Defending the indefensible, US President Barack Obama stubbornly pounds a fat wedge between his policies and the realities of energy. The exertion makes him exude bad information.
He might get away with claims about taxpayers giving oil companies $4 billion/year in subsidies. Few voters understand the difference between, say, expensing of intangible drilling costs and a tax credit for electricity from wind. Few can even define intangible drilling costs. Having failed for 3 years to cajole Congress into raising oil and gas taxes under the pretense of ending subsidies, Obama probably won't succeed now. The fiction nevertheless gives him a populist lever with which to move a fanciful energy agenda.
Popular bewilderment
On another misrepresentation about energy, popular bewilderment won't serve Obama's purposes nearly so well. Since his State of the Union speech in January, the president has been boasting that oil production has risen during his term in office. About the increase, he's correct. About the reason, anyone can see he's not.
Where federal policy most influences output of oil and natural gas, production is falling. According to new Energy Information Administration data, total production from federal and Indian land of crude oil and lease condensate, plant NGL, and natural gas fell in 2011 from a year earlier while output overall increased. Although a decline offshore was inevitable after the Macondo tragedy of April 2010, an overly aggressive regulatory response made it deeper than necessary.
A revelation less obscured by Macondo effects emerges onshore. Production from nonfederal, nontribal land, most of which is onshore, can be extrapolated from EIA's data. The only onshore category in which production from federal and Indian land increased more than output from nonfederal acreage in 2011 is NGL, by far the smallest one: 9% federal plus tribal vs. 3% private. In the larger categories, comparisons are revealing. From nonpublic land, crude production increased 11%; from federal and tribal acreage it increased 8%. Natural gas production increased 13% on nonpublic land; from federal and Indian leases it fell 3%.
Producers struggling with the administration's reluctant approach to leasing and permitting will find no surprises in these numbers. What's surprising is how blithely the president assumes credit for accomplishments skewed toward nonfederal land despite clear underperformance in his sphere of maximum influence.
His administration, moreover, acts determined to reverse the gains. The Environmental Protection Agency and Department of Interior are promoting unnecessary regulation of hydraulic fracturing, the well-completion method, already well-regulated by states, that's central to recent onshore production increases. Separately, EPA will publish final rules soon requiring equipment in limited supply to cut air emissions during well completions. Interior meanwhile wants to raise the royalty rate on production from federal land by 50%. And, of course, Obama wants to punish the oil and gas business by eliminating tax mechanisms mischaracterized as subsidies. An administration truly pleased by rising oil and gas production wouldn't work this hard to foreclose the trend.
Another deception infuses Obama's energy commentary. Disparaging oil and gas drilling, arguing for tax hikes on producers of commercial energy, and pushing real subsidies for noncommercial alternatives, the president tries to reduce energy policy to a choice between the past and future. He calls oil and gas "yesterday's energy."
Wrong choice
Yet providers of "tomorrow's energy" are going broke as horizons rapidly expand for domestic oil and gas. The technology-driven development of unconventional resources has greatly extended the future of energy forms Obama would consign to history. Oil and gas are proving to be recoverable in heretofore unimagined amounts. They're economic to produce and consume. From the government they require only tax treatment enabling producers to compete for capital—not subsidization—and a regulatory climate conducive to the necessary work.
Energy policy does involve choices. But the choices aren't between old and new. They're between abundance and scarcity, affordability and punishing cost. With energy, Obama's choices started poor and look worse as he amplifies his commitment to them.
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