with alternative energy, like wind, solar and, in a manner of speaking, nuclear.
Most energy gurus see the dawning of a switch from oil to electricity for personal transportation, for buses and some trucks. But that dawn is breaking slowly with consumer indifference, battery life questions and other problems, including the availability of rare earths for motors and wind turbines.
Experience suggests that energy is a lousy political issue. It is complicated; each side has its own facts and there is some truth to both sides’ facts.
At the end of the day, the energy debate is reduced not to the amount of drilling taking place on federal lands, or to the virtues of natural gas over nuclear, but to the price of gasoline at election time. If that is lower than it is today, President Obama garners votes. If it is up, no matter why, all the GOP and Mitt Romney have to say is that it is Obama's fault.
The money vote is known already: With a very few exceptions the energy money is on the GOP. But that is not new. What is new is that environment is not on the agenda. Better wait until 2016.
New Oil Discoveries Threaten Obama’s Energy Strategies
“When an irresistible force such as you
“Meets and old immovable object like me
“You can bet just as sure as you live
“Something’s got to give …”
— Johnny Mercer
When Johnny Mercer penned those words, he was speaking of love not politics, and not the politics of energy. But he could have been.
In energy, there are two great forces that collide: public policy and the market. Despite the love affair of recent decades with markets, neither is always right.
Consider the struggle between old energy –market-tested and with a mature infrastructure — and new, alternative energy.
Public policy, under Republicans and Democrats, has sought to discourage the nation’s ever-greater dependence on imported oil (about 60 percent). But the market has sung a siren song, tempting us to more oil consumption.
Back in the 1970s, when we imported only 30 percent of our oil, the country was frightened into making great efforts in research and development to find alternatives to oil. Most of those concentrated on oil substitution and new ways of making electricity. None of the new ideas penetrated the market in any serious way, with the possible exception of wind, and that took many years to gain general acceptance and to overcome institutional and technical issues.
The Big Enchilada, oil, proved to be recalcitrant. President Jimmy Carter wanted to make it from coal; a nascent ethanol industry was tentatively testing the forbearance of government in seeking tax breaks and subsidies.
The search for a way out began after the Arab oil embargo of 1973-74, and reached a zenith with the Iranian Revolution of 1979. Many well-intentioned programs were undertaken, concentrating primarily on coal — coal as a gas, coal as a fluid and the improved combustion of coal.
But it was then, as it is now, a wild time for new entrants. Dozens of projects were funded including magneto-hydrodynamics, in situ coal gasification, garbage to electricity, battery research, cryogenic transmission research and energy storage in fly wheels.
Some, if not a majority, of the projects were pure science fiction.
The energy establishment favored not so much the new as the duplicative. Its members leaned to coal, oil shale, more oil and gas leasing and more nuclear. The old Mobil Oil Company paid a whopping $212 million for a Colorado oil shale lease without regard to how it could be worked.
Across the Southwest, banks lent to every energy project that came through the door. Natural gas got short shrift because it was wrongly thought to be a depleted resource.
Then in the mid-1980s, Saudi Arabia opened its oil spigot all the way (10 million barrels a day) and the market annihilated expensive energy from new sources. With gasoline cheap again, SUVs hit the roads in giant numbers; a string of Southwest banks collapsed; and the energy debate turned not to changing consumption but to deregulation, facilitating profligate use across the board.
The market spoke and it shouted down concerns about national security or technological substitution. Public policy surrendered to the market. Despite fine speeches from secretaries of energy on the danger of exporting our security and our money, the market continued its advocacy of excess.
The George W. Bush administration identified our vulnerability in oil and identified a looming crisis in electricity. But it faltered when it came to government coercion of markets; for example, getting more nuclear plants built.
Bush himself fell for the temptations of ethanol from corn and the possibility of switch grass. Now these are under threat from new discoveries of oil off Brazil and far greater estimates of oil production from Iraq. In fact, Iraq is being touted as a rival to Saudi Arabia with Brazil right behind it.
The Obama administration is hell-bent on getting off old energy. It loves “alternatives” and it’s committed to doing something about global warming.
But in research, money does not equal results. While the Department of Energy is chock full of money for new energy research and development, cheap natural gas and new potential oil from unexpected quarters may do to Obama’s new energy hopes what it did to Carter’s: undermine and expose them to ridicule.
Public policy may again be pushed around by the irresistible force of the market, even if it is not serving the national interest.
How Russia Coerces Europe
No building in Moscow so much says “Soviet Union” as the headquarters of Gazprom, the Russian gas monopoly. It is more foreboding than the Lubyanka, the former headquarters and torture emporium of the KGB. The romantic charm of the czarist era, epitomized by the Kremlin itself, is wholly absent. Like the state monopoly itself, the structure is gigantic, threatening and very hard to get into.
It is set back from the road, and there are layers of security a visitor has to negotiate to see an official. It is easier to get into the Kremlin, No. 10 Downing Street or the White House than it is to get into Gazprom HQ. I know because I have gotten into all of them. No wonder old KGB hand Vladimir Putin loves the gas company.
As president, and now as prime minister, Putin grew Gazprom and its oil counterpart, Rosneft, not to be normal companies but agents of political implementation. Between them, they were tasked to gobble up the pieces of Yukos when its luckless founder, Mikhail Khodorkovsky, was thrown in jail.
But even more than Rosneft, it is Gazprom that has emerged as the right hand of Russian policy in Europe.
At the moment, in the dead of winter, it is Gazprom that has cut off supplies of gas to more than 12 European countries. Ostensibly, the argument is over the price paid for gas by Ukraine, the transshipper of gas to all of Europe. But the Russian political agenda is not concealed. Putin, and the siloviki (the men of power around Putin and President Dimitry Medvedev) are angered by the defiance of former members of the Soviet Union, especially Ukraine. Despite its large Russian-speaking minority (about 40 percent) it has talked of joining NATO and the European Union–a red rag to Russia. Russia is angry at the West, in general, for trying to route new pipelines from Central Asia through Georgia, avoiding Russia. It is also mad at the West for recognizing Kosovo, and has responded by buying the Serbian gas fields.
Russian gas, which now makes up 30 percent of Europe’s need, does not look such a good idea–particularly to Germany, where pressure from the Green party led to the retreat from nuclear and the push for gas turbines. Before Germany turned its back on nuclear, it was a leader in the development of promising pebble bed technology. Now, sadly, Germany depends on Russia for nearly 40 percent of its gas supplies.
The gas crisis is worst in countries like Bulgaria, where there is very little gas storage and demand is in real time. But it is also affecting Italy and Southern Europe. Having closed their coal-fired power plants and shelved their nuclear plans, those countries now feel the full pain of the Russian bear’s embrace: gas droughts and electric shortages are leaving their populations cold and hungry in the dark.
So dependent has Europe become on Russian energy that every step to ameliorate the situation is a possible irritant to Moscow. If the pipelines bypass Russia, or the hub in Ukraine, that is a provocation. If new gas comes by ship from North Africa, that is an excuse for Russia to try and price its pipeline gas at the higher price of liquefied natural gas.
Belatedly, Britain and Finland commissioned new nuclear power plants. But Germany, whose former chancellor Gerhard Schroeder took a lucrative job with Gazprom, has chosen to increase its energy dependence on Russia.
Most observers believe that the current crisis will not last. Most likely, it will conclude with a jump in the price of gas, and some satisfaction in the Kremlin that Europe has been taught a lesson. But that lesson may have to be repeated over issues far from energy–such as the expansion of NATO and the European Union.
While the Russians appear to take some satisfaction in upsetting Western Europe, it is their Soviet-era satellites that most annoy them. Why, they wonder, can’t all of Eastern Europe remain suitably deferential, like Belarus and Armenia? Both toady to Moscow.
For the rest of Europe, the message is clear: build more gas storage, arrange more imports and diversify away from gas turbines.
For our part, we can help our friends and allies by thinking through our own actions, from the European missile shield to the willy-nilly expansion of NATO. This is a European problem. But if Europe has to make geopolitical compromises with Russia, it becomes problem for the Western alliance. That is us.