Who Secures Energy Supplies To Meet Our Nation’s Needs?

The U.S. Petroleum Industry and especially the International Oil companies like Exxon Mobil are being taken to task by the U.S. Government, Congress in particular, for doing what the industry is suppose to do. American oil and gas companies take risks to find and produce energy for the nation and further refine it into products used by every American. The U.S. Government and the majority of Americans do not understand nor appreciate what the petroleum industry does year after year during both high oil prices and low oil prices in helping to assure the nation of adequate energy supplies. Other than during hurricanes or natural disasters, when we go to a gas station we can expect adequate supplies of gasoline will be available and of a quality that our vehicles will run efficiently. The government and environmental groups constantly feeds public hostility toward the industry, they impose strict environmental and regulatory roadblocks to the development of our resources making it difficult for the companies to do their job. The government also bans areas from drilling preventing the development of our own domestic oil and gas supplies while they criticize Saudi Arabia for not producing more oil. Congress is currently considering harsh new taxes on oil companies and increased restrictions on drilling. Recently, news sources reported that the government wants to ban or restrict drilling onshore in the state of Utah.

Aside from the criticism and challenges in the U.S., the oil companies are facing new and difficult challenges because reserves are becoming increasingly hard to find and expensive to produce. One of the challenges is competition from government-owned national oil companies (NOC’s) that control over 70% of the world’s oil reserves. The NOC’s are taking their recent wealth as a result of high oil prices and are investing in energy-related activities outside of their national borders. Such investments include drilling partnerships, pipelines and new refineries. The long-term implications of these investments could impact our energy security. If the U.S. government continues its negative campaign against American oil companies, in the future we will all be dependent on gasoline imports from foreign refineries.

Economic Concerns Plague Oil Price

Crude oil futures are reaching the lowest levels since 2005 on concerns about the health of the global economy and its impact on energy demand. A sharp slowdown in global growth will spell reduced demand for oil and the lower price will impact planned drilling projects. The whole oil industry will re-evaluate new projects and expansions of existing projects. They will be re-assessed based on the current economic circumstances. Instead of evaluating projects at $80  or $100 per barrel, they will be using $65 per barrel or less. Future price levels will primarily depend on the magnitude and duration of an economic downturn as well as OPEC and non-OPEC producers behavior. Even the recent announcement by the Chinese that they are implementing a $586 billion economic-stimulus package aimed at reversing slowing growth has failed to overcome the economic concerns. Also, neither the news that Saudi Arabia told refiners that it would cut December supplies 5% or the fact that OPEC producers agreed to cut their output quota of 28.8 million barrels per day by 1.5 million bpd starting November 1st had any effect on the oil price decline.

Politicians in power were complaining about oil traders and speculators driving the oil price well above $100 per barrel on concerns of a tight oil market. Now,  when these same traders are driving the oil price down on concerns about the U.S. and global economy, you don’t hear a peep out of these politicians. Irregardless of the fact that the oil price is now $56 per barrel and gasoline is below $2.00 per gallon, you still hear of plans for a windfall profits tax on the oil companies by the President-Elect and the Democratically controlled Congress. I suspect that shortly after inauguration, legislation on a windfall profits tax will be formulated. Since the oil price has already declined significantly, the added tax might be applied to all incremental profits as the oil price goes back up above some trigger price such as $70 per barrel. The more greedy politicians will try to make the tax retroactive. Such legislation will only result in higher prices for the consumer and less domestic oil supply.

American Power Association says there is a “Dash To Gas”

Utility executives fear that the cancellation of coal-fired power plants and the implementation of carbon reduction policies might make it difficult to deliver power in some regions in the U.S. Broad scale fuel-switching from coal to natural gas could negatively impact power reliability according to a new report by the North American Electric Reliability Corp. (NERC) published this month.  The American Power Association has called this “dash to gas” the most immediate risk to reliability. The NERC report identified initiatives currently underway to address climate change and reduce greenhouse gas emissions. They include: (1) States requiring power companies to meet certain percentages of their energy supply from renewables, for example 20% from renewables by 2020, (2) U.S. federal legislative proposals to reduce CO2 emissions such as the cap and trade legislation, and (3) Individual state policies or legislative proposals to reduce CO2 emissions including bans on building new coal-fired power plants. If timetables are too short for some of these initiatives, new technologies may not be available for renewable sources in order to prevent massive fuel-switching from coal to natural gas. The electric system may not be able to accommodate the relocation of power generating facilities.

Having clean air and no electric lights is the risk if carbon policies are implemented too far in advance of new technologies. Coal currently provides 49 % of the electrical power needs of the U.S. Demand for power keeps increasing and a mismatch between supply and demand could mean lights out in some places. The potential for solar and wind power is simply not high enough in some regions to meet renewable goals or initiatives