Congressional statements by cabinet nominees tend to be forgettable. The oil and gas industry nevertheless should remember what Federico Peña told the Senate energy committee Jan. 30 in the matter of his nomination as Secretary of Energy (see Watching Government, p. 28). His statement contained reasons to worry.
It is "unacceptable," Peña declared, that U.S. oil imports may come to account for 60% of consumption by 2010 and that Persian Gulf nations will provide more than 70% of the oil in international trade-"surpassing their peak of 67% of global oil imports in the embargo year of 1974." The industry should wonder what the fuss is about.
Import perspective
Federal concern about U.S. import dependency is appropriate but needs perspective. Import dependency matters less now than it ever has, even as the level grows. Open and flexible trade, with supply flowing from many sources, now affords security lacking in the rigid and secretive market of yesteryear. U.S. security of energy supply comes from domestic production and access to oil in trade. Both are vital.
And why is it unacceptable that Persian Gulf nations might come to provide 70% of the oil in trade? They possess roughly that proportion of the world's oil reserves and consume relatively little. Yes, some of them are politically unstable, but no more so than many nations elsewhere. And, yes, several gulf producers participated in the Arab oil embargo of 1973-74. The question should be whether they are likely to do so again.
And the answer is no. Before the embargo, Arab producers didn't fully participate in oil trade. Now that they do, now that they have economies to sustain and international obligations to meet, they have incentives not to play politics with oil. Indeed, oil trade can be a stabilizing influence if consuming nations will acknowledge changes and act serious about crucial trading relationships.
Basing U.S. energy policy in 1997 on market and political contexts of the early 1970s would be like basing defense strategy on military contexts of the early 1940s. The oil and gas industry needs to bring Peña up to date.
Peña's assertion of the need for a "credible energy strategy" will receive no dispute here. But a warning is in order. The strategy that works best is the one that relies most on market freedom and least on official manipulations.
The nominee outlined energy goals that are mostly righteous: increasing domestic energy production, expanding use of natural gas, diversifying oil supply options, improving efficiency in the use of all energy, developing clean and renewable fuels, and enhancing competitiveness of the electric utility industry. But he failed to acknowledge that the U.S. has already taken huge strides in each of these areas, most effectively through deregulation.
He thus feels obliged to worry about a "slide toward energy insecurity" and wishes for strategies that "address both energy production and consumption and that are coupled with specific targets and timetables to measure performance." This is a warm-up to government activism, which always does more harm than good.
Boosting production
There are certainly things that the government can and should do to boost production. But they mostly require the government to get out of the way. If Peña really wants to increase production, for example, he should support oil and gas leasing of the Arctic National Wildlife Refuge Coastal Plain and of federal offshore areas outside the central and western Gulf of Mexico. But he won't. Not as a member of the Clinton administration. As a member of the Clinton administration, he instead calls for an energy strategy that "addresses the challenge of global climate change."
This isn't what the oil and gas industry should expect to hear from an Energy Secretary nominee likely to promote production and energy security in meaningful ways. This sounds like someone whose job it will be to promote the political future of Vice-President Al Gore.
Copyright 1997 Oil & Gas Journal. All Rights Reserved.
