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ENERGY NEWS
Outside View: Energy realism
by Michael Economides
Houston (UPI) Feb 7, 2013


disclaimer: image is for illustration purposes only

In his second inaugural address, U.S. President Barack Obama announced that he's putting climate change at the top of his policy agenda. And with the State of the Union just days away, it's likely that the same lofty rhetoric will feature prominently.

This is welcome news to environmentalists but it should also be welcomed by those who have been looking for the president to roll out his self-described "all of the above" energy policy.

That potent phrase refers to Obama's stated desire for the federal government to embrace and invest in renewable technologies, while also fostering policies that provide the country with abundant sources of oil and natural gas -- the energy that we'll actually use to power our economy for decades.

On oil and gas, we got a healthy dose of energy realism in November with the release of the International Energy Agency's annual outlook, a widely cited forecast of energy usage around the world. Not only did the report show that oil and gas would hold a dominant global position for years to come, but the IEA also offered a rosy forecast for the United States' home grown energy future.

"The global energy map is changing, with potentially far-reaching consequences for energy markets and trade," the report began. "It is being redrawn by the resurgence in oil and gas production in the United States and could be further reshaped by a retreat from nuclear power in some countries, continued rapid growth in the use of wind and solar technologies and by the global spread of unconventional gas production."

By around 2020, the United States is projected to become the largest global oil producer -- ultimately surpassing Saudi Arabia and Russia -- and begins to see the impact of new fuel-efficiency measures in transportation. With a continued decline in U.S. oil imports, North America becomes a net oil exporter around 2030. IEA said that the United States, which currently imports around 20 percent of its total energy needs, becomes "all but self-sufficient in net terms -- a dramatic reversal of the trend seen in most other energy importing countries."

If there is a threat to this phenomenally positive advance in energy security, it is right here at home in the realm of politics. Unfortunately, throughout his first term, the president has been pushing hard to selectively raise taxes on domestic oil and gas producers, whom he describes as "doing just fine."

He has waged this campaign, so far unsuccessfully, under political cover of ending "subsidies" and "corporate welfare." This is disingenuous, in the extreme.

What Obama is targeting -- and only for one industry -- are tax provisions that are in the main deductions claimed broadly by U.S. manufacturers. If he is successful, the president will raise taxes by more than $40 billion and throw a wrench into the works: The energy boom, new investment and job creation will be slowed dramatically.

We should steer clear of this zero-sum approach. The gains that the oil and gas sector make do not come at the expense of new investment in renewables. Just the opposite. The oil and natural gas industry invested $71 billion in greenhouse gas-reducing technologies from 2000-10 -- nearly twice as much as the federal government ($43 billion) and almost as much as all other investors combined ($74 billion). This just illustrates the fact that the most advanced economies in the world are the ones with free investment capital available for innovative new technologies.

The United States also has an unparalleled export opportunity within reach. Lower cost North American natural gas -- compared to what the rest of the world is paying -- would be a boon to our trade prospects and help dramatically reduce deficits. At its lowest level in 2012, natural gas in the United States traded at around one-fifth of import prices in Europe and one-eighth of those in Japan.

So, you'd think that the prospect of a huge export market for U.S. liquefied natural gas would be cause for celebration. Not everywhere, it seems.

A group of big businesses joined under the banner of "America's Energy Advantage" are working feverishly to bottle up LNG exports in an effort to artificially suppress the price of domestic natural gas. These companies, including chemical manufacturers and metals producers that use natural gas as a feedstock or source of power, argue that LNG exports will significantly raise the price of gas.

This is terribly shortsighted. Not only are these companies wrong about the price effect of LNG exports, they miss the larger picture of the vast wealth creation in the United States that a robust energy export industry will create. The more LNG that is exported, the greater the net benefits to the United States economy in the form of real income. That income, or wealth, goes directly into the pocket of landowners, manufacturers and a broad sweep of workers in energy, shipping, plant construction, pipeline fabrication -- among others. In short, exports help everyone over the long term.

The president can achieve his goal of doing something about climate change, even as he pursues his "all of the above" strategy. That begins with putting pro-growth, pro-free trade policies in place that keep the United States' energy revolution in high gear.

(Michael J. Economides, Ph.D., is professor of chemical and biomolecular engineering at the University of Houston and a contributor to the Great Speculations column at Forbes magazine.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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