Hofmeister: energy issues are self-made; we can fix them

There is a critical issue with production. It is systemic and endemic, and if we stay on the path that we are on, it’s not going to be good.

The path that we are on is not new. During Richard Nixon’s televised address on Thanksgiving eve in 1973, four weeks into the era of oil embargo, he pledged energy independence to the nation and put a seven year time table on it. Eight consecutive presidents and 19 congresses have taken us not forward but backwards. In 1973, we were importing 30 percent of the crude oil we consumed. In 2009, it’s 65 percent. In the early 1970s and the early 1980s, we produced 10 million barrels per day. 

We are descending on our way to 6 million barrels. If the Gulf of Mexico operations come back as quickly as we would like, perhaps we can avoid some of that decline. This is while the rest of the world is going North in terms of demand.

Think about where we are in the U.S. and what we are doing for our energy system. And think about what China is doing. China already is the largest energy producer, the largest energy consumer, and the largest greenhouse gas emitter. Over the next decade, they will build 5 million kilometers of new roads, 170 new mass transit systems, and 5 million new buildings with 40 billion square meters of new space under roof.

China knows that it can only produce so much with its own resources. But, China is not daunted—they have a different idea. In the last three years, China has been quietly, but I would say aggressively, contracting for future oil production from state-owned oil companies of its choice, using loans as the lure.

China has loaned Brazil $10 billion; Venezuela $20 billion; Russia $25 billion; Kazakhstan $10 billion; Nigeria $23 billion; and Ghana, who just produced first oil this year, received $16 billion. That’s to make sure that China has the oil it needs.

The Chinese energy industry is the most favored industry in the country—it’s favored by government policy and by a steady stream of graduates from the universities. This is because of the expectation that China’s demand for crude oil will go from 9 million barrels a day to 15 million barrels a day by 2016 at the latest—that’s six million new barrels.

India is not sitting still either. They are perhaps a bit haphazard in their development relative to China, but they are at 4 million barrels a day of consumption on the way to 7 million in the same time frame. That’s a 9 million barrel-a-day increase between China and India. The highest global production that we know of is 88 million barrels a day, and we’re at roughly 86 million and change today. Add 10 million barrels to it and factor in the anticipated decline in Mexico, the North Sea, and Venezuela.

The time table doesn’t work for Brazil, Kazakhstan, and other development areas to help—those are much later in terms of development. So, as the CEO of Total said a couple of weeks ago, we could likely see gas lines in Europe and the U.S. by the middle of the decade due to the inability to produce the liquids that we need. The issue we face is self-made—that’s what makes it so hard to handle.

We face three issues with our own government in addressing this issue. Number one is partisanship, the consequence of which is nothing happens. No decisions get made. No hard choices are possible. And we play that out over and over.

The second obstacle is that it takes a decade or more to do things right in this industry—a decade of thinking, planning, conceptualizing, inventing,
engineering, and funding. Meanwhile, the elected officials who govern us work with a two year frame of mind. And every two years, things change—I call it political time. Political time and energy time are incompatible.

The third problem is the manner by which we organize the governance of energy. I make myself a pain in the neck in Washington on this issue. Is it really necessary to have thirteen Cabinet-level officers governing the energy system of the U.S.? Don’t we have a department of energy? And that’s just the Executive Branch.

If I go to Capitol Hill, I ask members if we really need 26 congressional committees and sub-committees to govern energy. And then the Judiciary—in particular the 9th Federal District Court in San Francisco—that has single-handedly stopped more oil projects than we can count. Do we really need them to have the ability to decide energy policy, by ruling on a case which then has national implications?

In addition to that, we know what the EPA is getting ready to do on fracking. I think the federalization of fracking is the end game—we can’t trust those states to make judgments, and certainly can’t trust the companies to make judgments.

So where are we heading? We’re growing the population here in the U.S., as is much of the rest of the world. We have what could be an incredible opportunity to build a 21st century energy system, but it isn’t happening. Last June, the President said ‘let the Gulf disaster be a reminder of the importance of a new energy system predicated on wind, solar, and biofuels—a lot of people want to believe him.

It can’t be done. Because we have what we have today and it doesn’t change quickly. This attempt at creating a mindset that oil and coal are past-tense, is floating with the constituency that he hopes will re-elect him in 2012. So, we are right back to where we started.  Political time drives energy time, when it should be the other way round.

We should draw from our history and make this right for energy. I testified in February at the House Sub-Committee for Energy and Power that the nation should set a target to re-establish the production of 10 million barrels a day. One of the benefits of that goal—knowing fully well that we have the resources to produce that much for decades—is that it creates 3 million new jobs. If you want jobs, look at jobs that can’t be exported. Developing natural resources in this country is one way of doing it.

Here is how we fix our energy problem—get politics out of energy. I propose the creation of an independent regulatory agency through a Congressional Act—we’ll call it The Federal Energy Results Board. In addition to establishing a national energy plan, the Board will set the parameters on energy supply for short, medium, and long term with four empowerments.

First, it will decide how much energy from each resource—such as hydrocarbons, wind, and solar—will be produced over a time period. The industry then has an idea what they can go work on, and they know that they can keep working on it because it’s part of the national strategy.

Secondly, it will make some of the hard choices that Congress and the President can’t make. We can decide how to use technology for energy efficiency, DC versus AC, or even abandoning the internal combustion engine. It will set the parameters for the future so that the industry can go to work and do what it does, which is making things happen. And government can do what they do best, which is commanding at the highest level.

Third, it will get energy regulation out of the EPA. The EPA is hopelessly turned into an organization of zealots who are driven by political parameters from the White House, whoever the President is. The 21st century energy system cannot handle the kind of regulation for strangulation that we see happening today.

The fourth empowerment would be to set the parameters for the interstate and regional infrastructural requirements that the nation has. Without infrastructure, you can’t take energy from where it’s produced to where it’s consumed. We don’t seem to have the ability to build infrastructure in a timely, affordable way.

I’m not looking for a Republican solution and I’m not looking for a Democratic solution—I’m looking for an American solution. The only way to make that happen is with Americans. It’s you, your families, your friends, your employees, and everybody you know. People need to rescue the nation from itself, which is how we got started in the first place. And we need to do it one more time in the energy space. The citizens of America need to explain, influence, or demand that its elected officials fix the problem—and this is one way it can be done.

Editor’s Note: This essay was compiled from John Hofmeister’s presentation at the 2011 PESA Annual Meeting.