In an Election Year, Time to Talk Energy

Just a thought, but how great would it be if one of this fall’s presidential debates focused solely on energy issues?

Past presidential debates have discussed the economy and jobs, national security and foreign policy, and of course all of those are important. Yet, when you think about it, energy is the nexus where all come together.

Energy runs our economy, literally, and the quest for it supports millions of jobs and could create hundreds of thousands more. Our need for reliable, affordable energy figures prominently in national security and foreign policy decisions. An America that meets most or all of its energy needs here at home would be safer, its prosperity less vulnerable to geo-political developments.

So, when the people who decide the topics for this year’s presidential debates get together, maybe they might consider devoting one evening for a thorough energy discussion. Exelon’s James Connaughton, former senior energy and environmental policy advisor in the Bush administration, talking this week about energy as an election-year issue:  

“This is the first election in a long time where energy is in the top five list – not surprisingly because of the immediate connection to jobs and economic growth. In the past, when jobs and economic growth weren’t at the forefront, maybe we weren’t thinking about energy so much. But I’m amazed – both the Obama campaign and the Romney campaign, they’re spending a lot of time talking about energy and visions of energy.”

There’s plenty to talk about. This week API presented a series of platform recommendations to the two political parties that get to the heart of what America’s energy future could look like. The planks:

Greater domestic resource access

Open the eastern Gulf of Mexico and the Atlantic and Pacific outer continental shelves for energy exploration and development, where more than 100 billion barrels of oil and nearly 480 trillion cubic feet of natural gas are believed to exist. Currently, 87 percent of our offshore areas are closed to exploration and development:

Open a small portion of the Arctic National Wildlife Refuge and parts of the Rocky Mountains to development, while lifting the drilling moratorium in New York.

Common Sense Regulation

Build a federal regulatory structure that’s transparent, open to input from all stakeholders and bases rules on sound science.Develop a rule-making process that’s based on legitimate cost-benefit analysis and implementation timelines that consider economic impacts and resource availability.Adopt an approach that accounts for the cumulative effect of multiple regulations, avoids unnecessary duplication and provides regulatory certainty.

Efficiency and Timeliness in Permitting

Approve the complete Keystone XL pipeline immediately.Create a federal permitting process that encourages investment in U.S. offshore projects.Increase federal lease sales and adopt pro-access processes to improve development on public lands.

As this chart shows, delays in government leasing and permitting are a contributor to the trend lines in oil and natural gas production in federal onshore and offshore areas:

Sustainable Energy Future

Commit to market-based development of new energy sources (instead of government picking winners and losers through the tax code).End calls for special, punitive tax increases on the oil and natural gas industry.

API President and CEO Jack Gerard:

“A political and policy commitment to a developing our domestic oil and natural gas resources will provide not just energy security, but financial security for millions of Americans. … Through the Vote 4 Energy campaign, we have outlined our vision for a future where people and the economy benefit with hundreds of thousands of new jobs, increased investment in America and billions in new revenues for government while bolstering national security.”

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Ethanol – Academics and Reality

Supporters of continuing ethanol subsidies are once again using a study out of Iowa State to bolster their case, and once again, it doesn’t.  This year’s study, “The Impact of Ethanol Production on U.S. and Regional Gasoline Markets: An Update to 2012,” is an update to their previous work. In reviewing that work, here’s what the Institute for Energy Research concluded:

"The recent Iowa State study claiming that ethanol production has suppressed the growth in gasoline prices is very misleading. It takes for granted the current refinery capacity and other infrastructure that industry uses to deliver gasoline to motorists, without realizing that federal policies over the years have distorted the development of these markets. Ethanol only survives in the market place at its current levels because it is propped up by artificial mandates and preferential tax treatment. The regression analysis of the Iowa study doesn’t accurately capture the timeline that would have occurred had the free market been allowed to operate."

The studies’ authors concede as much:

"Because these results are based on capacity, it would be wrong to extrapolate the results to today's markets."

And yet, ethanol’s supporters extrapolate away. Here’s more on why they shouldn’t.

Common Sense:  The Renewable Fuel Standard (RFS) mandates ethanol volume that must be consumed in the U.S., and motor gasoline fuel in the U.S. is nearly saturated with ethanol at current legal limits.  The U.S. is a net exporter of ethanol.  It doesn’t make sense that incremental ethanol production results in downward pressure on gasoline markets. 

Questionable Results:  The results for 2011, even to the report’s own authors, are questionable, and possibly invalid.  Specifically, the authors say: 

"The results for 2011 are very large. These results may be questionable because we multiply a mean coefficient that is estimated over the entire sample period against data that is specific to the end of the sample period. We can be much more confident in the statistical accuracy of the estimated average impact but this estimate is not relevant to the current debate because ethanol production has surged since the mid-point of the historic data."

They correctly identify that ethanol has a 2-3 percent decrease in range when compared to gasoline, and then go on to say that its energy value is about 9 cents per gallon. They then indicate that ethanol is blended with gasoline primarily for its additive properties, such as boosting octane and oxygen content.

First, seven years ago the oxygen mandate was removed when the Energy Policy Act of 2005 was signed into law, so oxygen content is not a property the refiners are seeking. Second, to meet the RFS, refiners are required to blend gasoline with as much ethanol as possible. Indeed, the amount that can be blended today that will work in all vehicles and small engines is a 10 percent ethanol blend.  The study does not consider the possibility that without the ethanol mandates, refiners might modify their manufacturing process to produce a fuel that does not require ethanol.  Yet, the authors say, none of this makes any difference to the overall conclusions.  How can that be?

Exaggerations Abound:  The benefits of small increases in ethanol manufacturing for 2011 are overly exaggerated, especially in the context of essentially unchanged ethanol consumption between 2010 and 2011 (EIA reports an increase from 12.86 billion gallons to 12.87 billion gallons, respectively).  The report is exaggerated because this small increase does not account for increased ethanol exports. We support the manufacturing of ethanol, but we must be realistic and recognize that increased production of ethanol that is above what can be used in the U.S. is not likely to have the ability to impact gasoline prices in the U.S.

A Bad Model:  This analysis is deeply flawed as it relies on an out-of-date model that doesn’t reflect current markets.  Beginning in January 2010, the U.S. became a net exporter of ethanol.  This is a critical structural change in the U.S. ethanol industry.  However, this aspect is not included in the report’s econometric model.  This is a serious omission and doesn’t accurately reflect ethanol’s impact.  The authors indicate that: “…U.S. prices are lower than EU prices by an amount equal to transportation costs.  In context a $1.09 per gallon marginal impact for 2011 seems reasonable.” However, transportation costs on gasoline have been typically only pennies per gallon, and stating that $1.09 is “reasonable” does not pass the red-face test. As Marlo Lewis notes:

“I’m no econometrician, but this study does not pass the laugh test. We’re supposed to believe that ethanol has conferred a giant boon on consumers even though gasoline prices have increased as ethanol production has increased, and even though gas prices hit their all-time high when ethanol production hit its all-time high. If that is success, what would failure look like?”

Inaccurate statements:  The report states that the surge in ethanol production has essentially added 10 percent volume to the fuel supply, and that to remove the ethanol fraction of gasoline would decrease supply, which in turn would raise gas prices when demand is held constant. More accurately, the RFS mandate to blend ethanol has displaced 10 percent of the petroleum portion of gasoline and replaced it with ethanol.  This reduced need for gasoline has contributed to such unintended consequences as reduced refinery runs and refinery shutdowns.  The report also ignores the fact that the current economic recession has further reduced gasoline demand.  The report states that as a result of ethanol, the U.S. has been able to reverse trade patterns and export gasoline. The study doesn’t appear to take into account gasoline blending components. The U.S. still remains a net importer of gasoline and blendstocks.  Here is the Energy Information Administration U.S. Gasoline Balance for 2011:

API supports a realistic and workable Renewable Fuel Standard.  But, the U.S. will soon hit the 10 percent ethanol “blend wall,” where the vehicle fleet will no longer be able to tolerate additional ethanol in the gasoline supply.  The negative economic impact of hitting the blend wall may be substantial and is not addressed in the report.  So what is this “blend wall?”  Autoblog.com explains:

“What's this blend wall term that's tossed around in the corn fields of this country? Basically, ethanol demand is maxed out at the current 10 percent blend rate and production has hit a ceiling. So, unless either gas demand increases or the blend rate goes up, there's just no need for any more ethanol at the pump.”

As we have seen, gasoline demand is not increasing in the United States, and with the new CAFE standards it is unlikely to increase, so ethanol producers are seeking to increase the blend rate. But rather than trying to expand their U.S. market by having the federal government force U.S. consumers to use their products, ethanol producers should pursue new markets –via exports–not new mandates.

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Watch Live: Energy in an Election Year

Editor's note: The event has concluded. Archive footage is available above.

With the right leadership and policies, the United States can take control of its energy future. A new estimate that an oil shale formation in the western U.S. holds 1.5 trillion barrels of recoverable oil, expanding production of natural gas from shale and analysis that the U.S. could secure 100 percent of its liquid fuel needs through North American sources within 15 years certainly support that conclusion.

Leadership and policies. Specifically, what will it take?

At an event today, API will present recommendations to the Republican and Democratic platform committees – proposals that include detailed calls on resource access, regulatory approach and key policies needed to utilize our ample domestic resources for a more secure energy future.

In addition, API President and CEO Jack Gerard will deliver a short speech, followed by a bipartisan panel discussion with energy advisors and experts.

You can watch livestreaming of the event starting at 9 a.m. above:

Gerard:

“The question is not whether we will continue to need oil and natural gas. We will. The question is: will we use our own vast energy supplies or rely on others? … There is a choice when it comes to the policies that will help shape America’s energy future—two paths that we can take. One leads to more jobs, higher government revenues, and greater U.S. energy security—which can be achieved by increasing oil and natural gas development right here at home. The other path would put jobs, revenues, and our energy security at risk.”

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Unused Leases? You’ve Got to be Joking!

The warmed-over claim that oil and natural gas companies aren’t using large numbers of leases on public lands is like a Mark Twain line: What’s the difference between a cat and a lie? A cat only has nine lives!

Seriously, here we go again, with the administration claiming (again) that leases in federal areas offshore and onshore aren’t being used. It made similar claims in 2009 and again last year. Politico Pro [subscription required] says this year’s report is basically last year’s with a few updated numbers. Here’s a statement from Interior Secretary Ken Salazar:

“These lands and waters belong to the American people, and they expect those energy supplies to be developed in a timely and responsible manner and with a fair return to taxpayers.”

Let’s be clear: It’s simply false that oil and natural gas companies are sitting on existing federal leases while deviously clamoring for more access to other federal areas. Let’s go through the reasons why the administration’s claim doesn’t pass the laugh test.

First, energy companies are in the business of supplying energy. When they’re successful finding oil or natural gas, there’s benefit to their shareholders, including millions of Americans with pension funds, individual investments, mutual funds and IRAs – the true owners of Big Oil. Energy produced = earnings, which are used to invest in new exploration and development. These companies have every incentive to produce as much oil and natural gas as possible.

The industry is one of exploration and development, not just production. Exploration means years and millions of dollars invested in finding the energy. Too often this development is, in fact, idled by government, not industry. API President and CEO Jack Gerard, from Tuesday’s Vote4Energy event unveiling platform recommendations to the two political parties:

“If you look at their characterization of idle leases, normally they include in that leases where we’re trying to get permits, we’re trying to get permission to develop this land. For example, there was a permit approved just last week in Utah, which Secretary Salazar took great credit for. We’ve been waiting for four and a half years for that approval. In the administration’s previous analysis they would have concluded that was an idle lease, while we’re waiting for Uncle Sam to give us permission to produce these resources, to identify resources on public lands. … The industry last year alone invested $200 billion in the United States, so we’re hardly sitting on anything.”

Meanwhile, it’s also important to remember that a lease isn’t a guarantee that an area will contain any oil or natural gas. Most of them don’t have enough oil or gas in quantities sufficient to produce or in formations that are accessible. Here’s a graphic that puts the search for resources in context:

Indeed, if a company determines there’s no oil or natural gas on the lease, it returns the lease to the government, because it has to. Companies have a legal obligation – under the already existing Use-It-Or-Use-It law – to return the lease to the government if no oil or natural gas can be produced from the lease. Use-it-or-lose –it is already part of existing laws, regulations and the contracts entered into between the government and the operators.

Now, a word or two about report flim-flammery. The administration has defined as “idle” leases that aren’t idle at all. They might not be producing for a number of reasons: because of ongoing seismic work, because government permits haven’t been issued, because the rigs and supporting resources are being put in place so drilling can begin – or because drilling is occurring.

It’s just misleading to say a company is sitting on a lease when it is waiting for a government-issued permit to start drilling. These delays have broad impact. A new study commissioned by the Western Energy Alliance shows that delays related to government policy on western federal lands not only have held up energy development, they’ve prevented the creation of more than 64,000 jobs, $4.3 billion in wages and $14.9 billion in economic impact.

So why is there continued harping on unused leases? Politics. ExxonMobil’s Ken Cohen put it well when the administration released its 2011 report:

“It is hard to escape the conclusion that this study, along with the ‘use it or lose it’ legislation, is a thinly veiled political ploy … because there’s already a ‘use it or lose it’ law on the books. Politicians who don’t want to open up access to U.S. energy resources also don’t want to be blamed for high gas prices – so trying to convince Americans that oil companies are sitting on precious oil resources is their strategy. We’ve seen this before, and we’re seeing it again now.”

Again, like the joke about the cat, we’ve heard the line about unused leases before. It’s getting old.

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Continuing the Dialogue with the White House

Takeaways from White House energy and climate adviser Heather Zichal’s appearance at Monday’s hydraulic fracturing workshop in Washington, D.C., hosted by API:

Outreach – The oil and natural gas industry agrees with the Zichal and the administration that constructive dialog on energy issues is, well, constructive. Zichal:

“I give [API President and CEO] Jack [Gerard] and API and a lot of their member companies credit for this. We have worked over the last few months to try to set a better dialogue and create a better working relationship, because what the industry is doing is important from a job-creation perspective.”

Certainly, a fact-based energy discussion has wide benefits. One of the first facts to acknowledge is the role oil and natural gas play in our current energy mix (more than 62 percent of the energy we use) and the role they will play in the future (near 60 percent in 2035, according to the Energy Information Administration). Developing other energy sources and technologies is important, but any credible energy approach must include strategies to support and enhance oil and natural gas – our No. 1 and No. 2 energy sources for today and tomorrow.

Standards – Zichal acknowledged the importance of industry-developed standards:

“We know that natural gas can safely be developed, and to the credit of the industry there are many companies that are leaning into this challenge and promoting best practices for safer and more efficient production. That’s not always widely noticed or appreciated, but it’s a fact. For example, a group of major producers in the Appalachian Basin just last week announced new recommended standards and practices to promote safe and environmentally responsible energy development in that region. This kind of leadership and the underlying commitment by industry to continuously improve and adopt effective practices as technology evolves is something our administration applauds.”

We welcome this recognition on behalf of the administration by Zichal, who’s chairing the White House interagency working group that is coordinating the ongoing federal hydraulic fracturing review. For some time industry has been committed to developing standards and guidelines for hydraulic fracturing, which form the basis for many companies’ operations and upon which a number of states have crafted their regulatory regimes. Perhaps Zichal’s acknowledgement will help lessen the chance the federal government will unnecessarily duplicate what the states already are doing.

States – Related to standards, Zichal said that the administration recognizes the states are the No. 1 or lead regulator of hydraulic fracturing. Gerard, during a conference call with reporters last week:

“The states are regulating hydraulic fracturing effectively and are fully capable of handling it on a larger scale as shale development expands. … They understand the risks and challenges.  They understand the local geology and hydrology.  They have the experience.”

Exports – “As a general rule of thumb, we [the administration] are not opposed to [liquid natural gas] exports,” Zichal said. While there’s some elasticity here, perhaps the general acknowledgement that abundant U.S. natural gas may be exported – benefiting our trade balance while supporting U.S. jobs – will tamp down talk in Congress of restrictive natural gas legislation.

Of course, the true test is what the administration does. Will its actions on domestic oil and natural gas match its words? Will it help increase access to these resources and others in federal areas onshore and offshore – reversing the downward trend in natural gas production on federal lands? Will Zichal’s task force prevent the overregulation of hydraulic fracturing that could check the energy-from-shale revolution in its infancy?

Good questions. Stay tuned.

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May 5, Moterman

by Ajay kumar
(India(chandigarh))

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May 9, Chef position..

by Brad Taylor
(Horsham Vic. 3400)

Chef-16 years.. 7 as breakfast chef in busy cafes and bistros in Melbourne and more recently country Victoria. I have successfully completed my STCW95 Marine safety course have a passport and am also booked in for an A.M.S.A. Medical on the 18th May. I will be ready for employment within two weeks of notice!! I will get a position in the off-shore mining or shipping industry, whether it is with your company or not is now up to you!! Brad Taylor ph.0407044513 email bradtaylor39@yahoo.com.au thank you for your consideration,,

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