The making of US energy policy suffers from automatic resistance to any initiative that promises to boost supply of fossil energy. Some of the resistance comes from extremists reflexively opposed to the production and use of oil, gas, and coal. The rest comes from more-serious thinkers inclined to treat fossil-energy projects as unique ensembles of risk and benefit and to err on the side of caution. Of the two, the risk-reward approach is superior. But a pattern of cautious error with decisions made case by case can have the same effect on energy as extremism.
Three decisions at various stages in the US would, if driven by maximum caution, cut energy supply from domestic or nearby sources and conflict with political desires to lower imports of oil from potentially hostile producers. If the decisions are made in isolation from one another, caution might seem sensible, however excessive. Because excess caution has become the rule in the US, however, supply consequences should be studied together. They do add up.
Supply response
The issues are offshore leasing and permitting, federal regulation of hydraulic fracturing, and expansion to the US Gulf Coast of the Keystone Pipeline system. The question here is the combined energy-supply response to discrete decisions preventing work in all three cases.
The Keystone XL pipeline proposal must frame timing of the analysis. Because the system crosses an international border, expansion must be approved by the Executive Branch of the US government. The decision falls to the State Department, which said recently it wants to render a decision by yearend.
If the project receives approval at that time and encounters no further delays, it might be delivering Canadian oil to US refineries at the rate of 509,000 b/d above capacity without the expansion by 2014. Rejection thus would mean an energy deficit of equivalent size in the same year.
So what energy deficits might be in prospect in 2014 from excessive caution with offshore regulation and hydraulic fracturing?
The answer is at hand on offshore regulation. Because of leasing and permitting slowdowns since the Macondo tragedy a year ago, the US Energy Information Administration this year cut its Annual Energy Outlook projection of 2014 crude oil production from the Lower 48 offshore by 230,000 b/d. Some of that loss is warranted by the demonstrated need for improved regulation. Consistently, though, the government has erred on the side of inaction. If it remains reluctant to hold lease sales, the supply loss will exceed the level implied by EIA.
Estimating the supply loss from overregulation of hydraulic fracturing is trickier. A new layer of federal regulation would delay permitting and raise the cost of drilling wells in richly promising shale plays. It thus would constrain drilling and hold shale-gas production below expected rates. This year, EIA raised its projection of gas production from shales for all of 2014 to 6.71 tcf from the 3.6 tcf it forecast for the same year in 2010. If new regulation kept production from shales in 2014 to the level forecast in 2010, it can be assumed to have resulted in the loss of 3.11 tcf of gas supply.
Taken together, the energy deficits from decisions driven by caution leading to inaction on offshore regulation, the Keystone XL pipeline, and hydraulic fracturing come to 4.5 quadrillion btu (quads). That's only 4.5% of total energy consumption predicted in 2014. But the energy would have to come from somewhere.
Covering the deficit
The facile answer these days is to assume nonfossil energy makes up differences like this if only the US musters the political will. But covering the postulated deficit with biomass and other renewable energy would require a two-thirds increase in what EIA projects from those heavily subsidized sources in 2014. For physical and fiscal reasons, it won't happen.
The energy would be imported—and not, with rejection of Keystone XL part of the reason—from friendly Canada. Caution, it seems, can be dangerous.
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