Jane Van Ryan
Posted January 12, 2010
With the beginning of a New Year, it's a good time to take a moment to review energy and energy policy in the United States. In this week's episode, I interview John Felmy, API's manager of statistics.
Use the audio player below to listen to information about the article and follow along with the show notes. I hope you find the podcast informative.
00:18 It's the beginning of a New Year and the perfect time to take a moment to examine energy and energy policy in the United States.
00:44 (In response to higher energy prices) What we have seen is worldwide economic growth to pick up; so demand for oil around the globe, in places like China, has increased. We have also seen the major international agencies, such as the International Energy Agency (IEA) and Energy Information Administration (EIA), forecast increased demand for petroleum this year. In fact, the forecast is now for petroleum demand to reach what it was before the recession.
01:10 Gasoline uses crude oil for its production process. In fact, the single largest component of the cost of a gallon of gasoline is crude oil. Historically, oil and gasoline prices have tended to move together.
01:23 Recently, the cost of crude oil has gone from about 70 dollars a barrel, up to 83 dollars a barrel. Since there are 42 gallons in a barrel, we've seen the cost of crude oil go up about 31 or 32 cents a gallon. Over that same period, we've seen gasoline go up 16 cents a gallon.
01:44 In the past 10 years, gasoline prices have averaged about 97 cents a gallon higher than crude oil prices.
01:53 The most important component of that 97 cents is taxes--federal, state and local taxes--which are about 47 cents a gallon. The rest comprises the costs incurred to process the crude into petroleum products, such as gasoline, to ship it to market and deliver it to consumers.
02:13 Last week, Interior Secretary Ken Salazar announced new rules on energy exploration and production on federal lands. API said that the new regulations are likely to slow energy development in the United States.
02:28 These rules are unfortunate because the U.S. has a large amount of resources that we think we can develop. If we develop oil and natural gas resources in this country, it means increased jobs; improved federal, state and local government revenue; and a reduced trade deficit. It's a win-win-win proposition. When you provide additional energy produced in the U.S., it increases economic security for American consumers.
02:59 The federal government estimates that there are more than 100 billion barrels of oil that we have not found that is technically recoverable. There are as much as 2,000 trillion cubic feet of natural gas that could be recovered, especially with the new shale gas technology. That means 100 years of natural gas use if we develop those resources.
03:27 Worldwide, current reserves are at about 1.3 trillion barrels. When you add that together, we [the United States] are just shy of 10 percent of potential oil resources worldwide.
03:47 About 60 percent of U.S. oil consumption is imported. It important to know that the biggest supplier of that oil is Canada. Other big suppliers are Mexico, Venezuela, Nigeria and Saudi Arabia. When you add all those countries together, it's about 60 percent of our consumption.
04:10 There is no question that moving forward the United States is going to need domestic energy of all types. Much has been discussed recently about renewable energy, and we will need that, too. But that's electricity, and right now, we have 250 million cars that run on petroleum and don't plug in. We are going to need oil for the foreseeable future. If we produce it here, as previously mentioned, it means increased jobs, improved revenue to governments and a reduced trade deficit.
04:38 The administration's 2010 budget plans to place new taxes on energy.
04:47 These new taxes are repeating mistakes of the past. In the early 1980s, we had a large tax, put in place under the Carter administration that took about 80 billion dollars from the oil industry. The results were terrible: domestic production declined because there was less money available to produce oil, imports increased, and then the [tax] money was frittered away on projects that didn't work. Let's not repeat the mistakes of the past.
05:31 If these policy decisions result in less production and demand isn't reduced, it will mean increased imports. The tax propositions could reduce our production because you take resources away from producing more [oil and natural gas] in this country. Other provisions, such as cap-and-trade, could end up reducing the amount of petroleum that we could produce in the United States.
06:17 The Waxman-Markey bill clearly places the entire burden of reducing carbon emissions on the oil and natural gas industry. Virtually all of the allocations in the bill are given to the electric utility industry and only a tiny amount is given to the oil industry, yet we're responsible for emissions. There is no question that this could adversely affect the refining industry because it would make it uncompetitive--we could see a 20 percent decline in production of refined products in the U.S. These increases in the cost of energy simply will not help consumers. It violates sensible carbon policy in that it picks winners and losers, which is never a good idea. We are going to need oil and gas going forward because those 250 million cars are not going to run on anything else but petroleum for the foreseeable future.
07:27 A sound energy policy means that we increase supplies of all types of energy, including both alternatives and renewables, and oil and natural gas. If we produce oil and natural gas in this country, all we need to do is open up areas that are under restraints right now. Then companies will bid for those resources, federal and state governments will get money and employment will increase. After all, the oil and natural gas industry supports 9.2 million Americans. We can expand that significantly and it will help the economy when it needs it the most.
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