The Need
In its seminal report, “Facing the Hard Truths about Energy,” the National Petroleum Council called for a variety of measures to address the world’s growing demand for energy and the limitations on supply. All sources of energy — from efficiency and conservation, renewables, nuclear and clean coal, to additional domestic oil and gas production — were recommended. Prior to the economic recession, global oil demand and supply have been alarmingly tight, with less than 1 million barrels per day of cushion, and we have every reason to believe this situation will return with better economic times. Under these conditions, an additional 1 million barrels per day of domestic production would make a difference in gasoline prices. Natural gas has been similarly high and volatile. While oil is a globally traded commodity, natural gas is regional.
It must be remembered that oil and natural gas are more than a fuel. These hydrocarbons are the basic building blocks for the chemicals and plastics that are used in 96% of all manufactured goods.
U.S. manufacturers are competing with producers in parts of the world that have access to cheaper natural gas. Demand for natural gas by power generators, an industry sheltered from global competition, increased at a rate of 5.4% per year over the past decade. Due to increased prices and the inability to “pass along” higher energy costs due to global competition, industrial consumers were forced to decrease consumption by a similar amount.
We believe this competitive disadvantage for American manufacturers will continue over the long term The eventual enactment of climate change legislation will result in the increased demand for natural gas, perhaps dramatically so if clean coal with carbon capture and storage and sufficient additional nuclear power can’t be deployed quickly enough. Some producers are seeking to legislate new uses for natural gas in power production and motor vehicles. This could create another relatively inelastic source of demand, further positioning manufacturers as the shock absorbers for the inevitable demand destruction that will occur with sustained high prices.
Solutions
While efficiency, alternatives and renewables are essential to our energy security, so too is the need to produce oil and gas from American sources. During peak energy prices of mid 2008, we were on a path to export up to $500 billion per year to foreign oil producers. Something must be done to capture a larger portion of this value to sustain American jobs, reduce inflation and improve the local economy. This nation can no longer afford the zero-sum debate between energy producers and environmentalists. It is time for a new consensus on domestic energy production. This new consensus should be based on the following principles:
- Congress should not re-impose the moratoria on offshore drilling, but create a statutory construct under which drilling can go forward in a safe and effective manner.
- President Obama should not reinstate the presidential moratoria.
- Any offshore energy access policy should be flexible enough to assure that coastal views are protected and that access is provided in areas expected to offer the greatest prospect for productive oil and gas wells. It makes no sense to establish a 50- mile ban that closes off a huge natural gas field 35 miles from shore.
- States should share in the revenue from offshore energy production. Given the current fiscal strain on state budgets, offshore oil and gas revenue sharing can be of enormous benefit to state economies if used prudently.
- The granting of states the right to opt-in to offshore drilling should be explored. This must be balanced against the national energy security imperative and the fact that the energy off our shores is federal land and the resource belongs to all of the American people.
- The federal share of royalty and bonus bid revenues should be dedicated to promoting energy efficiency, renewable energy and other low-carbon technology development.
