WASHINGTON D.C. — The Obama administration released today a draft of new Interior Department regulations regarding hydraulic fracturing that are designed to impose yet another layer of bureaucratic obstruction to full-scale development of America’s oil and natural gas resources. Additionally, the administration released a plan to close public lands in Western states to oil shale development, effectively limiting access to a region that contain more than 1.5 trillion barrels of recoverable oil.

IER President Thomas Pyle released the following statement in response to the administration’s actions:

“The new rules appear to run counter to President Obama’s recent State of the Union address, in which he pledged to “take every possible action” to increase production on public lands. The damaging effects that these new rules will have on job creation and robust domestic energy development cannot be overstated.

On the one hand, the administration wants to take credit for increased production on state and private lands and for offshore lease sales that were scheduled five years ago. On the other hand, the administration continues an ideologically-driven quest to stifle job creation in the energy sector and to raise the cost of energy through more regulation, more mandates, and more restrictions on affordable sources. At best, this administration is suffering from acute energy schizophrenia. At worst, the administration is using brute administrative force to hurt the oil and gas industries and reward its green energy cronies.

“It is hard to believe the administration’s rhetoric about greater energy independence when its every action continues to lead America further away from that goal. And with record job creation now happening in the traditional energy sector, this latest tranche of regulations demonstrates just how willing the President is to kill the goose that’s laying the golden egg.”

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Setting the Context: Obama’s State of the Union

The Pickens Plan calls for ending America’s “addiction” to foreign oil through government incentives to encourage energy conservation, a foster a huge increase in electrical generation from wind and solar, and to convert America’s vehicles to run on natural gas. (There are many problems with the Pickens Plan, but in this post we are going to focus just on the mindset behind the man pushing it, and his casual attitude toward energy prices for consumers.)

In his State of the Union address, President Obama—though not mentioning Pickens by name—clearly endorsed a compatible energy policy:

But with only 2 percent of the world’s oil reserves, oil isn’t enough. This country needs an all-out, all-of-the-above strategy that develops every available source of American energy. (Applause.)

A strategy that’s cleaner, cheaper, and full of new jobs. We have a supply of natural gas that can last America nearly 100 years. (Applause.)

…The development of natural gas will create jobs and power trucks and factories that are cleaner and cheaper, proving that we don’t have to choose between our environment and our economy. (Applause.)

…

Now, what’s true for natural gas is just as true for clean energy. In three years, our partnership with the private sector has already positioned America to be the world’s leading manufacturer of high-tech batteries. Because of federal investments, renewable energy use has nearly doubled, and thousands of Americans have jobs because of it.

…

I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here. We’ve subsidized oil companies for a century. That’s long enough. (Applause.)

It’s time to end the taxpayer giveaways to an industry that rarely has been more profitable, and double-down on a clean energy industry that never has been more promising. Pass clean energy tax credits. Create these jobs. (Applause.)

Later on, in remarks at an Air Force base in Colorado, Obama continued to push for more use of natural gas to help America make the ultimate transition to “clean” energy such as wind and solar.

Putting aside the absurdity of Obama’s proposals—for example raising taxes on efficient energies in order to subsidize inefficient ones, all in the name of economic growth and job creation—it’s easy to see why T. Boone Pickens feels that he’s finally getting some respect from important people. Now that we’ve set the stage, we can explore the implications of Pickens’ views on energy prices.

Pickens on Higher Heating Costs: Let Them Eat Wind

In the beginning of the Squawk Box interview, co-anchor Becky Quick explained to the viewers that Pickens had been vindicated by the president’s proposals to effectively implement the Pickens Plan, three and a half years after the Texas oil man first announced it. Pickens modestly accepted these accolades, and spoke matter-of-factly of the trucking fleet’s transition to natural gas, because it was currently cheaper than diesel. But then Ms. Quick raised some concerns about natural gas prices rising and upsetting this trend. Pickens’ response is quite revealing. Here’s the relevant exchange (with Quick’s slip of the tongue edited out of the transcript for brevity), starting around 1:30 in the interview:

Becky Quick: But Boone, natural gas prices are so cheap at this point, that you have talk this week about some of the companies starting to shut in [natural gas]…Prices are so cheap at this point, to be shutting in some of the natural gas, what’s that going to do if prices start to come back as a result, and come back higher?

T. Boone Pickens: Well they probably will come back higher Becky, but my gosh, the parity oil-to-gas is 6-1, it’s now 40-1. So you have plenty of room to come back, go up. See if you move back up to $6 on natural gas, you can start to do wind again.

To understand the significance of Pickens’ nonchalant remarks, note that he is casually discussing practically a doubling of natural gas prices from current levels:

US Natural Gas Wellhead Price (nominal $/1000 cubic feet, monthly)

Source: Energy Information Administration

T. Boone Pickens is personally not afraid of such a massive jump in natural gas prices, since the country could then “start to do wind again.” But in reality, a roughly $3 increase in natural gas prices would be devastating to the U.S. economy, particularly in its current condition.

According to the EIA’s most recent data [.pdf], as of November the US in the previous 12 months had consumed 24.6 trillion cubic feet of natural gas. Using back-of-the-envelope calculations, we can see that a $3 increase in prices (per thousand cubic feet) would raise energy expenses by about $74 billion for consumers and businesses, with the major components as follows:

• 20% of the total—about $15 billion—would fall on households who use natural gas for heating.
• 13% of the total—$10 billion—would fall on commercial consumers of natural gas for heating.
• 28%, or $20 billion, would fall on industrial consumers, such as manufacturing plants.
• 31%, or $23 billion, would hit the utilities that generate electricity using natural gas.

The above numbers come from simply multiplying the latest 12-month consumption patterns of natural gas, by the hypothetical increase in prices that T. Boone Pickens discussed in his CNBC interview. In reality, with rising prices households and businesses might switch to other fuels and thus mitigate the blow. Furthermore, economists know very well that we can’t naively assume that the ultimate burden of a price hike will fall on the immediate party in question. For example, electric utilities using natural gas would surely pass on a big spike in operating costs to their customers in the form of rate increases.

Despite these caveats, it is clear that natural gas prices of $6 would severely constrain the nation’s consumers of the fuel, whether households or businesses. However, Pickens needn’t worry about the overall economic blow coming from the transportation sector: In November 2011, only 0.13% of the nation’s natural gas consumption came from vehicles running on the fuel. This fact shows just how far the market currently is from Boone’s vision for the future.

Conclusion

If a particular energy price, whether for a barrel of crude oil or a cubic foot of natural gas, is a true free market price, then it is neither good nor bad. It is simply information that expresses the underlying conditions of available supply, technological know-how, and consumer demand.

In his CNBC interview, T. Boone Pickens acts as if he is a disinterested observer, predicting the inevitable development of the energy sector following market forces. Yet this isn’t true at all. Pickens for years has been telling the government to use its powers to change the market outcome, in favor of natural gas, wind, and solar power—and lately the Obama Administration seems to be heeding his advice.

Market forces will steer the energy sector in the efficient direction that best satisfies consumers. If it truly makes sense to convert the trucking fleet to run on natural gas, then price signals will lead—as if by an Invisible Hand—the owners of shipping companies to do just that. Yet Pickens, Obama, and other interventionists don’t want to rely on the decentralized market process. Instead they want to use the quite visible and heavy hand of the federal government to pick energy winners and losers, and to raise prices for consumers in the process.

As we have noted numerous times, the federal government leases a mere 3 percent of federal lands for energy production.[i] The United States is already the world’s third largest oil producer, but we could produce a lot more oil if the federal government would let the American people explore for oil on more federal lands.

The 1002 Area is the North Slope of the Arctic National Wildlife Refuge (ANWR) and is approximately 70 miles from the Trans-Alaska Pipeline System (TAPS – known colloquially as “the Alaska Pipeline”).  In 1980, Congress and President Jimmy Carter set aside 1.5 million acres of ANWR’s 19 million acres for future study of its energy resource potential.[ii] These 1.5 million acres, known as the 1002 Area, have no trees, deepwater lakes, or mountain peaks, but contain immense energy resources.[iii]

The U.S. Geological Survey has estimated that the 1002 Area has an expected value of 10.4 billion barrels of recoverable oil that could be produced at a rate of about one million barrels of oil per day.[iv] This potential resource could make the North Slope of ANWR the largest oil-producing field in the United States. The area’s oil and natural gas resources could be developed using merely 2,000 acres of the surface area, or less than 0.01 percent of ANWR’s total area.[v]

Despite ANWR’s great energy potential, Congress has not allowed the development of these resources for over 30 years. One of the many reasons used by the opponents of energy production there is that it might adversely impact caribou populations.  Yet, since energy production began in nearby Prudhoe Bay in 1977, the size of the Central Arctic Herd has grown more than 1,015 percent, from about 6,000 animals in 1978 to record levels of an estimated 67,000 caribou in 2009.[vi]

Meanwhile, TAPS—once capable of delivering over 2 million barrels per day to the West Coast—is running at less than one-third of its capacity.  The underutilized capacity of TAPS is more than the total amount of oil removed from the market in early 2011 by the Libyan civil war which sent world prices skyrocketing.  The consequences of the decline in TAPS oil supplies for the West Coast have been enormous; the West Coast has gone from being a region of the country that exported oil to the rest of the country to the region of the country most dependent on OPEC imports.

President Obama lately has been calling for more domestic energy production, but his continued opposition to energy production on the North Slope of ANWR deprives Americans of the benefits of the $1 trillion of oil locked in the frozen tundra there.  ANWR stands as a symbol that his actions do not yet match his words.  If President Obama announced his support for legislation to open ANWR, America would have more domestic energy, more jobs and much more needed revenue, and the Alaska Pipeline could once again approach its full capacity.

The President Is a Fair Guy

Here are some excerpts from the president’s address to show his general vision for the country:

Think about the America within our reach: a country that leads the world in educating its people; an America that attracts a new generation of high-tech manufacturing and high-paying jobs; a future where we’re in control of our own energy; and our security and prosperity aren’t so tied to unstable parts of the world. An economy built to last, where hard work pays off and responsibility is rewarded.

…

The defining issue of our time is how to keep that promise alive. No challenge is more urgent. No debate is more important. We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot, and everyone does their fair share, and everyone plays by the same set of rules.

…

Tonight, I want to speak about how we move forward and lay out a blueprint for an economy that’s built to last, an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values. [Bold added.]

For those who have been following IER and other energy watchdog groups, the president’s statements above are simply astounding. It is amazing that such claims made it through the vetting process; the fact that they did, shows how disconnected political talk is from reality.

Everyone Plays By the Same Set of Rules?

The biggest scandal over energy policy of course has been the Solyndra debacle.  Besides the famous last words of Vice President Biden and President Obama himself touting the long-term “jobs of the future” that Solyndra would provide, the episode is rife with charges of serious wrongdoing.

For those who never dug into the details of the story, here’s the quick version: Although Solyndra had applied for federal loan guarantees during the Bush Administration, they had not been formally approved before he left office. The incoming Obama Administration, however, was keen on using Solyndra as Exhibit A in its commitment to a job-creating stimulus package that would simultaneously accelerate the development of renewable energy. In fact, the White House planned to have Obama give a speech on March 19, 2009—just a few months after his inauguration—at the Solyndra plant announcing the bold package.

A week before the planned announcement, government budget analysts sent worried emails back and forth, including the infamous, “This deal is NOT ready for prime time” that has received press coverage. Because of these warnings, the White House backed off, but continued to press for approval of the loan guarantees. For example, a Department of Energy stimulus adviser, Steve Spinner—whose wife happened to work at the law firm representing Solyndra in its application for the loan guarantee—was very eager to get the relevant parties to sign off on the guarantee in time for Biden’s planned speech at Solyndra in September 2009. That’s why, a few days earlier on August 28, Spinner sent an email to an OMB staffer demanding, “How [expletive] hard is this? What is he waiting for? Will we have it by the end of the day?”

Fast forward to December 2010, about 15 months after Solyndra first received the half a billion dollars in loan guarantees. At this point Solyndra was clearly in trouble, and approached the Department of Energy for another loan. The government didn’t itself provide more funding, but it allowed a restructuring of the original package, so that outside investors (including big Obama fundraiser George Kaiser and his venture capital firm) would pump in another $75 million, in exchange for being placed at the head of the line for its assets in case Solyndra went bankrupt.

The only problem with this move was that it was arguably illegal, since it placed taxpayers in a disadvantageous position, as they were now subordinate creditors. That’s what Assistant Treasury Secretary Mary Miller wrote to Jeffrey D. Zients, deputy OMB director, before the restructuring occurred. She advised the DOE to consult with the Justice Department before approving the plan. “To our knowledge that never happened,” Miller wrote to the OMB in August 2011.

Incidentally, we note with irony that even compared to other “green” companies, Solyndra got a sweetheart deal, with interest rates far below those available to other firms that presumably should have been playing on the level field that the president touts.

It’s Not Just the Scandal, It’s the Program Itself

Besides the corruption and inefficiency involved with the specific example of Solyndra—as well as other notorious beneficiaries of US taxpayer support such as Abengoa and Beacon Power—is the fact that the Obama Administration’s sweeping array of incentives and mandates for renewable energy is the opposite of his rhetoric on the American ideal. Here we have the federal government quite consciously picking specific technologies that will be helped, and others that will be actively penalized.

To see just how biased the rules are, consider: When calculating the implicit total federal “subsidies” (via the tax code) in terms of dollars per unit of energy delivered, in fiscal year 2007 they were $23.37 per megawatt hour for wind, compared with $0.44 for conventional coal and $0.25 for natural gas and petroleum liquids. In fiscal year 2010, wind’s subsidies amounted to $56.29 per megawatt hour, while the figures for coal, and natural gas and petroleum liquids, were tied at a mere $0.64.

If that’s not a rigged game, what is?

Job Creation? Developing American Energy? Is This a Joke?

Since it’s more recent in the news cycle, we don’t need to belabor the irony of Obama stressing his desire to wean Americans off of energy from dangerous regions of the world, and to create good jobs at home…when he just scuttled the Keystone XL Pipeline. Despite the Administration’s attempt to portray itself as a champion of domestic drilling, the facts speak otherwise.

Conclusion

Every political leader claims to be in favor of fairness and equal treatment under the law. Yet when it comes to Obama’s energy policies, the opposite is true. The federal government currently places enormous obstacles in the path of oil, natural gas, and coal, while lavishing massive sums on dreamy technologies that can’t get funding on their own merits. This is hardly a sensible strategy for a president who also claims to care about economic growth and creating stable jobs.

In 2011, the United States spent more on renewable energy than China, beating China’s “clean energy” investment for the first time since 2008. In 2011, the United States spent a total of $55.9 billion of government and private funds on “clean energy” projects, a 33 percent increase from 2010, compared to China’s $47.4 billion, 1 percent higher than in 2010.

The higher U.S. “clean energy” investment was due to federal government support that included the Treasury Department’s 1603 cash grant program that expired at the end of December 2011, paying as much as 30 percent of the project’s development and construction cost, and the Production Tax Credit offering 2.2 cents a kilowatt-hour for wind production over the next ten years for wind power operational by the end of this year.

The Federal Financing Bank completed 13 loans worth $10.1 billion for “clean energy” projects, according to a study of the industry’s top 20 lenders by Bloomberg New Energy Finance.[i] And, budget experts estimate that the production tax credit cost taxpayers about $1 billion a year.

There is no guarantee these subsidies will pan out. Last year, three U.S. solar companies, including Solyndra, benefiting from U.S. government loans, went bankrupt, in part due to increasing competition from Chinese manufacturers. Besides these solar companies, Ener1, a battery maker that had received a $118 million government grant went bankrupt as well.

Global Investment

Globally, renewable energy investment rose 5 percent to a record $260 billion in 2011 driven by a surge in solar developments and the increased spending in the United States. New spending on solar energy increased 36 percent to $136.6 billion in 2011, almost twice what was spent on wind power ($74.9 billion).[ii]

Clean energy investment in Europe rose 3 percent to $100.2 billion, driven by solar installations in Germany and Italy and offshore wind in the North Sea. The largest renewable investment growth was in India, whose investment rose 52 percent to $10.3 billion. Brazil increased its renewable investment by 15 percent to $8.2 billion.

In 2009, the financial crisis curbed lending and global renewable energy investment increased by only 1 percent. In 2010, however, global renewable energy investment increased 31 percent, reaching $247 billion. The slower growth in 2011 was in part due to European countries reducing their guaranteed rates for electricity produced from renewable technologies so that electricity prices would not continue to surge due to their renewable pricing policies.

China’s Non-Fossil Fuel Expectations

China plans to obtain 11.4 percent of its electricity from non-fossil fuels by 2015, up from 8.4 percent in 2010. This plan is part of China’s goal to reduce carbon intensity (carbon dioxide emissions per unit of gross domestic product) by 17 percent in 2015. While some countries are dubious regarding nuclear power, China sees it as a safe, reliable, and mature source of energy and is including nuclear production in its 2015 goal.[iii]

Chinese manufacturers are undercutting European and U.S. manufacturers in solar and wind technology markets. Supposedly, China is not just manufacturing wind turbines for export to U.S. and European markets, but it is also building the units to generate electricity in China. Let’s see how much those wind units are contributing to China’s electricity needs.

China’s Wind Energy Market

As of the end of 2010, China led the world in installed wind capacity, with the United States a fairly close second. By the end of 2010, China had installed 44,773 megawatts of wind turbines, compared to 40,267 megawatts installed in the United States. The irony is that with 11 percent more wind capacity than the United States had in 2010, China produced only about half the amount of electricity from wind that the United States produced.

In 2010, China produced 50.1 billion kilowatt hours of wind powered electricity while the United States produced 94.65 billion kilowatt hours from wind energy.[iv]  That lower amount of wind generated electricity for China is due to its transmission system not being able to handle the growth in wind capacity. Past statistics have shown that only about 30 percent of China’s wind units are connected to the grid. While China may have improved on this low number of wind units integrated with its electricity grid, the country clearly has still not solved the problem.

Source: International Energy Agency, IEA Wind 2010 Annual Report, July 2011

Conclusion

Globally, renewable investment in 2011 was at its highest level; with investment in solar energy almost double that of wind. The United States led the world in renewable investments due to government incentives including the Treasury’s 1603 grant program that expired at the end of 2011, costing taxpayers over $10 billion.

China’s renewable investment in 2011 was lower than that of the United States (by 15 percent) for the first time since 2008.  While China’s renewable investments have been higher in the past than that of the United States and while China had more installed wind capacity at the end of 2010 than the United States, it is having trouble reaping their benefits. China generated about half the amount of electricity from wind in 2010 that the United States generated because it has not been able to fully integrate its wind units with its electricity grid. The “clean energy” race that many administration officials and Congressmen feel the United States is losing with China may just be a “tug of war”.

1.  The Obama administration claims that this sale is a component of the President’s desire to “promote safe and responsible domestic oil and gas production as a part of a comprehensive energy strategy.”

FACT:  President Obama imposed a job-killing moratorium on offshore energy development in the Gulf of Mexico that cost America at least 12,000 jobs and more than $2 billion over the course of the first six months of the moratorium.  The only reason the Administration is holding a new lease sale for the Central Gulf of Mexico is because the sale is required as a part of the Congressionally-sanctioned 2007-2012 Five Year Plan, according to the Outer Continental Shelf Lands Act of 1978 (OCSLA).  If the administration did not hold this sale before June 30, 2011, it would not be fulfilling the intent of the law.

2.  The Obama administration claims that this lease sale will open up new offshore lands for energy development.

FACT:  Today’s announced lease sale does not open any lands for exploration that were not already scheduled two years before President Obama took office.  The 2007-2012 Five Year OCS Lease Plan included 16 sales in 6 offshore areas.  Of these 16 sales, the Obama administration cancelled or delayed a number of them.  Of the 2 that remain in the Central Gulf, the administration has scheduled them for simultaneous sale, which means that only one sale will actually occur.  The Obama administration also cancelled a lease sale for areas off the coast of Virginia, and permanently removed 5 sales off the coast of Alaska.  In 2010, the Obama administration did not hold a single lease sale, the first time this has happened in many years.

3.  The Obama administration claims that this sale is a part of its strategy to “increase responsible domestic production and reduce dependence on foreign oil.”

FACT:  Even once the remaining 2007-2012 sales are complete, the administration has shown little interest in reducing America’s oil imports.  The reductions in imports that have occurred in recent years owe more to the sluggish economy and reduced demand from American consumers than administration energy policy.  Moreover, in recent weeks, the president single-handedly denied the Keystone XL pipeline permit, which would have made up to 830,000 barrels of North American oil available daily to U.S. markets.

4.  The Obama administration claims that the terms of this sale will “ensure that taxpayers receive a fair market value for offshore resources.”

FACT: U.S. taxpayers received 258 times less revenue from offshore lease sales last year than they did under the last year of the Bush administration. Revenue from offshore lease sales has plummeted from nearly $9.5 billion in FY2008 to paltry $36.7 million in FY2011.

5.  The Obama administration claims that it is developing a new Five Year Plan for 2012-2017 that will “make more than 75 percent of undiscovered technically recoverable oil and gas estimated on the OCS available for development.”

FACT:  The United States currently has leased a mere 2.2% of available lands on the Outer Continental Shelf.  The amount of un-leased lands that are not currently leased for energy development is equal to ten times the acreage of the entire State of Texas.  Currently, limits on offshore production keep annual production to only 588 million barrels of oil — or less than 1/10th of our annual demand — even though the Bureau of Ocean Energy Management, Regulation, and Enforcement estimates that the U.S. has about 86 billion barrels of undiscovered oil in the Outer Continental Shelf.  Nevertheless, the Obama administration continues to block exploration of the vast majority of America’s offshore resources.

Furthermore, the current Five Year Plan expires on June 30, 2012.  The law mandates that the administration to present to Congress a new Five Year Plan, which requires a 60-day review period before final authorization.  This means that the Obama administration must present the new Five Year Plan to Congress before May 1, 2012.  If the administration does not produce a plan before then, the United States runs the risk of having no legal framework to develop the Outer Continental Shelf for the first time since the passage of OCSLA in 1978.

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For Immediate Release
January 24, 2012

“If the state of the union is actually stronger, it comes despite the policies of President Obama and not because of them.” — IER President Thomas Pyle

WASHINGTON D.C. — Tonight, President Barack Obama addressed a joint session of Congress on the State of the Union. In his speech, President Obama called for greater domestic energy exploration, higher taxes on energy production, and more taxpayer subsidies for renewable energy. IER President Thomas Pyle released the following statement in response to the President’s speech:

“If the state of the union is actually stronger, it comes despite the policies of President Obama and not because of them. Tonight, the president claimed credit for ‘opening millions of new acres for oil and gas exploration,’ and he called for his administration to open ‘more than 75 percent of our potential offshore oil and gas resources.’  He also claimed credit for the fact that oil imports are down, even though the drop owes more to the ongoing hardships experienced by millions of Americans who cannot find jobs or afford to drive in the Obama economy.

“Job creators and American consumers should welcome the president’s latest energy promises with suspicion.  Indeed, we must not forget that in the past month this administration has imposed one of the most onerous regulations on the American economy through EPA standards it admits will not have a measurable effect on health from the targeted emissions. Similarly, the president single-handledly rejected the Keystone XL pipeline permit and killed the chance for thousands of American blue collar workers to find good-paying jobs. Tonight the president offered a golden tongue on affordable energy, but for the past three years he’s clenched a green fist.

“The president continues to repeat the discredited mantra that America only has 2 percent of the world’s oil reserves. The Institute for Energy Research released last month the North American Energy Inventory, which uses government data to demonstrate that America is literally floating on energy. Under North American soil is twice as much oil as the combined proved reserves of every OPEC nation combined. As for natural gas, we have enough on this continent to provide America’s electricity needs for the next 575 years at current usage. The president just isn’t being honest with the American people about the vast energy supply that is literally under our feet. His own government reports show it.

“And in the same breath that he extolled the virtues of natural gas development and called for higher energy taxes on the companies that produce it, President Obama continues to press for more taxpayer subsidies for Solyndra-style green energy companies. He wants to increase taxes for Americans on the energy sources they use in order to give his friends and contributors in the green energy business another massive handout. Financing America’s energy future by taxing our current energy supply will not increase our energy security or strengthen our global position in the energy revolution. It will, however, make energy more expensive for struggling Americans and the businesses trying hard to keep pace with foreign competitors.”

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The Basic Facts:

• The government leases less than 2.2 percent of federal offshore areas[i] and less than 6 percent of federal onshore lands for oil and natural gas production.[ii]

[**Update** The following bullet cites data from the Energy Information Administration (EIA). EIA subsequently discovered that the data they used for determining oil and natural gas production numbers on federal lands were incorrect and they are working to fix the problem. The Department of Interior, which regulates energy production on federal lands, is working with EIA to develop a system that more adequately reflects production clearly, and we will update the oil and natural gas production charts when the federal government completes its coordination and updates its information.]

• Oil and natural gas production on federal lands has fallen by over 40 percent since 2000.[iii]
• Since 2000, oil production on private and state lands has risen by 11 percent and natural gas production has risen by 40 percent.[iv]
• President Obama has leased less than half of the offshore acres than President Clinton leased.

The source for the amount of oil and natural gas produced on federal land is the Energy Information Administration’s (part of the Department of Energy) Annual Energy Review, which analyzes historical energy trends.

The data from the Annual Energy Review is clear: the increase in U.S. oil and natural gas production is because of production on private and state lands in places like North Dakota. Almost all of North Dakota’s Bakken formation is on private lands, and as a result, production has dramatically increased. Over the past 10 years, North Dakota oil production has increased by over 250 percent, while federal oil and natural gas production has fallen over 40 percent.

President Obama cannot honestly claim credit for the increase in oil and natural gas production over the past few years. This misconstrues the facts and it is an inaccurate portrayal of his administration’s record on energy issues. After all, his administration did not hold a single offshore lease sale in fiscal year 2011, while the Bush administration planned to hold five.  Those sales were rejected when the administration decided not to pursue a new 2010–2015 OCS lease plan reflecting the expiration of the presidential and congressional moratoriums on leasing in 2008.  Also, President Obama’s Bureau of Land Management is setting records for the least amount of leases on average per year. President Clinton sold over twice the number of leases per year than President Obama.

1.  The President denied the Keystone XL pipeline to transport oil from Canada to be refined and used in the U.S.

The Obama Administration decided on January 18 that constructing the Keystone XL pipeline was not in the national interest of the United States. The proposed pipeline had the capacity to carry 700,000 barrels of oil to American refineries, as well as deliver 20,000 jobs to a depressed economy. Only in Washington D.C. would this project not be considered an economic miracle and a key part in securing our energy future.

2. The President’s policies have restricted access to domestic energy resources

Despite numerous discoveries of abundant natural resources, only 2 percent of offshore areas are currently leased for oil and natural gas production. That means 98 percent of energy-rich offshore federal lands remain restricted for exploration and development. Furthermore, despite the claims of the Obama administration and his surrogates that U.S. oil and gas production has gone up during his tenure, the reality is that oil and natural gas production on federal lands—for which he could justifiably claim some credit—has decreased by over 40 percent since 2000. Only on state and privately held lands is production increasing, and it is increasing on account of technologies like hydraulic fracturing that the Obama administration wants to restrict.

3. President Obama acknowledges that electricity prices will have to increase under his proposed policies and regulations

Referencing his proposed cap-and-trade energy tax, President Obama had a rare moment of political clarity when he said, “…if someone wants to build a coal plant, they can – it’s just that it will bankrupt them, because they are going to be charged a huge sum…” Unfortunately the President’s crusade against affordable energy didn’t end there.  IER recently noted that new EPA rules and regulations for power plants would shut down roughly 10 percent of our coal electricity production.   The 28 gigawatts of generating capacity that would go dark are the equivalent of shutting down every power plant in the state of Indiana or North Carolina, and, in the administration’s own words, would “necessarily” make our energy prices skyrocket.

The most troubling aspect of the energy debate is that President Obama and his administration are actively pursuing policies that make energy more expensive for consumers and businesses, while sending billions to failed businesses like Solyndra. Taxpayer funded renewable energy is a fantasy, but the pain at the pump is very real.

• EIA is still forecasting a fossil fuel future for the United States with fossil fuels representing 77 percent of energy consumption in 2035, compared to 83 percent in 2010.
• New EPA regulations cause coal-fired generation to decrease its share substantially in the electric generation sector, with increased shares from natural gas-fired and renewable generation.
• Natural gas production increases by 6 trillion cubic feet in the 25 year projection period thanks to hydraulic fracturing technology with the United States becoming an exporter of liquefied natural gas and a net natural gas pipeline exporter.
• Similarly, oil production from onshore lands, mainly privately owned, increases by a million barrels per day by 2020, helping to reduce oil imports from a 49 percent to a 36 percent share by 2035.  Like natural gas, this increase is due in large part to shale formations that are accessed with hydraulic fracturing.
• Energy-related carbon dioxide emissions remain below 2005 levels through 2035.

Slow Energy Demand Growth. In its latest energy outlook, EIA expects energy demand to grow slowly at 0.4 percent per year between 2010 and 2035, reflecting a slow economic recovery, higher energy prices, and greater energy efficiency in end-use technologies.

Energy consumption per capita declines by an average of 0.5 percent per year from 2010 to 2035 due to a prolonged economic recovery and improving energy efficiency. Total U.S. population increases by 25 percent from 2010 to 2035, but energy use grows by only 10 percent.

The energy intensity of the U.S. economy, measured as primary energy use per dollar of gross domestic product, is expected to decline by 42 percent from 2010 to 2035 as the result of a continued shift toward less energy-intensive manufacturing and service industries, rising energy prices, and increased energy efficiency. This is a continuation of its historic decline. From 1990 to 2010, for example, energy use per dollar of GDP declined by 1.7 percent per year, primarily because of shifts within the economy away from manufacturing and towards the service sector, which uses relatively less energy per dollar of GDP.

Moderate Petroleum Demand and Production Increases. EIA expects the demand for transportation fuels to be moderated by higher energy prices and Federal corporate average fuel economy (CAFE) standards. Even so, liquids demand increases by almost 1 million barrels per day, from 19.2 million barrels per day in 2010 to 20.1 million barrels per day in 2035. But even at 20.1 million barrels per day, the United States does not reach the liquids demand level of 2007, the year before high oil prices first surfaced and the recession hit.

Domestic oil production also increases from 5.5 million barrels per day in 2010 to 6.7 million barrels per day in 2020, but then declines to 6.1 million barrels per day in 2035. The 2020 forecasted level of production of 6.7 million barrels per day would be the highest level of output in the United States since 1993. Oil production onshore, mostly on private lands in new shale oil deposits, is expected to produce 4.24 million barrels per day by 2020, over 1 million barrels per day more than in 2010. Offshore oil production reaches a peak of 2 million barrels per day in 2020 and then declines with a low of 1.61 million barrels per day by 2030. Because of moderate demand, increased oil production and increased use of biofuels (mostly ethanol), net oil imports decline from 49 percent in 2010 to 36 percent in 2035.

Natural Gas Production and Consumption Increases. Of the fossil fuels, natural gas demand is projected to increase the most, reaching 26.48 trillion cubic feet in 2035, and an increase of 2.35 trillion cubic feet from 2010 levels. In fact, due to horizontal drilling combined with hydraulic fracturing technology, natural gas production is expected to exceed demand, and the United States becomes a liquefied natural gas (LNG) exporter in 2016 and a net pipeline exporter in 2021. Natural gas production is expected to reach 27.84 trillion cubic feet in 2035, over 6 trillion cubic feet more than produced in 2010. Shale gas is expected to account for 49 percent of total U.S. dry gas production in 2035, compared to 23 percent in 2010.

The EIA revised its technically recoverable shale gas estimates downward from those used in its previous outlook.  However, geologists are questioning the new estimates, saying companies move gas from unproven resources to proven reserves.  According to Greg Wrightstone, vice president of geology at Mountaineer Keystone LLC, companies are driven to prove their resources in order to quickly increase their own value.[ii]

Coal Consumption to Decline in the Near Term.  Coal consumption is expected to decline by 128 million short tons between 2010 and 2015 and then increase, reaching 1,155 million short tons by 2035, 104 million short tons more than in 2010. Reduced demand for coal in the early years of the forecast is due to lower coal-fired generation caused by new EPA regulations, causing coal-fired capacity retirements and the addition of new EPA-required equipment that forces most coal-fired units to be offline for at least 18 months. EIA expects 33 gigawatts of coal-fired capacity to retire by 2035, with the majority (29 gigawatts) retiring by 2015. Retired coal-fired capacity is expected to be replaced by natural gas-fired and renewable capacity.

Electricity Generation Continues to Shift toward Natural Gas. The natural gas share of electric power generation is expected to increase from 24 percent in 2010 to 27 percent in 2035 due to lower capital costs for natural gas fired capacity and relatively low natural gas prices due to hydraulic fracturing that enables production of abundant U.S. shale gas resources.

Coal’s share of generation continues its historical decline. Over the next 25 years, the projected coal share of electricity generation falls to 39 percent from 45 percent in 2010, because of onerous EPA regulation, slow growth in electricity demand, continued competition from natural gas, and mandated renewable plants. The new EPA regulations also affect old oil and natural gas steam units. EIA expects 10 gigawatts of those units to retire by 2015 and a total of 21 gigawatts of oil and gas steam units to retire by 2035. IER estimated retirements for just 2 of EPA’s regulations to be almost 30 gigawatts, double EPA’s estimates, which are almost certainly an underestimate.

EIA estimates that 6 gigawatts of nuclear capacity will be retired by 2035 and are replaced by almost 10 gigawatts of new nuclear capacity and 7 gigawatts of increases to existing nuclear capacity. The 6 gigawatts of retirements occur primarily in the last few years of the projection period and result from nuclear plant owners not applying for and/or receiving license renewals to operate their plants beyond 60 years.

The share of renewable energy is expected to grow from 10 percent to 16 percent between 2010 and 2035 mainly because of Federal tax credits and implementation of state renewable portfolio standards that mandate utilities to purchase power from renewable energy sources.  All renewable technologies increase their capacity levels, with wind power’s capacity increasing by 72 percent (28 gigawatts) over the 25 year forecast period, solar power’s capacity increasing 500 percent (20 gigawatts), biomass capacity increasing 152 percent (10 gigawatts), geothermal capacity increasing 170 percent (4 gigawatts), and hydroelectric capacity increasing 5 percent (4 gigawatts).

Carbon Dioxide Emissions have peaked. U.S. energy-related carbon dioxide (CO2) emissions have peaked—at least through 2035. EIA projects that energy-related CO2 emissions will total 5,806 million metric tons in 2035, more than 3 percent below the 2005 level of 5,996 million metric tons.

Energy-related carbon dioxide emissions remain lower than 2005 levels despite fossil fuels commanding a 77 percent share of energy consumption in 2035, compared to 83 percent in 2010. Electricity-related carbon dioxide emissions, the highest sector-related emissions, are projected to be tempered by lower anticipated economic growth, higher efficiency standards for end-use appliances, State renewable portfolio standards (RPS), increased natural gas use in lieu of coal, and new environmental regulations targeting coal-fired power plants.

Conclusion

As much as we hear about the rise of renewable energy, coal, oil, and natural gas will continue to provide the lion’s share of our energy for the foreseeable future.