Tag Archives: all of the above

2012 – Another Trip Around the Sun

31 Dec

New Year

The year-end is traditionally the time to spend both looking back and thinking about the future. I’m no different than most. I find myself doing much the same, sans resolutions.

I began my adventure into the blogosphere this year, writing about energy issues. So, I’m compelled to close out 2012 with a post listing some of the year’s most significant developments along with a few forward looking comments. No particular order, just some random thoughts over a seasonal glass of eggnog.

Without a doubt, the expanding application of horizontal drilling and hydraulic fracturing unlocking our vast shale reserves was the single most important event of the year and will continue to be so in the foreseeable future. Next year, look for Monterey shale to be added to our lexicon along side Bakken, Eagle Ford, and Marcellus shale. Farewell to the notion of Hubbard’s Peak, LNG imports, and any Oscars for “Promised Land.”

Politics seemed to overshadow virtually everything this year, including energy. Thankfully, we all survived the Presidential silly season. Neither candidate offered much new with respect to energy policy or ideas for the next four years. We’ll likely continue to do much the same…blunder along with a purported strategy of, “all of the above,” and an unhelpful dose of regulatory intrigue and interference.

In the competition to fuel power generation in 2012, coal was displaced in ever increasing proportions by lower priced natural gas. In addition to market forces, newly proposed regulations by this administration and the environmental lobby’s “war on coal” took a toll on King Coal.

Emissions of CO2 in the United States fell this year to levels not seen since 1992. Much of this drop is directly attributable to the increased use of cleaner burning natural gas in power generation as well as depressed economic activity leading to lower energy demand.

In 2012, Keystone XL was the first oil pipeline to become a household name. After years of intensive regulatory review and on the eve of final State Department approval of the Canadian border crossing, the administration took the bold political move to further study it. The southern leg was subsequently approved while the Chinese entered preliminary agreements with Canada to buy the Alberta produced oil instead. A Pyrrhic victory at best for environmentalists with an economics lesson that oil is a global commodity that will flow to willing buyers.

Intermittent renewable wind projects once again teeter on the brink of intermittent profitability with the looming loss of the Production Tax Credit. Even if the wind subsidies are eventually reinstated, 2013 looks to be a difficult year for wind promoters because of the uncertain political landscape.

Oddly enough, shortly after nixing leases to explore for oil and gas in the Atlantic Outer Continental Shelf (“OCS”), the administration made plans for an OCS renewable energy lease sale (primarily for offshore wind that is even more expensive than onshore). Talk about a party that no one attends.

It’s not inconceivable that if we fall off the fiscal cliff tomorrow, less federal money flowing to the states in 2013 could prompt state legislators to reconsider all measures impacting their state’s economy. The high cost of renewable energy mandates may well lead some states to some repeal their REM’s.

A DOE sponsored study by independent consultant, NERA Economic Consulting, was released this month. In examining the economic impacts of U.S. exports of liquefied natural gas (“LNG”), it found that some increases in the price of domestic natural gas will occur, but there will be net economic benefits from allowing LNG exports. There are 15 pending applications seeking a license from DOE to export LNG to non-FTA countries. While DOE now has an independent analysis of the impacts, the question remains, “what is this administration’s position on exporting LNG?” Stay tuned.

Internationally, Japan is once again looking to restart its nuclear power generation. All nuclear power generation in Japan was shut down following the Fukushima incident, forcing Japanese utilities to rely primarily on power produced from imported LNG. As expected, the cost of LNG in Japan has skyrocketed forcing the new government to reconsider the nuclear ban. I trust this event is in the risk register of those looking to export LNG from the U.S.

The Chinese were successful in buying into the North American oil and gas industry this year. The Canadian government approved Chinese National Offshore Oil Company’s (“CNOOC”) purchase of Calgary-based petroleum company, Nexen, for $15 Billion. In 2005, CNOOC attempted an $18.5 Billion purchase of Unocal, but political tensions over China-U.S. trade relations ended that deal.

Finally, recent reports indicate the western hemisphere’s most notorious dictator, Venezuela’s Hugo Chavez, is suffering from complications after cancer surgery in Cuba. His condition is described as “delicate.” When Mr. Chavez no longer rules Venezuela, there will be a scramble to control Venezuela’s petroleum resources. The country is estimated to have oil reserves that exceed Saudi Arabia’s. In addition, Venezuela delivers approximately 9 million Bbls of crude oil per day to the U.S. making it our fourth largest crude oil supplier. This situation is definitely a vital strategic interest for the U.S.

While there are numerous other significant events in energy not listed here, this is only a mere blog post. Besides, I’ve finished my eggnog and there’s New Year’s Eve celebrating yet to do.

For those of you who have followed my blog this inaugural year…a big THANK YOU!  To everyone else, I hope you find it worth your time to visit throughout the coming year.

Happy New Year!  May it be a healthy, fulfilling, and prosperous one.

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Why not a “Lewis and Clark Project” for Energy?

19 Sep

It amazes me to hear people talk about “drill here, drill now, pay less” or support an “all of the above” energy strategy, yet when asked, “drill where to find what?”, the response is oftentimes a blank stare or a generic, “on federal lands.”

Many people would be surprised to know that regarding our “frontier” regions, those outside of the traditional oil and gas production areas of the Gulf of Mexico, southern offshore California, and onshore continental US, we have precious little actual geological and seismic data to precisely estimate the extent of our resource base.

Although, the U.S. Geological Survey, a scientific bureau within the United States Department of Interior, does a remarkable job assessing domestic energy resources, much of its analysis and assessment is based upon scant, decades old data that possesses a high degree of uncertainty.

The complicated scheme of describing our estimated resource base combines statistical assessment, technological capability, and the economics of production only to baffle the public and confuse government officials tasked to divine an energy strategy.

If we are going to make sound decisions about our energy future, we sorely need credible, scientifically reliable data about the country’s resource base. The data gathering should not only include oil & gas, but also coal, uranium, water, wind, and geothermal resources.

That’s why Governor Romney’s proposal to conduct a comprehensive survey of America’s energy reserves makes so much sense. It should be promoted as a “Lewis and Clark Project” to gather much needed technical information about what lies beneath our onshore and offshore property.

In the closing days of the 18th century, Napoleon Bonaparte began maneuvering to restore France’s territories in North America. By late 1802, Spain transferred its territory west of the Mississippi along with the shipping rights through New Orleans back to France. American access to the port’s warehouses became a critical commercial issue for the United States.

In 1803, President Thomas Jefferson dispatched Secretary of State, James Madison, to join U.S. Minister to France, Robert Livingston, in negotiations to purchase New Orleans along with all or part of Florida.  Their ultimate objective was to secure U.S. rights to access the Mississippi River and the port. They were authorized $10 million for the purchase.

As conditions changed and war with the British appeared likely, Napoleon reconsidered France’s place on the continent.  When Madison arrived in France in April, 1803,  the deal the French presented was for the sale of all of Louisiana – 827,000 squares miles, twice the area of the U.S.  Although taken aback, by April 30th, Madison and Livingston reached an agreement to purchase the Louisiana territory, including New Orleans, for $15 million — well in excess of the initial authorization.

The official announcement of the Louisiana purchase was made in Washington on July 4, 1803. The Senate ratified the treaty sale on October 20th and the U.S. took formal possession of the territory in December, 1803.

What is most fascinating, however, is the fact that in January, 1803, before he even knew how the French would react to Madison’s misson, Jefferson was preparing for the future. In a confidential letter to Congress, dated January 18, 1803, Jefferson requested an appropriation of funds for the exploration of the continent “for the purpose of extending the external commerce of the United States” and to “incidentally advance the geographical knowledge of our own continent.” That letter secured $2,500 from Congress to cover the costs of the venture we now know as the, “Lewis & Clark Expedition.”

Modern parallels can be drawn between the Lewis & Clark Expedition and our current need to survey our energy resources today. As in the early 1800’s, we have a notional understanding of our frontier regions. We are in the early stages of assessing those resources, especially regarding federal offshore properties. Development and production in most of these regions is many years, if not decades, away. However, paraphrasing Mr. Jefferson’s letter to Congress, today we must “advance the geologic knowledge of our own continent.”

A “Lewis and Clark Project” managed by the USGS to evaluate our nation’s energy resources is long over due.  If we are going to address our energy situation and craft a rational energy policy, we need to have reliable information about our options. This includes credible data about our energy resource base: oil, gas, coal, uranium, geothermal, water, and wind. Putting off this important survey program will not only delay our ability to access these resources when we need them, but also drive up the cost because the risks associated with investments made on highly uncertain assessments is greater than those made on high quality assessments. Likewise, revenues to the government generated from bids on federal production leases would likely be higher if bidders had better knowledge about what the lease may contain.

The “Lewis and Clark Project” may also assist in determining where we should not proceed with energy development. For example, a National Marine Sanctuary System with 14 established sanctuaries exists today. Geologic and seismic data collection from “Lewis and Clark” could be coordinated in partnership with ongoing NOAA activities surveying met ocean and benthic environments to identify highly sensitive areas or support protective zones to avoid or mitigate impacts from possible future development activities. Understanding where and how to develop resources is as important as knowing what lies below the surface.

An initiative such as the “Lewis and Clark Project” should be something everyone can agree to support. This country faces tremendous challenges in deciding how to pursue energy development. A rational, well conceived energy policy is long over due. Adding to our knowledge in order to guide sound policy decisions should be a bipartisan priority.

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Energize the Presidential Campaign

28 Aug

It’s late-August and we’ve entered two weeks of national party conventions with no hope of redemption from presidential politics during the next 70 days. Both sides are desperately trying to define the other through massive expenditures on attack ads, legions of surrogates, and talking heads spouting profundities regarding the other candidate’s treatment of a family pet or use of marijuana back in high school.

Too bad that, “we the people,” know so few details of either candidate’s proposals to lead us through the next four years. This is especially true regarding energy. Granted, this past week has seen both Messrs. Obama and Romney offer some time on the stump to energy, but neither has articulated a well-defined proposal for a national energy policy.

Energy affects every aspect of our lives. Plentiful, affordable, reliable energy supplies are fundamental for a healthy, growing economy, job creation, mobility, and national security. If combined with intelligent, cost-effective efficiency standards and innovative, long-term policies promoting private investment in new energy infrastructure and research, we could find ourselves on the path to real energy security.

The energy proposals of both campaigns, however, are discouraging. President Obama, not surprisingly, combines the issue under the banner of “Energy and Environment.” Governor Romney offers a more focused series of energy proposals under three broad categories: “Regulatory Reform,” “Increasing Production,” and “Research and Development.”

President Obama’s position is a series of grand, sweeping remarks about clean energy, clean jobs, and the, “All of the Above” energy strategy. More lines of text are devoted to environmental protection, including something called, “America’s Great Outdoors,” than to energy.  The positions are underscored with a pronouncement to, “make sure we never have to choose between protecting our environment and strengthening our economy.”

Governor Romney highlights his energy initiatives in 14 succinct bullets. They range from reducing regulatory delays, expanding resource production on federal property, to funding long-term energy research. It’s a fairly good smattering of short-term strategies until he succumbs to political temptation and includes the hackneyed slogan “energy independence” by 2020.

As a result, both candidates offer little more than poll tested, political positions reflecting the will of their respective base. Neither side has posited a serious, clear-eyed vision of an effective national energy policy. Sadly, a vote for either candidate is simply going to ensure the status quo.

The nature of our energy challenges dictate that the policy be bold, well reasoned, and long-term in perspective. In other words, no politically expedient, short-term gimmicks.

Energy is a complex topic. There are no quick and easy fixes. “Drill baby drill,” “all of the above,” or “energy independence” are politically charged chants that don’t begin scratch the surface of the energy enigma. Sadly too, the political arena is probably the worst place to attempt to craft effective, long-term solutions.

Energy is international in scope. All nations, to varying degree, are interdependent. Whether it’s in the form of liquid petroleum products, natural gas, coal, uranium, renewables, or electric power, energy is fundamental to every nation’s existence and capability to thrive. In one form or another, energy is bought, sold, or traded in open international markets every day.

Considering our country’s energy demand, its supplies, and all of the economic, physical, and self imposed restrictions associated with them, we can only aspire to energy “stability” or “security.” Absent the introduction of a disruptive technology, we cannot truly be “independent.”

Our energy policy must support the economic and security interests of the nation. It must be an unambiguous, broadly inclusive, high-level pronouncement to guide, not prescribe, how we meet our energy needs.

It must be based upon clear, scientific logic and the application of sound engineering principles. While many technologies may be possible, only those that are operationally and financially sustainable and can deliver the desired results will ultimately be accepted in the market. Intermittent renewables certainly have their place, but are in no way substitutes for our existing carbon and nuclear fueled technologies used to meet base load demand.

The massive scale of energy dictates long planning and utilization timeframes. Whether it is the liquid fuels providing our mobility, solid and gaseous energy supplies for heat and power generation, or the infrastructure to deliver them all, decisions made today will be with us well into the latter half of this century.

Finally, it must recognize that there is absolutely nothing in this world that is risk free. Choices and trade offs are inevitable. Rational, fact-based decisions of policy makers supported by the analysis of subject matter experts is required.

It’s likely too late in the silly season to expect that either presidential campaign would embrace this reality. Even more unlikely that the political hacks would allow them to publicly admit it. But, wouldn’t it be refreshing if they did? That would energize the electorate this year!

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