Oil, Irony, and Obfuscation — 5 March 2012

Gas prices are going up.  This weekend I filled up at Costco and the discounted price was a penny or two shy of four dollars a gallon.  And the Cassandras are saying it could go up to five or even six dollars by summer.  This spells trouble for President Obama. High fuel prices are felt very day by the voting public, and there are few more immediate indicators of economic vitality – or its lack – than gas prices.  Moreover, high energy prices, if sustained, could tip the economy back into recession.  That’s not a re-election scenario.

There is plenty of irony here.  For one thing, these high prices are not really Obama’s fault.  Prices are set in the global market, and are responsive to the entire panoply of economic, political, and physical supply influences.  So to the extent that voters blame Obama for high fuel prices the causes of which are beyond his control, the charges are unfair.  On the other hand, Obama has received more than his share of accolades that were equally undeserved, from the Nobel Peace Prize to the very job he holds today.   So there’s some poetic justice in his catching flak for the pump price.

But the larger irony is that high energy prices lie at the core of his energy policy.  He has wanted this all along!  The Obama energy philosophy can be summed up as follows:  Global warming is real and is caused by human-generated greenhouse gases.   People are too feckless to limit their consumption of fossil fuels on their own, so the benevolent coercion of government is needed to change their habits. What is needed is to reform the market so that clean fuels can compete with carbon fuels, so people will turn to them voluntarily.

The problem with this philosophy is that nature is wildly tipped toward fossil fuels.  Nothing comes close to the portability and btu-generating efficiency of carbon-based forms of energy, so they have a natural edge on any competing forms.  Add to that the fact that alternative fuels don’t have self-sustaining economics, so they can’t compete without substantial government subsidy.  Thus we get government as (incompetent) venture capitalist, putting the match to billions of taxpayer dollars in companies like Solyndra, as well as in decades worth of subsidies for entire industries like ethanol, not to mention newer fantasies like electric cars that people don’t actually want and high-speed trains.

But this is not enough, so the energy plan also calls for raising the cost of the carbon fuels.  That’s what Cap and Trade was all about: by limiting the amount of permissible CO2 emissions, the scheme raises the price of fuel consumption.  And when Cap and Trade failed in Congress, the administration, undaunted, instructed its EPA to achieve the same end via regulation.  With carbon fuels made more expensive and alternative fuels subsidized, Obama’s vision is a “market” that leads to a carbon-free future.

So here is the plan –  the  government shoves its hand into Joe Sixpack’s right pocket by raising the cost of everything from gasoline to heating to everything he buys that uses fuel in its manufacture (that is, everything); meanwhile it shoves another hand into his left pocket, extracting the taxes to pay for the clean energy boondoggles.

At the end of the day, higher gas prices are precisely where Obama wants to lead the country.

There is further irony in this: the country is awash in carbon fuels.  As a result of advances in extraction technology, we are producing millions of barrels of oil from sources such as shale and tar sands that until recently were completely uneconomical. In recent years our oil industry has reversed a decades-long trend of steadily declining production. Imports of oil are down 10% from a few years ago, and for the first time in six decades this country is a net exporter of petroleum products.  The flood of natural gas from the fracking revolution is also helping the United States become a major power in the energy world.

The additional supply holds the long-term promise of finally making the U.S. energy independent.  But it’s not actually holding prices down, primarily because the global market is pricing in the risk of supply disruption from the Middle East and the risk of an  inflated dollar.

Here is the obfuscation: President Obama is claiming credit for this flood of oil.  “Under my administration, America is producing more oil today than at any time in the last eight years,” he proclaimed proudly.  His choice of words was careful – he did not say, “due to my administration,” or “as a result of…” because the increase in production was virtually all due to drilling on state and private land.  Indeed, he might better have said, “in spite of my administration…”

According to the Institute for Energy Research, production on state lands has gone up by 14%, and on private land by 12%, in the last year alone.  Meanwhile, production on federal land declined by 11%, and over the last ten years it has fallen by a full 44%.

This, too, is in keeping with Obama’s intention.  His administration has canceled leases and plans for exploration dating from the Bush administration, including in the Great River Formation, which is estimated to hold over one trillion barrels.  And of course, after the Deepwater Horizon disaster, permitting in our deep water coastal areas has slowed to a crawl.  Never mind trying to get permits for Alaska, either in ANWAR or elsewhere.  Finally, Obama chose environmental orthodoxy over jobs in his denial of the Keystone Pipeline, one of the most shovel-ready projects to appear in the last several years.

Now, he says, he wants an “all of the above” energy strategy.  That’s funny – he was the guy who started out saying he wanted to “free this nation from the tyranny of oil once and for all.”  Here’s the final irony: back in 2008, the one calling for an “all the above” energy policy was…Sarah Palin!

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