Navigant Research Blog

Is the President “Oil-Blind”?

— April 27, 2012

In articles, op-eds, and books like Power Hungry, Robert Bryce has become America’s foremost skeptic of renewable energy generation.  It’s not that Bryce doesn’t like wind, and solar, and biofuels; he just scoffs at the notion that they are going to provide enough power, at low enough prices, over the next few decades to make a dent in energy demand.  (Disclosure: when Bryce was editing the website Energy Tribune I contributed a few articles, and his work is mentioned in my new book SuperFuel.)  Now Bryce has written an article for Slate demanding to know why President Obama is so “blind” to the big production surges coming from domestic oil and gas resources.

In 1990, Bryce writes, the United States had 33.8 billion barrels of proven oil reserves.  Today that figure stands at 31 billion barrels.  Over the two decades from 1990 to 2010, “the domestic oil sector produced about 52 billion barrels of oil.  In other words, between 1990 and 2010, the United States produced nearly twice as much oil as we believed the whole country had in 1990, and yet at the end of that period, we still had about the same amount in proven reserves.  What’s going on?”

The answer, of course, lies in the “shale revolution” – the technological advances that have allowed producers to wring oil and natural gas from so-called “tight rock,” reserves that 10 or even five years ago would have been uneconomic to produce.  So far, this is inarguable.  But Bryce, who has a penchant for drawing sweeping conclusions from data that could be interpreted in varying ways, goes on to claim that Obama is not only anti-Big Oil but is ignoring (or ignorant of) the economic and geopolitical ramifications of the shale revolution.  Obama is “wrong about what those percentages mean, and his wrongness reflects a fundamental misunderstanding of the oil and gas industry.”

The Innovation Debate

There are two things wrong with Bryce’s argument. No. 1 is that Obama is hardly blind to the achievements of the domestic oil and gas industry.  To be sure, Obama has tried to balance political demands from his Democratic base with the oil industry’s demand for more pipelines and more drilling.  But here’s part of Obama’s Jan. 18 statement when he essentially put off a decision on approval for the Keystone XL pipeline expansion: “This decision … does not change my Administration’s commitment to American-made energy that creates jobs and reduces our dependence on oil.  Under my Administration, domestic oil and natural gas production is up, while imports of foreign oil are down.  In the months ahead, we will continue to look for new ways to partner with the oil and gas industry to increase our energy security –including the potential development of an oil pipeline from Cushing, Oklahoma to the Gulf of Mexico – even as we set higher efficiency standards for cars and trucks and invest in alternatives like biofuels and natural gas.  And we will do so in a way that benefits American workers and businesses without risking the health and safety of the American people and the environment.”

That is hardly the language of a man ignorant of rising domestic oil and gas production.  Obama wants to move toward a non-fossil-fuel energy system while producing domestic oil and, in particular, natural gas to fuel U.S. industry and create jobs.  Even Bryce would have a hard time arguing with that strategy.

The No. 2 caveat to Bryce’s Slate article is that the following statement is blatantly untrue:  “Over the past few years, the oil and gas sector has out-innovated the political darlings of the moment: solar and wind energy.”  Innovation in the wind and solar sectors has been second to none, without the increasingly apparent environmental damage that hydraulic fracturing, or fracking, is causing in tight-rock oil and gas production areas.  As my colleague Peter Asmus has pointed out, the price of power from solar photovoltaic arrays has declined to near grid-parity levels, even as federal subsidies are being phased out.  Bryce strays into ignorant territory himself when he suggests that the practice of pumping chemicals into the ground to break up geologic shale formations is somehow more “innovative” than the rapid advances in solar technology.

In reporting for a cover package on the natural gas boom for Fortune, I spoke to John Deutch, the former CIA director, now an Institute Professor at MIT.  Hardly a tree-hugger, Deutch is all for the economic benefits of the shale revolution; but he sees it through a wider lens than Robert Bryce.

“I recently chaired a committee studying the environmental impacts of shale gas production,” Deutch told me.  “We came to the very strong conclusion that those impacts have to go down over time if the U.S. is going to support those advances in production.

“Air quality, water quality, community effects – these are very important issues. What concrete action are we taking to reduce those problems?  The answer is, ‘Not enough.’”

Taking a measured approach to energy policy, even as cheap natural gas floods the market, is what presidents are supposed to do.  There’s nothing blind about that.


Keystone Delay Nothing to Shout About

— January 20, 2012

The so-called “cancellation” of the Keystone XL pipeline, designed to bring heavy oil from the tar sands of Alberta, Canada to the Midwestern United States, is being trumpeted as a major victory for U.S. environmentalists as well as a controversial move by President Obama that will provide ammunition for his Republican opponents in the November election.  The latter is almost certainly true; the former is more questionable.

Briefly, Obama declined to issue a permit for the expansion of the Keystone pipeline, owned by TransCanada, which would increase imports from carbon-intensive oil sands into the U.S. by up to 830,000 barrels a day.  Mined (not pumped) from deep deposits found below the boreal forests of Alberta, oil sands comprise a gluey mixture of sand, clay, and bitumen.  Studies indicate that on a “well-to-tank” basis, fuel from oil sands release 82 percent more greenhouse gases than light crude from, say, Saudi Arabia.  In both North America and Europe, opponents are trying to label oil sands “dirty” and make their products too expensive to transport and sell.  In an ideal world, this would lead to more use of alternative fuels, solar power, electric vehicles, and so on.  Unfortunately we don’t live in an ideal world, and there are many misconceptions around the Keystone XL dust-up.

  1. Less oil imported from oil sands does not lead directly to more use of renewables.  This is not a zero-sum game.  Total U.S. imports of fossil fuels are not going to go down because one pipeline doesn’t get built, or expanded, nor is investment in solar power, wind, hydrogen infrastructure, or any other cleantech energy source going to rise as a direct result.
  2. Keystone is only one front in a wider war.  Texas oil company Kinder Morgan, for example, has proposed an expansion that would more than double the capacity of its Trans Mountain pipeline carrying Canadian oil to Vancouver, to 700,000 barrels per day.  “The expanded capacity would likely enable more tankers to ship Albertan crude to refineries along California’s coast,” writes Maria Gallucci on InsideClimate News.
  3. The Keystone XL project, and the oil it’s designed to carry, are not going away. “As for the oil sands, the initial new volumes will reach the United States aboard trucks and railroad tankers, providing time for Obama or his successor to approve the pipeline in the beginning of 2013, and for Keystone to be finished just in time for the bulk of the bitumen in 2015,” observes Steve LeVine, on his blog The Oil and The Glory.

Environmentalists who want to limit the imports of nasty oil from Canada’s oil sands are fighting the wrong battle, argues Lisa Margonelli, on  “We need to stop fighting oil development project by project — and instead focus on passing a Low Carbon Fuel Standard (which could make the Keystone XL economically unviable), and on reducing oil consumption overall.”  Opponents of the Keystone project are like drug warriors trying to interdict cocaine shipments along America’s borders: they need to lower demand at the point of consumption rather than trying to block the supply.  As long as Americans want to drive gas-guzzling vehicles, the market will operate to supply them with the fuel, no matter how unclean or expensive or distasteful the stuff is.

“Once the oil’s flowing, it has to go somewhere,” Tony Clark, chairman of the North Dakota Public Service Commission, told CBS News in a nice summary of economic doctrine.

In fact, economic forces alone may eventually stop big, dirty oil projects like Keystone XL.  Oil sands become unprofitable when the price of oil on the world market drops below a certain level – perhaps as high as $80 a barrel, certainly anything lower than $50 a barrel. I predicted more than a year ago that oil prices were going to drop; right now they are being propped up by Iran’s threats of gunboat diplomacy in the Strait of Hormuz.  Nick Butler, the chair of King’s Policy Institutes at King’s College London, agrees with me: On balance, … the main worry for the world’s oil producers is that prices will fall. Three factors support this view – supply, demand and politics. … The reality is that oil demand is peaking.”

In 2007, Butler notes, the International Energy Agency forecast that demand would rise to more than 116 million barrels a day over the next two decades.  The most recent IEA forecasts see demand barely reaching 100m b/d.  Like a weak-willed cokehead, the world is slowly, reluctantly overcoming its addition to fossil fuels.  Regardless of political maneuvering, that makes the future of the oil sands dubious.  One delay of one pipeline, though, is nothing to shout about.


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