A 180 Degree Shift in Energy Policy?

In his evocative State of the Union Address, President Obama opened the door for a new chapter in U.S. energy policy, a fact totally missed in the Republican Party’s muted response. The president stated that it is time to put the nation’s interests before an individual party’s interest and promised to engage in reasonable compromise. Sure, the president took credit for the dramatic reduction in CO2 emissions brought about shale gas replacing large volumes of coal in electricity production even though this has occurred as the result of market forces and not because of any championship by the White House. He also took credit for the dramatic expansion of wind and solar energy even though together they still account for less than 4% of primary energy production and set a goal to double them again over the next 15 years. The president also rightfully took credit for his administration’s success in doubling the nation’s CAFE standards which over time will reduce the nation’s oil imports by 2 million barrels of oil per day.

But this was just the warm-up to the real message in the president’s speech which was a quantum change in his policy toward the oil and natural gas industry. Gone were the blistering tirades on the tax credits enjoyed by big oil and gas “fat cats.” Gone were the highly partisan attacks on oil and natural gas lobbyists and their influence peddling on Capitol Hill. Instead, the president talked about the huge benefits that have accrued to the U.S. economy and energy security by the “natural gas boom.” Instead of calling for a go-slow policy on leasing oil and gas on federal lands and the attendant “fracking” that will occur—a policy favored by many of the president’s most staunch environmental supporters—President Obama reversed course saying that he would support “speeding up” new oil and natural gas lease sales on federal lands. If one contemplates how the unconventional oil and gas revolution over 96% of which has occurred on state or private land has done to transform the U.S. energy landscape, it is simply mind boggling to realize how much additional oil and natural gas may be found if the president puts his words into action.

Industry critics will counter that the president’s threat to use executive actions to attack climate change if Congress fails to act represents regulatory overreach which will only add to energy production costs. However, such a view misses the president’s willingness to horse trade by allowing new oil and gas production on federal lands while at the same time creating an “Energy Security Trust” which would use a portion of the enhanced oil and natural gas royalties accruing from the accelerated opening of federal lands to fund research to get our cars and trucks running on non petroleum fuels. If this was not an open endorsement for the natural gas industry to replace diesel in our 18-wheel trucks, locomotives, delivery vehicles, and marine transportation then it is hard to imagine what else the gas industry could want from the president.

Sure there is much more to be done and critical questions remain about other aspects of the president’s energy agenda such as his approval of the Keystone Pipeline, his position on natural gas and crude oil exports, and his views toward the future of the coal and nuclear power industries. Specifically, there will need to be more clarity over whether his energy policy will support new research on carbon capture and sequestration from both natural gas and coal power plants, R&D for small scale modular nuclear reactors, and implementation of the recommendations of his blue ribbon commission on long-term nuclear waste storage. Finally there is the critical issue of whether the administration will take on the maritime lobby and support repeal of the Jones Act bringing great relief to New England consumers and their dependence on imported oil while finding a market for the growing surplus of oil on the Gulf Coast.

In his SOTU address, President Obama opened the door to the oil and gas industry to be part of the nation’s great energy future. It is now time for industry to step forward, meet the president halfway, and help reindustrialize America.