Time for a New Energy Policy

OWOE Staff: It’s a new year, we have a new president and administration, and we have new hope that the plan to vaccinate Americans is going to finally end the pandemic. What we don’t have is new thinking on what this country should be doing for a long term, rational and strategic energy policy. OWOE believes it is the right time to propose a comprehensive energy policy that balances America’s needs with the planet’s needs and is based on sound economics, realistic technology and good common sense. The OWOE energy policy combines several key elements, including: firm commitment to dramatically reduce dependence on fossil fuels in a planned and rational manner, sustainable investment in renewable technologies, and establishment of a North American Energy Alliance (NAEA) between the US and Canada to aggressively develop and globally sell our existing energy resources.

This country desperately needs a cohesive and strategic energy policy that is more than a reaction to current events or political lobbyists. The country has been talking about one since the first Arab oil embargo of 1973-74, but never had the political will to create one. Recent history shows how poorly we have addressed this issue.

The Trump administration tried to push through new pipeline approvals, open up the Arctic National Wildlife Reserve (ANWR) and offshore drilling, exit the Paris climate accord and gut clean air rules. All very fossil fuel supportive. But what happened? The environmentalists began screaming, states put up roadblocks to the federal plans, covid caused demand to plummet, and economics got in the way. The results? No new drilling, no bids on ANWR leases, oil production falling (Fig. 1), oil and gas companies slashing budgets and personnel.

Fig. 1 – US Oil Production Drop (EIA)

The new Biden administration has already started to follow in the footsteps of the Obama administration, so we’re back in the Paris accord, the Keystone XL pipeline permit has been revoked, the federal auto fleet will be replaced by EVs, and money will be thrown at renewable energy technology. All very climate friendly and renewables focused. But how soon before conservatives and oil lobbyists start to scream or the States of Alaska or Texas sue the federal government? And what about the fundamental fact that oil and gas is still necessary for America’s economy and will remain so for quite a while.

With respect to new, green energy, there has been noticeable progress in many states with large commercial onshore solar and wind farms being installed. Texas, known for its oil industry, is the largest producer and consumer of renewable energy in the union. Wyoming, the leading coal producing state in the union, has the potential to become a leading wind energy producing state. Unfortunately, in many areas of the country new renewable energy projects face opposition from utilities and local concerns, lack of infrastructure, inconsistent regulations, and both cost and technology challenges. More needs to be done with a strategic vision.

OWOE proposes a comprehensive energy policy that derives from a fundamental premise that safe, secure energy resources are vital for a modern society. Ancillary to this is that for the long term benefit to America and the planet the future of energy is renewable. We must remove our dependence on fossil fuels, reduce carbon emissions and bring global warming under control. The question is how we get from here to there, recognizing that this cannot happen overnight. OWOE has argued since inception that there must be a sustainable and planned transition to renewables.

In order to achieve the Paris Agreement goal of controlling global warming, experts believe the world must achieve carbon neutrality by 2050. While the populist rallying cry is to stop pumping oil immediately, the reality is that this is impossible unless you immediately shut down economies (food production, pharmaceuticals, smart phones, etc.). A more realistic view is a gradual decline that gives time for the fundamental changes required. Pre-pandemic worldwide oil consumption was about 100 million barrels per day. If we define carbon neutrality at 20 million barrels per day oil consumption (see Fig. 2), doing the math and assuming a straight-line decline, that implies a total consumption over the next 30 years of about 650 billion barrels of oil. Yes, billion. 

Fig. 2 – Oil Demand Forecast (BP)

Where will that oil come from? Here are the 10 countries with the largest proven oil reserves: 

  1. Venezuela – 304 billion barrels
  2. Saudi Arabia – 298 billion barrels
  3. Canada – 170 billion barrels
  4. Iran – 156 billion barrels
  5. Iraq – 145 billion barrels 
  6. Russia – 107 billion barrels 
  7. Kuwait – 102 billion barrels 
  8. United Arab Emirates – 98 billion barrels
  9. US – 69 billion barrels
  10. Libya – 48 billion barrels

The total for these 10 countries is approximately 1500 billion barrels, or 1200 billion barrels excluding Venezuela, which is so messed up that they can’t be counted on to make a meaningful contribution, despite purportedly having the largest reserves in the world. This means that the world will need to produce about 50% of current reserves. 

Of note is that the only Western democracies on this list are the US and Canada, which in total account for 240 billion barrels and could supply a significant fraction of the world’s needs, if we have the will to do it. Alternatively, we could supply zero and leave it up to countries such as Saudi Arabia, Iran and Russia to fill the gap, making billions and billions of dollars for their corporations and rulers. That’s what many of the most ardent environmentalists in Canada and the US seem to be advocating: Make the US and Canada stop oil production because it generates greenhouse gasses. But wait a minute…those other countries are already investing in additional oil production and would dearly love for the US and Canada to quit producing oil altogether. Those other countries aren’t democracies, don’t care about the wellbeing of their people and don’t have any qualms about spewing carbon dioxide or methane into the air or polluting everything in their way. Why would we ever think it is worse for the US or Canada with our strong environmental laws to produce the oil that the world needs instead of Russia or Saudi Arabia or Iran? Why would we ever think it is better for consumers to buy oil and send money to countries that murder journalists, ignore human rights, subjugate women, pollute their land and water, or openly supports terrorism against us?

So here’s OWOE’s proposal for a real energy policy:

1) Create the NAEA with the goal to produce as much energy as possible in the US and Canada, as quickly and with as low an environmental impact as possible, to ensure all domestic needs are met and to sell the remainder to the world markets by: a) removing all barriers both within and between both countries to transporting crude, natural gas, and high-voltage power, i.e., restart the XL Pipeline, build LNG facilities, build transmission lines, and repeal the Jones act that puts the US at a shipping disadvantage; b) re-invigorating domestic energy production by removing obstacles that are based on political activism rather than science and economics, i.e., fracking bans, offshore drilling bans; c) developing consistent and streamlined environmental regulations; and d) competing on the world market as a unified entity.

It should be noted that the US and Canada are already very mature, highly integrated energy partners with annual bilateral energy trade of $119 billion in 2019 (See Fig. 3 for details of existing energy trade, including infrastructure that is already in place), and extending to a more formal NAEA would not be difficult. There are already proponents for an NAEA on both sides of the border. In 2017 the Canadian Electricity Association published a research report advocating more interconnection between the two nations. The report concluded that much integration would achieve a higher level of reliable service, enhanced system stability and greater overall operating efficiencies. Such benefits could be achieved across all NAEA energy systems and would benefit both nations collectively more than each working independently.

Fig. 3 – US-Canada bilateral energy trade (CSIS)

2) Invest in renewable energy technology development and implementation. This should include research and development, support for prototypes, investment tax credits, production tax credits, and rebates to consumers who drive the move to renewables by purchasing electrical vehicles, solar panels, energy efficient homes, etc.

3) Streamline and make consistent all regulations across the states and provinces to encourage investments in commercial and private energy facilities, including wind and solar, oil drilling and production, LNG export, pipelines, high voltage transmission lines, etc.

4) Develop mechanisms to put the economic impact from the use of fossil fuels on climate change, public health issues, and world security onto the end users of such fuels. This cost impact should be on the consumer rather than the producer and very visible for the simple reason that consumers react much more quickly to a cost that hits them directly in the wallet vs one that is combined in, and obscured by, all the other product cost elements. Plus, it makes no logical sense to burden a company and its shareholders for supplying a product that the consumer wants.

The world is moving toward a renewable energy future, and OWOE believes that with a coordinated and concerted effort, the two largest democratic oil-rich countries on earth can both accelerate that move and profit greatly from it. It’s us or them. Onward NAEA!

(Note: this blog was originally published on 2/1/2021. It was updated on 2/2/2021 to add Figure 2.)

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