President Obama’s February 23 speech at the University of Miami supplemented his energy views in the State of the Union address and his 2013 Fiscal Year budget submitted to Congress. Playing defense in the face of high gasoline prices and an oil and gas boom not of his making, Obama’s pitch was long on misdirection and spin and short of true market-base reform.
Make no mistake: the President’s energy universe centers around curtailing the use of fossil fuels, in particular coal, due to fears that carbon dioxide (CO2) produced from combustion will cause catastrophic global warming. This motivation will guide future energy policies until the Obama era is over.
The United States has the most abundant fossil fuel reserves in the world, the greatest agriculture system, and the most innovative population, all of which should ensure prosperity for centuries. The question is: can market incentives unleash what Julian Simon called the ultimate resource to turn potential and opportunity into reality?
U.S. Resource Base
President Obama decried high gasoline prices and said his opponents will shout the 30-year old solution—”drill, drill, drill”—that has not worked. “Anyone who tells you we can drill our way out of this problem doesn’t know what they are talking about,’ he said. “The U. S. consumes more than a fifth of the world’s oil. But we only have 2% of the world’s oil reserves.”
President Obama could not be more wrong.
Our annual consumption of oil is about 7 billion barrels. Reserves in Alaska exceed 35 billion barrels of oil, offshore reserves 29 billion barrels, and oil shale reserves in Texas, Wyoming, Montana, and North Dakota one trillion barrels plus.
Another trillion barrels of oil reside in Canada’s Alberta province adjacent to Montana. TransCanada’s proposed Keystone XL pipeline, for which President Obama refuses to allow construction, is to transport 500,000+ barrels per day of Alberta’s oil to Texas. Individuals with President Obama’s thinking have stalled developing the more than ten billion barrels of oil in the 2,000 acre portion of the 19 million acre Alaskan National Wildlife Refuge for more than 30 years.
Higher Production–In Spite of Obama
President Obama mentioned the United States produced more oil in 2011 than in the past eight years. This is not the outcome of any Obama directive; it is due to technological breakthroughs resulting in increased oil production on state and private lands in North Dakota, and natural gas wells in Texas, Ohio, and Pennsylvania.
The production uptick is in spite of millions of acres of Western land being declared out of bounds for exploration by the Department of Interior; delays in permitting exploratory drilling in Alaska; and delays in offshore drilling on the East Coast and the Gulf of Mexico.
Has Shell Oil Company been given permits to do exploratory drilling off Alaska that it has been seeking for years? Can they start this summer to start another grand chapter in the carbon-based energy renaissance?
In all, the economic brightness from increased private-sector oil and natural gas production occurred in spite of Obama Administration policies.
Obama’s Mexico Agreement
President Obama made a big issue of an agreement with Mexico to open 1.5 million acres (2,350 square miles) of the Gulf of Mexico for exploration that could yield 172 million barrels of oil and 304 billion cubic feet of natural gas.
These numbers may appear large; but they amount to only 9 days consumption of oil and 5 days consumption of natural gas by the United States.
This amount of oil could be delivered in 350 days by the Keystone XL pipeline. Just one of the new 1,100 Megawatt nuclear power plants in early construction near Augusta, GA, could save this amount of natural gas in 3.7 years.
All of the Above?
President Obama said we need to exploit “every available source of American energy—oil, gas, wind, solar, nuclear, biofuels, and more.” And more? What about coal, which is the leading source of electricity in the United States if not the world?
Obama complains that “four billion of your tax dollars subsidizes the oil industry every year.” At the same time, fiscal concerns banished, he said we need “to double-down on a clean energy industry that’s never been more promising.”
For years, solar and wind has received bountiful taxpayer subsidies, including tax credits, government-guaranteed loans for plant construction, requirements for utilities to buy back electricity from these plants at inflated costs (“feed-in-tariffs”), and purchase mandates (renewable portfolio standards–RPS). Hardly infant industries, politically correct wind and solar now face the fact that government budget deficits and taxpayer fatigue are setting in. “Green” energy subsidies are going south in the U.S. and also abroad.
California has one of the most stringent mandates in the nation with an RPS of 20 percent renewable electricity by December 31, 2013, and 33 percent by 2020. But efforts to reach this goal have been costly.
As of May 2011, the all-sector cost of electricity in California was 13.4 cents per kWh versus a national average of 9.9—36 percent higher than national average. A string of bankruptcies from solar energy plants show solar energy is not economical; winners are bankruptcy lawyers, and losers are taxpayers and electricity ratepayers.
Biofuels consist mostly of ethanol produced from corn. In 2011, five billion bushels of corn was converted to twelve billion gallons of ethanol which caused the wholesale price of corn to rise to $7 per bushel against $2.50 a few years earlier. Much research show it requires more energy to make ethanol than is contained in the product. The situation will get worse in the future due to mandates from the 2007 Energy Independence and Security Act to use 35 billion gallons of ethanol as fuel by 2022.
Wikipedia states that a 2010 study by the U. S. Congressional Budget Office found the cost to taxpayers to replace one gallon of gasoline with ethanol was $1.78. The whole country suffers because of food price inflation due to this program. Some policy experts speculated increased worldwide corn prices may have been a primary cause of Arab Spring uprisings that started in January 2011 due to starvation level food prices.
Let our farmers export the five billion bushels or more of corn wasted on ethanol production, or its equivalent, to alleviate world hunger.
One of the “more” clean energy forms referred to by President Obama is battery-powered cars. Presently electric car purchasers are given $7,500 by the federal and various other amounts by state governments to stimulate sales. In order to stimulate more sales from the dismal 16,000 in 2011, President Obama is proposing raising the “gift” to $10,000 in 2013.
Because electrics cost from $35,000 to more than $100,000 per vehicle, these subsidies are clearly for the highest income people in the country. It is easy to show electric cars provide no energy savings because their energy use must be traced back to power plants from which electricity to charge batteries originated.
These cars are compacts and their equivalent energy consumption is on the order of 30 mpg versus 40 mpg from cars they compete against. About $5 billion has been given as subsidies to manufactures, buyers, and placement of charging stations in homes and elsewhere.
Nuclear: Whither CO2 Alarmism?
President Obama only mentioned nuclear power once in his speech; but it has the promise of extending our fossil fuels hundreds of years in the future. Just one of the two 1,100 Megawatt nuclear power plants under construction near Augusta, Georgia, could save the consumption of 230 million tons of coal or 5 trillion cubic feet of natural gas during its 60-year lifetime. These numbers represent 23 percent current consumption of coal or natural gas in the United States.
The public may not be aware that since 1983, all electricity produced by nuclear power paid a fee of 0.1 cents per kilowatt-hour to the federal government for future storage of nuclear waste. The annual fee today is $800 million, and the cumulative payments the past 28 years has to exceed $16 billion.
Back in the 1980s, a multi-year search was made all over the United States to find the best location to store nuclear wastes. After much study, it was decided the Nevada Yucca Mountain location was best and construction started to prepare the site. After $13 billion was spent on the project, President Obama decided to stop construction and revisit site selection. After all the work and money spent on Yucca Mountain, it seems inconceivable a better site could be found.
Only a few percent of materials in nuclear power plant spent fuel elements is considered waste. This is a small volume compared to fuel element volume. The majority of materials is uranium and plutonium that can be used as fuel for future power plants. These materials are reclaimed by a process called nuclear fuel reprocessing.
To date the United States has not built a facility to reprocess fuel elements from our commercial nuclear power plants. As a result of this policy, spent fuel elements are stored on site at nuclear power plants for times exceeding forty years.
One of the lessons learned from the Fukushima Daiichi nuclear power plant accident is the presence of spent fuel elements creates problems. It seems prudent for the United States government to reprocess nuclear fuels to remove spent fuels elements from plant sites. This dramatically reduces nuclear wastes volume and allows a site like Yucca Mountain to permanently store materials for thousands of years. Building these facilities will create jobs. Tax payers should not have to pay for this project–use fees will be paid by customers of nuclear power generation.
Rhetoric, Not Real Energy
President Obama’s energy speech was long on words and solved no problems. He suggested expanding subsidies for renewable energy that are a total waste. Solar and wind power plants have lifetimes of 20–25 years. After this time there is nothing left to show for money spent. Biofuels are not needed at this time because of our vast fossil fuel reserves. Some projects to conserve oil can be achieved at no cost to taxpayers.
Eliminate use of heating oil by extending natural gas pipelines to areas where heating oil is used. Because heating oil costs 6 or 7 times what natural gas cossts, customers can pay for pipelines by lowering their heating bills by a factor of two. Once pipelines are paid for, customers receive true cost benefits. Use liquefied natural gas for producing electricity in Hawaii instead of oil. This could substantially reduce electricity cost of 36 cents per kWh paid by Hawaiian customers.
President Obama mocked the four billion dollar subsidy given oil companies each year. Is it in the form of taxpayer grants to oil companies for explorations, building pipelines, building refineries, or building filling stations? Is there a mandate forcing citizens to buy gas from a particular company or pay a government selected price? Or is it a tax deduction for costs of doing business akin to deductions received by other forms of business?
Oil companies seem like a nice whipping boy in times of stress. That can divert attention away from terrible mistakes in energy policy. There are vast oil reserves across the world. It would not be prudent energy policy to drive oil companies to other countries to search for oil, as was done in 2010/11. Multi-million dollar rigs that left the Gulf of Mexico in 2010 for exploration in Brazil, Africa, and the Middle East may never come back.
Much attention is devoted to the United State’s loss of employment in the manufacturing sector due to technology improvements and movement of jobs out of country for lower paid employees. Production of energy as coal, uranium, oil, and natural gas is manufacturing.
Six hundred tons of coal, four hundred barrels of oil, or ten million cubic feet of natural gas has the same economic value as the making of a $30,000 car or the harvesting of 4,000 bushels of corn. Millions of high paying jobs can be created to satisfy domestic energy use and an expanding export market.
These jobs can’t be outsourced because raw materials are domestic. The beauty of this activity is no government subsidies are required and government revenues increase by trillions of dollars through royalty payments, business and income taxes.
It is difficult to find reasons for the energy policies we have today. In the face of and oil and gas boom, and in the face of consumers who vote daily with their dollars toward real-deal energy, there remains inertia against affordable, reliable energy that powers industrialization and economic growth.
Obama is riding the wrong energy horse, and it will be hard in this election cycle to dismount or even pretend it is worthy.
James H. Rust (BsChE Purdue 1958, SM Nuclear Engineering M.I.T. 1960, PhD Nuclear Engineering Purdue 1965) is a retired nuclear engineering professor from Georgia Tech. Presently, he is a senior fellow at the Heartland Institute, where he actively lectures on energy policy and on climate change.
Dr. Rust has more than fifty years of experience in areas related to energy technology and related public policy through his consulting and publishing firms in Atlanta. He is author of Nuclear Power Plant Engineering (Haralson Publishing Company, 1979); editor of Nuclear Power Safety with Lynn Weaver (Pergamon Press, 1976); and contributing author of Elements of Nuclear Reactor Design (Elsevier Scientific Company, 1977). He also has written or co-authored more than 50 scientific reports and publications.