Leading with energy

Oct. 24, 2011
Texas Gov. Rick Perry performed a service on Oct. 14 by putting production of energy—commercial energy, that is—at the front of an economic program he hopes will carry him into the US presidency.

Texas Gov. Rick Perry performed a service on Oct. 14 by putting production of energy—commercial energy, that is—at the front of an economic program he hopes will carry him into the US presidency. If nothing else, he elicited yet another misguided utterance on the subject from the incumbent administration.

At a steel plant outside Pittsburgh, Perry unveiled a proposal to approve leasing in the Arctic National Wildlife Refuge, expand leasing of the Outer Continental Shelf, accelerate permitting in the Gulf of Mexico, and ease regulations now impeding energy development, among other things. The best part is that Perry, seeking the Republican Party's nomination, placed development of US oil and gas resources solidly in the context of economic progress.

That the governor limited his economic scope to employment is unfortunate but necessary. The winner of the 2012 presidential election will be the candidate whose promises about jobs are believed by a majority of voters. Perry said his energy plan would create 1.2 million of them.

Deficit accounts

But an abysmal unemployment rate isn't all that bedevils the US economy. Trade and fiscal deficits are too large and too persistent, sources of worry as much outside as inside the country.

Unshackling development of oil and gas resources would help rebalance US accounts. But most Americans don't think that way. Accustomed to falling domestic production and rising oil imports, they expect shortage. Yet production of oil and natural gas liquids is rising. Imports are falling. Even if activity constraints don't change, liquids output will increase at least for the next few years. Future gas supply looks even better.

Yet the outlook could be brighter. It's not unreasonable to think that allowing oil and gas work to happen as Perry recommends might boost production of oil beyond current expectations by 2 million b/d within 10 years. A production gain of that size, with the oil price at $100/bbl, would trim the trade deficit by $73 billion. That's almost 15% of the 2010 deficit.

A 2-million-b/d production increment would ease the fiscal deficit, too. At average per-barrel earning rates implied by Energy Information Administration data and a top rate of 35%, corporate income taxes alone would increase by $5.4 billion/year. And 1.2 million new workers earning the US average wage of $41,000/year would pay, if unmarried, federal income tax of $7.65 billion/year. A government running a budget deficit exceeding $1 trillion should welcome the chance to earn money from affordable energy instead of spending money on the other kind.

But the administration of President Barack Obama has other ideas. A spokesman for Obama's reelection campaign derided Perry's energy plan as "straight out of the past—doubling down on finite resources with no plan to promote innovation or to transition the nation to a clean energy economy." That would be an economy in which energy saps rather than feeds the economy. Americans who see this as progress should watch the UK, where households with national median income soon will devote 10% of their budgets to electricity and natural gas, entering an unenviable realm the government calls "fuel poverty."

New tools

And what's this about "out of the past?" Just a few years ago, no one could have hypothesized about 2 million b/d of new oil production in the US. It's possible to do so now because of tools and technologies unavailable in the past. The oil and gas they add to the future energy mix are only now coming into view, allowing Americans to wonder if shortage has to be a given in thinking about energy. To disparage this potential as somehow antiquated and unworthy of consideration is foolish.

A refreshing energy program might not win Perry the nomination. But by underscoring the link between prosperity and resource development, it provides an illuminating contrast with the view, now rampant in the White House, that economic goodness starts with government. Others hoping to unseat Obama should take note.

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