Heritage On $100 Crude And American Energy Policy

Today’s Morning Bell from the Heritage Foundation offers an interesting analysis of the relationship between oil prices and U.S. policy…

Yesterday, for the first time since September 2008, the price of a barrel of crude oil topped $100 on the New York Mercantile Exchange. But while the recent unrest in the Middle East has had some marginal effect on rising prices, the most significant factor has been increased oil demand worldwide. That is why, long before the recent protests even began, analysts were predicting $4 a gallon by this summer and $5 a gallon by 2012. Anyone could have predicted that the recovering world economy, coupled with the continued growth of India and China, was going to push oil prices higher. So if an Administration wanted to keep gas prices down, they could have mitigated increased oil demand by increasing domestic oil production. But that is not what the Obama Administration has done. Instead of increasing domestic oil supplies, the Obama Administration has cut them at every opportunity, and Americans are now suffering because of those choices.

Back in February, when the protests in Egypt were first unfolding, Energy Secretary Steven Chu was asked what the Administration could do to combat rising world oil prices. Chu responded: “The best way America can protect itself against these incidents is to decrease our dependency on foreign oil, in fact to diversify our supply.” It is now one month later and the Administration has not updated its talking points. Pressed on gas prices yesterday, White House spokesman Jay Carney said: “We are also, as you have seen over the past two-plus years, very focused on the need precisely to develop other energy sources so that we are not as dependent on foreign oil as we have been in the past.” So what are these “other energy sources” the White House has been developing? How does the White House plan to “diversify supply” to reduce gas prices? The answers are corn, wind, sun, and electric cars. And they won’t help a bit.

Heritage’s judgement is that what passes for an energy policy out of this administration is uneconomic and disastrous ethanol (complete with the Third World chaos higher food prices have caused), electric clown cars like the Chevy Volt – which Consumer Reports’ auto testing director just savaged – and the proven failure and unreliability of windmills and solar panels. The details…

According to Heritage analysts Nick Loris and John Ligon, Obama’s energy policy consists of: increased biofuel production, increased electric vehicle production, and increased renewable power production. These are all terrible public policies. The major source of biomass production, corn-based ethanol, produces less energy per unit volume than gasoline, contributes to food price increases, costs taxpayers $4 billion to produce 2 percent of the total gasoline supply, and has dubious environmental effects. The electric cars the Obama Administration has invested in are prohibitively costly, do not fit the needs of the American consumer, and are also environmentally suspect. The other sources of energy the Obama Administration is subsidizing and promoting—wind and solar—not only make up a minuscule 1 percent of America’s electricity generation but are entirely irrelevant to gasoline supply in the transportation sector.

On oil and gas, the facts are in. As we know well in Louisiana, this administration’s hostility toward domestic energy production has had a meaningful and catastrophic effect.

  • First, Interior Secretary Ken Salazar canceled 77 leases for oil and gas drilling in Utah in his first month in office. According to the U.S. Department of the Interior and the Bureau of Land Management, there are 800 billion barrels (a moderate estimate) of recoverable oil from oil shale in the Green River Formation, which goes through Colorado, Utah, and Wyoming. This is three times greater than the proven oil reserves of Saudi Arabia.
  • Then last summer, President Obama needlessly instituted not one but two outright drilling bans in the Gulf of Mexico. The Energy Information Administration estimates that President Obama’s offshore drilling ban will cut domestic offshore oil production by 13 percent this year.
  • Last fall, Interior Secretary Salazar announced that the eastern Gulf of Mexico, the Atlantic coast, and the Pacific coast will not be developed, effectively banning drilling in those areas for the next seven years. At least 19 billion barrels of easily recoverable oil lie off the currently restricted Pacific and Atlantic coasts and the eastern Gulf of Mexico.
  • President Obama has also failed to open the Arctic National Wildlife Refuge, where an estimated 10 billion barrels of oil lie beneath a few thousand acres that can be accessed with minimal environmental impact. Those 10 billion barrels are equivalent to 16 years’ worth of imports from Saudi Arabia at the current rate.

Heritage doesn’t mention the assault on hydraulic fracturing the administration and its cronies in the media and the trial bar are perpetrating at present. Or the fact that 2011 will be the first year since 1967 that the federal government will not conduct a sale of oil and gas leases.

“The Obama Administration is repeating the mistakes of President Jimmy Carter’s failed energy policies, which marred his term and stigmatized the 1970s. They are leading us straight into another national energy disaster,” Steve Forbes warned in Politico yesterday. And what would that “energy disaster” cost the American people? According to The Heritage Foundation’s Center for Data Analysis, an increase in the per-barrel price of imported crude oil by $10 in the first quarter of 2011 and by $20 in the second quarter would reduce gross domestic product by $20 billion, drop potential employment by nearly 100,000 jobs, and increase gasoline prices by 18 cents per gallon in 2011 alone.

Yesterday, Carney said that “the president is extremely aware of the impact that a spike in oil prices can have on gasoline prices and therefore on the wallets and pocketbooks of average Americans.” If that is true, and if Energy Secretary Chu really has recanted his belief that Americans ought to be paying $8 a gallon for gas, then the President must completely reverse his entire energy policy so far by allowing Americans to develop our own natural resources, issuing permits in a timely manner, and removing regulatory and litigation delays on energy projects.

Today’s Wall Street Journal has a story on a poll it conducted over the last few days which indicates that while there is significant support for raising the Social Security age to 69 by 2075 and means-testing its benefits, the American people turn up our noses at cutting entitlement programs. There seems to be a clear consensus behind the idea of growing our way out of the current budget problems we face – not just pushing an austere, Spartan governmental ethic that spreads to every household in the country. In fact, Karl Rove has a column in today’s Journal which seizes on those numbers and others like it to suggests that the Republicans had better embrace a prosperity agenda rather than an austerity agenda.

Those two aims are not incompatible unless you buy into the discredited, ridiculous notions put forth by Obama stimulus architect Mark Zandi and Fed chairman Ben Bernanke, who have decried Republican budget cuts as killing jobs.

But for all the admonitions to Republicans that electoral destruction awaits those who present serious proposals to rein in federal spending, where are the admonitions to the Obama White House that advocating and embracing the destruction of the domestic energy industry in an effort to replace it with failed, expensive boondoggle technologies will ensure their own destruction? If cuts to Medicare and Social Security can’t be made because it would hit too many Americans in the pocketbook, why is $8 gasoline or electricity bills double their current size not an untenable political proposition?

It seems clear that a disconnect in emphasis in the media has taken hold. While that’s anything but a surprise, it’s a relatively safe prediction that by this summer, once gas prices have skyrocketed above $4 per gallon and crude oil reaches record price levels, there will be a lot more discussion about the political implications of energy policy than the so-called “third rail” of entitlements.



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