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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

The Politics of Domestic Energy Production



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Recently, John Ellis of Buzzfeed and Shawn Tully of Fortune both published columns on domestic energy production. Ellis focuses on the political dimension:

The next great boom will be powered (in this case quite literally) by the technological revolution that is happening, right now, in America’s energy industry. New extractive technologies — “fracking” being the most discussed — will make us richer than we ever imagined possible. Energy genomics — biology doing for energy what it did for agriculture — will make us richer still. About this, Team Obama has nothing to say, in large measure because it has spent much of the last three years trying to forestall the technological revolution that is transforming the energy business here in North America and around the world. Clinging to its dream of a green energy future, Team Obama sees brown energy not as a locomotive, but as a threat.

Therein lies Mitt Romney’s opportunity. If he can make the case that a Romney Administration would shift American energy policy away from Team Obama’s naïve and sometimes embarrassing (Solyndra) attachment to green power and do everything in its power to accelerate brown power (natural gas, basically), then he will own the high ground on economic growth. Own the issue of economic growth and the electoral betting line turns abruptly against the president.

Ellis believes that Romney needs to make the Keystone energy pipeline central to his campaign narrative. My strong suspicion, however, is that the Obama White House will cave on Keystone, sensing its political vulnerability. But another potential wedge is the expensing of intangible drilling costs, a provision that the president has repeatedly attacked yet that is important to encouraging the exploitation of shale gas.

Tully, meanwhile, argues that domestic energy policies really could have a material impact on the global oil prices:

So how much new oil must the U.S. must produce to substantially lower the world price? A lot. By Kreutzer’s reckoning, an additional 1% increase in world output lowers the global price by between 2% and 3%. Today, the U.S. makes produces 6 million barrels a day of crude. So what would happen if the U.S. were able to produce an additional 2 million barrels a day? That’s 2.3% of world supply, so that prices –– all other things being equal –– would fall between 4.6% and 6.9%. We’re talking about a decline of between $4.70 to $7.10 a barrel, based on today’s prices.

But is an increase on that scale conceivable? Today, shale oil flowing from such booming fields as Bakken in North Dakota, Eagle Ford in Texas and Marcellus in Pennsylvania are pumping around 400,000 barrels per day. According to a study by energy consulting firm Purvin & Gertz, that number could rise to 1.3 million barrels by 2020. Reaching the 2 million mark would require a shift in regulatory policy in favor of far more drilling.

For example, the administration has rescinded drilling permits for the Chukchi Sea in Alaska and left the Atlantic and Pacific coasts off-limits to production under the Outer Continental Shelf Oil and Gas Leasing Program. Those two areas boast reserves equivalent to almost 40 billion barrels. Getting an extra 1 million or more barrels a day from domestic sources is indeed feasible: Since 2007, crude production has already jumped about 1 million barrels per day, or 20%.

One can imagine a scenario in which the Romney campaign emphasizes job creation, domestic energy production, and other economic issues while the Obama campaign focuses on social issues. 



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