Abundance of Energy

President Obama’s Jan. 24 State of the Union address did not convince me that the nation should, in his words, “double down” on future clean energy investment. America’s abundance of oil and gas should be the foundation upon which to build a comprehensive national energy policy, not subsidies for government-favored energy technologies and overreaching energy regulations.

I agree with President Obama’s comment that “nowhere is the promise of innovation greater than in American-made energy,” although we differ on which forms of American-made energy should be developed. Let me examine his State of the Union comments on natural gas production, oil reserves, and climate change.

More Than a Gas Glut

The Energy Information Administration’s (EIA’s) Annual Energy Outlook 2012 Early Release ( AEO2012ER), made public the day before the president’s annual address to Congress, predicts that the U.S. will become a net exporter of natural gas by 2020 and that natural gas will “fuel a growing share of electric power generation.” Tapping natural gas supplies located more than a mile underground was a colossal technology breakthrough that will pay tidy dividends to all Americans for decades to come.

The quantities of shale gas now produced are enormous and are expected to quickly grow for many years (23% today and 49% by 2035, according to the AEO2012ER), more than offsetting the declining quantities of natural gas produced from conventional well-drilling techniques. These discoveries were the result of investment by private energy companies, not by government assistance or subsidy. Instead of celebrating and encouraging additional gas discoveries, the administration is now hyper-focused on adding an additional layer of federal regulation on the gas industry.

Massive Oil Reserves

The president’s statement about American oil reserves is misleading. The president stated that America has “only 2 percent of the world’s oil reserves,” a statistic often cited as justification for spending billions of dollars on clean energy investments and carbon controls. According to the EIA, that 2% statistic (about 20 billion barrels) represents “proven reserves” rather than “technically recoverable reserves,” a much better measure of how much known oil is available for recovery. Proven reserves describe known reservoirs that have been thoroughly analyzed and can be economically tapped. Technically recoverable oil is oil that can be recovered using existing drilling and production technologies without reference to economic profitability. Technology innovation is rapidly closing that economic gap every day, much like the technology that advanced unconventional gas.

According to EIA estimates, there are 1.4 trillion barrels of oil (about 200 years’ worth at today’s rate of consumption) that are technically recoverable in the U.S., out of a total reserve of 3.7 trillion barrels of oil in the ground. The only logical conclusion that can be made is that the U.S. does not have a shortage of oil, just a shortage of government policies that promote recovery of the fuel.

The president, in his speech, then noted the increased oil production in the U.S. that has occurred in recent years. “American oil production is the highest that it’s been in eight years. That’s right—eight years. Not only that—last year, we relied less on foreign oil than in any of the past 16 years,” said Obama.

True statements all, yet none of these accomplishments occurred as a result of government policy. In fact, the EIA reports that oil and natural gas production on federal lands has fallen by over 40% since 2000, yet over the same period, oil production on private and state lands has risen 11% and gas production has risen by 40%. For example, the oil coming from North Dakota’s enormous Bakken formation is on private land. North Dakota’s overall oil production, growing 250% over the past decade, is out of the federal government’s reach. The president’s single-handed denial of the Keystone XL pipeline demonstrates that he is not truly interested in further reducing imports of foreign oil from outside North America.

Carbon Emissions Dropping

The president segued from oil and gas policy to his wish for Congress “to pass a comprehensive plan to fight climate change.” The stated goal of climate change legislation is to reduce CO2 emissions from industry, principally the power generation industry. Reduce anthropogenic CO2 and climate change will slow or cease, or so the theory goes. What the president failed to mention in his address is that the increasing use of natural gas helps explain why the U.S. is already making exceptional progress in reducing CO2 emissions. The AEO2012ER shows that CO2 emissions are in freefall, regardless of the accounting measure used: per dollar spent on energy, per capita, or CO2 per GDP. In fact, the EIA predicts that CO2 per GDP will drop over 40% through 2035.

Wrong Energy Policy

The president missed an opportunity to propose economic policies built on the firm foundation of world-leading reserves of fossil fuels and the very real possibility of true energy independence. Instead, he again described an energy policy—built on energy subsidies, further intervention into the energy markets, and overreaching executive orders—that is not sustainable.

Which policy path will stimulate private infrastructure investment and establish millions of new well-paying jobs that this country desperately needs?

Dr. Robert Peltier, PE is POWER’s editor-in-chief