Making Sense of “All of the Above”

Two opinion pieces written by high ranking members of Congress recently appeared on  One, Rep. Cliff Stearns, is a Republican from Florida currently serving as the chairman of the Oversight and Investigations Subcommittee of the House Energy and Commerce Committee. The other, Sen. Ben Nelson, is a Democrat from Nebraska serving on many top committees in the Senate.  Both of these Congressional leaders wrote in their pieces about ways for America to improve its energy policy and thereby improve fuel prices and also increase our energy security.  The two articles are linked below:

Time to revamp our energy development by Rep. Cliff Stearns


Energy independence is possible – and necessary by Sen. Ben Nelson

Both of these pieces contain a lot of good information and a certain amount of practical sense.  But both also fall afoul of some misleading tidbits that obscure our best long-term energy strategy.   I’ll begin with Rep. Stearns.  His diagnosis of the reasons behind the increase in crude oil prices is dead on, and while he laments that we are “addicted to oil,” he quickly diverges into a common excuse for our lack of a clear energy policy by stating that “For decades, we will depend on gas and diesel for most of our transportation needs.”  While this is certainly true of some of us, it will only remain true for the majority if we allow it to.  Rep. Stearns believes that the remedy for this “inevitability” is the “technically recoverable oil” which remains in untapped areas offshore, in shale and other formations onshore, and so-called tight oil which comes from previously exploited fields that are more productive with the use of new technology.  According to Stearns, this oil could both help increase our national security and bring down prices at the pump.

The problem with this argument is fourfold.  First, Stearns claims that the sole reason these resources are not being exploited is because of the policies of the Obama Administration.  This is true to a certain extent in that the Obama Administration did pull back on its open drilling policies offshore following the Deepwater Horizon disaster, but it has more to do with the fact that large swathes of potentially exploitable shale oil on Federal lands are being held back while the long-term impact of hydraulic fracturing, or “fracking,” the technique used to extract shale oil, is studied.  Since there are significant fears that improper fracking techniques can lead to groundwater contamination, such studies are far from obstructionist, but are instead rather prudent.

The second problem with Stearns’ argument relates to the issue of national security.  He claims that increased production domestically, coupled with the construction of the Keystone XL pipeline, will dramatically improve the United States’ energy security.  The trouble with this argument is that the United States has already significantly cut back its consumption of oil from unstable sources.  The vast majority of our oil imports already come from Canada and Mexico while much more comes from South America and western African producers such as Equatorial Guinea.

Thirdly, true energy security will come from diversifying our energy sources and this process will be slowed down by the increased exploitation of difficult and expensive domestic oil sources.  While Stearns claims that production from these sources can provide a “bridge” to the future sources of energy, all it will accomplish is fulfilling his own prophesy that we will be dependent on gasoline and diesel for “decades.”  This would be in part a result of the massive amounts of capital that would have to be invested in opening up these new areas to more production.  While tight oil and some shale oil sources could easily be expanded, any further offshore production requires a huge expense first in exploration and then in the construction of the infrastructure for production.  All of this investment money could, and perhaps should, be better put towards alternate sources of energy that could decrease our dependence on oil and thereby stretch out our already functioning sources of supply.

The final problem with Stearns’ argument is that he claims further domestic production, along with the construction of the Keystone XL pipeline, will help to bring down prices at the pump.  This may be true in the long-term (and that is debatable), but such policies would have next to no impact in the short-term.  New fields take at least several years to develop and the Keystone XL pipeline would bring oil to the Gulf refineries that are already operating at full capacity meaning that current sources of supply, mostly from Mexico and the Gulf of Mexico, would be supplanted by more expensive Canadian oil.  This would do nothing to ease the price pressures on the East and West Coasts of the United States.  To ship oil from the Gulf refineries to the East Coast costs roughly $0.10 a gallon whereas shipping it from European refineries to the East Coast costs $0.07 a gallon.  The Keystone XL pipeline and other domestic sources, mostly found in the Midwest and the Rockies, would do nothing to ease that price pressure unless more pipelines were also built to fuel depots along the Coasts.

Unfortunately Sen. Nelson’s arguments are not much better than Rep. Stearns’.  Leaving aside Sen. Nelson’s ridiculous statement that “there’s been unrest in the Middle East for thousands of years” (Where has there been stability for thousands of years?), his other arguments also leave much to be desired.  While Sen. Nelson’s criticism of oil speculators may be cathartic, it is more of a symptom of the problem rather than a cause.  Speculators may push the price up or down marginally but they still need buyers willing to purchase at or near the prices they speculate at.  If the supply and demand schedules did not match the speculators’ gambles, their game would end quickly.

Sen. Nelson ends his piece with a rather vague call to embrace the alternative technologies that already exist.  While nice to hear, such vagaries are unhelpful.  Both of these policy-makers need to put aside the shoddy arguments and platitudes and get to the heart of the problem with our energy needs.  The United States has lacked a clear and consistent energy policy for decades.  If we truly want to move away from fossil fuels, we must set clear priorities backed up with tax regimes to match that will allow energy companies the certainty they need to invest in new technologies and to prepare the necessary infrastructure to take advantage of those new systems.  Anything else will leave us exactly where we have been for the last forty years, buying an increasingly expensive, limited and dirty fuel.

2 Responses to Making Sense of “All of the Above”
  1. Harvey Pew Reply

    Another great post, Jon. I was particularly interested in your comment about speculators. Isn’t the Administration introducing a new set of policies to reign in speculators? Do you think it will have any effect, or is it just a bone to the Left?

    • Jonathan Kuiken Reply

      Well I would say its a move that is necessary but one that worth more politically than it is practically. The funding of America’s oil regulators has not kept pace with the surge in oil demand and the Commodity Futures Trading Commission definitely needs more money and power. But what this will do for oil prices is pretty marginal.

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