Andreoli on Oil & Fuel: Energy is a bipartisan issue

With the presidential election just around the corner, divisive and intentionally misleading partisan talking points on energy have come to dominate the media.

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With the presidential election just around the corner, divisive and intentionally misleading partisan talking points on energy have come to dominate the media.

These talking points apply a layer of partisan paint to what are truly bipartisan policies, thus creating an “us versus them” mentality on both sides of the aisle. More importantly, they simplify public perception of our current energy situation, what’s possible with regard to energy independence, and what steps will take us in the right direction.

While one candidate or the other may benefit in the short term by oversimplifying energy issues and sowing the seeds of division, such gains are made at the expense of long-term prosperity by erasing the significant amount of agreement that exists between Republicans and Democrats on energy and related environmental issues. As a case in point, few would view any of the following issues as bipartisan.

  • Environmental regulation

  • Alternative energy subsidies

  • “Drill baby drill”

  • Oil pipeline promotion

Environmental regulation and alternative energy subsidies have come to be associated with Democrats, and oil pipelines and “Drill Baby Drill” with Republicans. Such generalizations obscure more than they reveal and needlessly consume a truly scarce resource: bipartisan cooperation.

Few realize that the Environmental Protection Agency (EPA) was created with the stroke of a pen held by none other than President Richard Nixon, and the Environmental Protection Act, which shares its acronym and general goals, was signed into law by President George H.W. Bush. Nixon also signed into law the Endangered Species Act, the Marine Mammal Protection Act, the Safe Drinking Water Act, and the Clean Air Act—all of which have complicated domestic oil and gas production and refining as well.

Ironically, laws outlined by these acts are being used by “fracktivists”—those opposed to hydraulic fracturing—to slow or halt unconventional gas production.

Of course Nixon and Bush weren’t secret Greenpeace operatives who infiltrated the highest level of government. Rather, each happened to be President when the will of the people insisted that deteriorating environmental health be addressed. These pieces of legislation, which first passed through the Democrat-controlled House and Senate, were common sense initiatives that addressed among other things, the impacts that energy production and consumption (especially of fossil fuels) have on the environment and society.

Neither party can take full credit for the positive impacts that these initiatives have had, nor can one party take the full blame for the economic inefficiencies that accompany these regulations.

Energy production and consumption will always have negative externalities that need to be mediated, and politics is the art of such mediation. Partisan talking points and the “us versus them” mentality that they enshrine, inhibit the greater good.

Alternative energy
When we think of alternative energy sources, we see a similar pattern of bipartisanism hidden behind partisan talking points. Traditional energy sources include coal and conventional oil and natural gas.

Alternative energy sources include not only the obvious “green” contenders—wind, solar, and hydro—but also the wildly successful production of unconventional oil and gas resources including coal bed methane and hydro-fracked shale oil and shale gas.

While many would not include unconventional fossil fuels in the “alternative energy” category, they share a number of important characteristics with wind and solar. The development of each requires expensive basic research, complex technology development, and lead times that are best measured in decades.

As a consequence, none of the three (solar, wind, and unconventional oil and gas) would make viable investments at the early stage of development. If left only to the private sector, there will be underinvestment in these risky technologies that are not likely to earn a positive return for decades—and this is why all three require government subsidies and assistance while in the development phase.

Popular discourse would suggest that all Republicans are in favor of fracking, and all Democrats oppose the practice, but it will no doubt come as a shock that the development of hydrofracking extends back to the Carter administration. That’s right, the technology that has pushed natural gas prices down by 75% or more in just the last few years and raised the ire of environmentalists across the globe has been under development for more than 30 years—and can trace its seed funding back to a Democrat.

Of course this funding was continued by Carter’s successor, Ronald Reagan, and was further supported by Bush Sr., Clinton, Bush Jr., and Obama.

As Dan Steward, the former geologist for Mitchell Energy who pioneered commercial shale gas production in Texas, explains: “The government was behind the critical moments and tools in the shale gas revolution [including] massive hydraulic fracking, 3-D mapping, and horizontal drilling.” By the way, Steward describes himself as “conservative as hell,” but as an industry pioneer he recognizes that the Department of Energy programs that sustained the effort received support from both Democrat and Republican administrations.

Wind and solar have been similarly subsidized by Democrats and the GOP alike. Recent grumblings about the $12 billion wind power tax credit, which President Obama supports, paint the subsidy as another example of government overreach and overspending. Yet the fact remains that the wind tax credit was signed into law by President George W. Bush, and even with historically low natural gas prices, wind remains cost competitive in many parts of the country. When natural gas prices rise, and they will, wind will become a more attractive alternative.

The GOP has similarly painted solar subsidies as being supported only by Democrats, and Republicans have had a field day kicking the Solyndra bankruptcy around. While it is true that Solyndra received hundreds of millions of tax dollars, and the company contributed campaign donations to Obama, the company also received more than $1 billion in private capital from Republican and Democrat investors alike.

This fact has not kept the Solyndra case from becoming a Republican punching bag, and Solyndra is not the only solar firm that has failed recently. Take as another case in point the failure of Amonix, whose recent bankruptcy failed to attract the same level of attention from Republican pugilists. While Amonix’s late CEO, Brian Robertson, donated to Senator Harry Reid, a Democrat, and the company’s modest PAC funneled donations to his party, the company’s single biggest government subsidy came in the form of an research and development grant awarded by the Bush administration.

Clearly both Republicans and Democrats from both the public and private sectors saw the value in solar, and many, if not most, still do. The problem from the near-term investment perspective is two-fold. On the one hand, even cheaper and more heavily subsidized solar panels from China were dumped on the market at prices domestic firms couldn’t match. On the other, natural gas prices fell through the floor as a consequence of the (temporary) glut created by the rush to hydraulic fracking—which, again, was only possible after 30 plus years of subsidies and support from both Republicans and Democrats.

In the long run, we need investment in wind and solar to be sustained just as it was for unconventional oil and gas production. In the long run we will be rewarded.

“Drill baby drill”
Rather than supporting investment in renewable energy research and development, the GOP has repeated the “Drill baby drill” refrain, and thus talking points have inaccurately painted Republicans as “pro” oil and gas and Democrats as “anti” oil and gas. This is not only false, but it’s counterproductive in that it needlessly creates division and animosity.

It will probably come as a surprise to many that the number of drilling rigs in operation has increased from 328 in January 2009 when Obama was inaugurated to 1,423 at last count. By comparison, the number of drilling rigs in operation under the George W. Bush Administration peaked at a relatively paltry 426.

It’s important to understand, however, that the vast majority of rigs in operation are drilling on private land, and the offshore drilling moratorium that emerged in the wake of BP’s oil spill in the Gulf of Mexico had an obvious impact on drilling activity on federally-owned offshore land. But a few points should be made here as well.

First, and most importantly, the Gulf spill shed light on a poorly regulated system, and while poor regulation was not to blame for the spill (blame falls squarely on BP’s shoulders), effective regulation could have prevented the spill and the negative environmental, social, and economic impacts that the spill brought to the fishing, tourism, and related industries.

Moreover, the low number of active drilling rigs is not only due to the offshore drilling moratorium. The number of active drilling rigs has been declining for years primarily because oil and gas producers chose to drill elsewhere in the world.

Roughly 175 offshore drilling rigs were in operation when George W. Bush was inaugurated in January 2001, but during his last full month as President, only 66 offshore drilling rigs were in operation.

By March 2010, the month before the spill, the offshore rig count had fallen further to 51, and of course the moratorium caused the number of rigs in operation to drop further—to just 15 by July 2010.

Since then, however, the number of rigs in operation has climbed back to 51, and is likely to continue to climb as the federal leasing system has been restructured.

This past summer, the federal government put up for lease 39 million acres in the Gulf of Mexico, and the highest bids totaled $1.7 billion. The total acreage leased (2.4 million acres) is now in line with the decadal average, and the income earned by these bids was higher in only two other years—2007 and 2008. Looking forward, the decision has been made under the Obama administration to put up for bid another 38 million acres of federal offshore land in the Gulf next March. At this point, it’s anyone’s guess as to whether the bids will be tendered under a Democrat or Republican administration.

These statistics fly in the face of partisan talking points. With the exception of the temporary drop that resulted from the spill-induced moratorium, politics and regulation had little to do with the decline of drilling activity, though one might argue that the restructuring of leases has paved the way for increased activity.

A similar story is told by statistics on pipeline construction. During Bush’s last year in office (2008) slightly fewer than 51,000 miles of domestic crude oil pipelines were constructed, despite the fact that oil prices had reached record highs, and the financial system had not yet collapsed. Under Obama, slightly less (55,000 miles) were laid in 2010, which is the last year that data are available.

Of course neither Bush nor Obama had much to do with these pipelines, and when pipelines are brought up as talking points, what is really being referred to is the particularly contentious northern section of the Keystone Pipeline extension. This section of the pipeline will transport Canadian Syncrude produced from oil/tar sands to Cushing, Okla., and on to refineries in Port Arthur, La., and Houston, Texas.

It has widely been reported that Obama rejected the pipeline, but this statement is misleading. Obama rejected an expedited plan for the northern section only, citing the need for further research into the risks associated with the particular route that had been proposed. Obama has, in fact, pushed to have the southern section approved.

But Obama is not alone in his concern over the routing of the northern section. In August 2011, Nebraska’s Republican Governor, Dave Heineman, sent a letter to both President Obama and Secretary of State Hillary Clinton asking that the federal permit be denied because the proposed route traverses a critical aquifer. Here we have a Republican pleading on environmental grounds to a Democrat who has supported drilling and pipeline projects elsewhere.

The truth is that large pipeline projects are always contentious. As a case in point, in 1973, Senator Bob Dole broke with the Republican Party to stand beside then-Senator Joe Biden in opposition to the Trans-Alaska Pipeline System.

With the benefit of hindsight, it’s fair to say that the Alaska pipeline has been a great success, but had there been a significant accident, our perception would certainly be less positive. But just because an accident didn’t happen doesn’t mean that the risk of an incident affecting the Alaska pipeline or the Keystone pipeline has been reduced to zero.

In short, we need to recognize that there is a long history of bipartisan support for important environmental regulations, funding for solar and wind energy research and development, funding for conventional and unconventional oil and gas production, and support for pipeline development to distribute natural gas and oil to end users.

About the Author

Derik Andreoli
Derik Andreoli, Ph.D.c. is the Senior Analyst at Mercator International, LLC. He welcomes any comments or questions, and can be contacted at [email protected]

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Global Logistics · November 2012 · Oil · All Topics
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