Domestic Production Causing Oil Imports to Plummet
April 9, 2014 by Leave a Comment
For decades, the American presidents and congress have promised to reduce our dependence on foreign oil (as you can see in this video below):
Promises were made to reduce imports of foreign oil by everything from cellulosic ethanol to solar energy. None of these big-government programs worked. After the oil shocks of the 1970s, U.S. oil imports steadily increased from the mid 1980s through 2005 when high oil prices put a damper on U.S. oil consumption.
But starting in about 2008, private enterprise began production from shale formations like the Bakken formation in North Dakota and Eagle Ford formation in Texas started to dramatically increase and as a result, U.S. net oil imports have been plummeting. In fact, our oil imports are the lowest they have been since 1987.[1]
Source: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mttntus2&f=m
In a new report from the Energy Information Administration, they project that the U.S. could completely eliminate oil imports if oil production continues to increase.
EIA’s best guess of future oil production also has the U.S. approaching all times highs in oil production by 2019 and surpassing it earlier if production continues to increase at current rates.
Oil production in the U.S. is booming, but it has been limited to those areas where the federal government’s role is non-existent. This could change, if the Obama administration got serious about increasing oil production by opening up the less than 3 percent of federal lands and waters that are leased for oil production. The future of oil production in the U.S. could be bright if the federal government began to see increased energy production as a good thing for the nation.
IER Director of Regulatory and State Affairs Daniel Simmons authored this post.
[1] Energy Information Administration, U.S. Net Imports of Crude Oil and Petroleum Products,
More Trouble for KiOR
April 4, 2014 by Leave a Comment
On these pages, we have been chronicling the sad saga of alternative-fuel company KiOR, which is facing class action lawsuits and an SEC investigation because it allegedly misled investors about the plausibility of its biofuel production targets. In the present post we’ll summarize the latest developments, which show that KiOR is teetering on the edge of collapse but has gotten a last-minute stay of execution.
Last month, KiOR stock fell 39 percent (the biggest drop on record since the company went public in 2011) when its management announced. As Bloomberg reported at the time:
The company needs additional capital by April 1 and its only potential source of near-term financing is a March 16 commitment letter from billionaire investor [Vinod] Khosla, according to a filing with the Securities and Exchange Commission yesterday.
…
If the company doesn’t receive additional financing, it will “likely” default on its debts and may file for bankruptcy. “We have substantial doubts about our ability to continue as a going concern,” the Pasadena, Texas-based company said in the filing.
It turns out that Khosla did come through in the nick of time, and now has enough funding to stay in business through August, as the Sacramento Bee reports: “KiOR… had completed a deal to borrow $25 million from an entity controlled by Vinod Khosla, who also owns 64 percent of the company’s stock.”
If this were just a matter of a biofuel company getting a new lease on life from a big investor, it would be unremarkable; wealthy people can sometimes take risks on an idea that takes a while to prove itself.
The problem here is that it’s not just Khosla’s money that’s on the hook. As the SacBee article goes on to explain:
KiOR had warned that without the money it would default on nearly $280 million in debt, including $69.4 million it owes to the state of Mississippi.
The state loaned KiOR $75 million to help its startup, one of a number of investments made by Gov. Haley Barbour’s administration in alternative-energy companies. KiOR has been making scheduled payments on the loan, but still owes $69.4 million. If the company were to file bankruptcy or default, the state would be the first creditor in line, and could seize the company’s plant.
Governments—whether at the state or federal level—have no business picking winners and losers in the energy sector and KiOR shows exactly why. If a business needs government loans to get off the ground, it means the business is not promising enough to attract money from people who are willing to bet their own money. This means that company is not efficient and can’t stand the market test.
Even if we concede the “negative externality” and “market failure” arguments regarding fossil fuels and climate change, it would still be ludicrous for the states and feds to be acting as venture capitalists. It would be difficult to dream up a worse idea than letting political officials lend taxpayer money to companies that can’t raise private funding. These alternative energy loan programs are just asking for corruption and inefficiency.
In order to protect taxpayers, as well as promote efficiency in the energy sector, governments should leave company financing up to the private sector.
IER Senior Economist Robert P. Murphy authored this post.
The PTC Has Overstayed Its Welcome
April 3, 2014 by 3 Comments
WASHINGTON – American Energy Alliance President Thomas Pyle issued the following statement responding to attempts to include the wind PTC in the Senate Finance Committee’s tax extenders bill:
“The death of the wind PTC in 2013 was a victory for taxpayers. Unfortunately, this wasteful subsidy is once again rearing its ugly head. Although not included in the initial extenders bill, Senator Grassley has made it clear that he intends to amend the bill to include the PTC. This is a case of cronyism trumping the interests of the American people.
“Rather than cutting wasteful handouts that would save taxpayer dollars, Senator Grassley and other PTC proponents continue to carry water for Big Wind’s well-heeled lobbyists who have been claiming for decades that the wind industry is on the cusp of economic competitiveness. Handouts like the PTC have serious implications for taxpayers and they should be debated out in the open, not behind the closed doors of the Senate halls.
“The notion that the wind industry is an infant that needs the PTC to get on its feet is simply not true. The PTC has overstayed its welcome and any attempt to extend it would do a great disservice to the American people.”
###
AEA Launches Major New Ad Initiative
April 1, 2014 by Leave a Comment
WASHINGTON – The American Energy Alliance continues its carbon tax accountability initiative with television and online ads beginning today in West Virginia’s Third Congressional District and tomorrow in the State of Alaska. The West Virginia effort will run until April 12and the Alaska initiative will continue through April 23. These new ads hold Congressman Nick Rahall and Senator Mark Begich accountable for the positions they have taken on the carbon tax.
AEA President Thomas Pyle released the following statement:
“Even though they are on opposite sides of the country, West Virginia and Alaska are quite similar in that they produce the abundant, affordable, and reliable energy resources that power the American economy and create good paying jobs in the process. Unfortunately, West Virginia Congressman Nick Rahall and Alaska Senator Mark Begich are also remarkably similar in that they both have mastered the art of saying one thing at home and doing the opposite in Washington. In this case, it is their support for the carbon tax.
“West Virginia is coal country, and yet Nick Rahall voted for a budget that included a carbon tax, which in any form would kill coal and destroy the jobs West Virginia coal miners depend on. Congressman Rahall should be embracing his state’s energy resources instead of working with the liberals in Washington whose agenda would harm the well-being of the people who put him into office.
“Mark Begich has voted not once, but twice, to advance a carbon tax agenda and went even further by signing a letter urging his Democratic Leader, Harry Reid, to immediately advance legislation that would put a price on carbon. This is the same Harry Reid who believes that ‘oil makes us sick’ and insists that we must ‘stop using fossil fuels.’ A carbon tax would drive up energy costs and have a damaging effect on our already fragile economy. Alaska would truly be impacted by a carbon tax, and yet Senator Begich refuses to stand up to the liberals in Washington who are seeking to advance this harmful anti-fossil fuel agenda.
“The American Energy Alliance is committed to holding lawmakers accountable for their actions, especially when those actions raise energy costs on American families. We will continue to use all the tools at our disposal to educate and inform the American people of what their elected representatives are up to in Washington.”
To watch the West Virginia TV ads, click here and here.
To read the fact sheet for the West Virginia ads, click here.
To watch the Alaska TV ad, click here.
To read the fact sheet for the Alaska ads, click here.
###
UN Condemns Biofuels in New Report
March 27, 2014 by Leave a Comment
For decades, principled defenders of free energy markets have pointed out the absurdities of government support for biofuels. The decentralized market system provides the proper feedback—in the form of the profit/loss test—to investors to determine the correct mix of various sources in the country’s overall energy output. If it really made economic sense produce over 14 billion gallons of ethanol in 2014, then it wouldn’t take government interference to force that outcome. The fact that proponents of mandates for ethanol always run to the government, just shows that their schemes can’t stand on their own footing.
Naturally, these types of arguments didn’t resonate well with progressive environmentalists, who typically have little sympathy for resource efficiency let alone the bottom line for investors. Yet even environmentalists in recent years have begun turning on biofuels. It turns out that not mandating ever-increasing amounts of biofuels bad economically—they’re not even good for the environment.
Indeed, the environmental case against biofuels has gotten so strong that even the United Nations has reversed its position. As a recent Telegraph article reports:
The United Nations will officially warn that growing crops to make “green” biofuel harms the environment and drives up food prices, The Telegraph can disclose.
A leaked draft of a UN report condemns the widespread use of biofuels made from crops as a replacement for petrol and diesel. It says that biofuels, rather than combating the effects of global warming, could make them worse.
The draft report represents a dramatic about-turn for the UN’s Intergovernmental Panel on Climate Change (IPCC).
…
The summary for policymakers states: “Increasing bioenergy crop cultivation poses risks to ecosystems and biodiversity.”
Biofuels were once billed as the green alternative to fossil fuels, but environmental campaigners have voiced concern about them for some time.
…
Referring in part to deforestation, [the leaked IPCC report] says any benefit of biofuel production on carbon emissions “may be offset partly or entirely for decades or centuries by emissions from the resulting indirect land-use changes”. On biofuel production from corn, it adds: “Resulting increases in demand for corn contribute to higher corn prices and may indirectly increase incidence of malnutrition in vulnerable populations.”
Although we can applaud the forthcoming IPCC report for finally acknowledging the obvious, there is a broader point here. When the government intervenes in the market, it disturbs the “natural equilibrium” that the social system of production and exchange had established. As much as many progressive natural scientists want to deny it, there are objective laws of economics. When policymakers tinker with market outcomes, they achieve all sorts of unintended consequences—even though they may be perfectly predictable consequences.
We hope environmentalists—who are all too aware of “unintended consequences” when it comes to natural ecosystems—might have more humility in the future regarding the pet programs that they still endorse. Whether it’s wind turbines slaughtering birds or anti-carbon policies condemning developing nations to decades of poverty, the still-favored environmental policies have plenty of unintended consequences that undercut their stated goals. If environmentalists turned out to be dead wrong about biofuels, will they consider the possibility that they’re wrong on other government interventions into markets too?
IER Senior Economist Robert P. Murphy authored this post.
When It Comes to Light Bulbs, Government (Thinks It) Knows Best
March 25, 2014 by 1 Comment
This year marks the complete phase-out of the traditional incandescent light bulb. Starting on January 1, it effectively became illegal to manufacture or import the good old-fashioned light bulb in the United States, though stores are still allowed to sell down their pre-existing inventories. Specifically, provisions in the 2007 Energy Independence and Security Act phased in energy-efficiency standards for light bulbs of various wattages that incandescent bulbs can’t achieve. The government is thus forcing Americans to switch over to CFLs (compact fluorescent lamps) and LEDs (light emitting diodes). A USA Today article from right before the ban took effect provides some comic relief—unintentionally—on the weak rationale for the policy.
Early on, the author Jolie Lee says, “Energy-efficient bulbs cost more than incandescent bulbs but last much longer and save on energy costs in the long-term,” but then goes on to ask, “So why are people still buying incandescent bulbs and what will the phaseout mean for you?”
Even though it might not have been her intention, Lee actually gives some good reasons that American consumers are resisting the conversion. For example, the much ballyhooed efficiencies actually don’t translate into immediate economic gain:
An incandescent bulb can cost as little as 70 cents. Meanwhile, a CFL bulb sells for at least a few dollars and an LED starts at $10 but usually runs around $20.
…
Despite the savings [in electricity costs], many still stick with incandescents because they typically don’t spend that much in the first place on lighting in their homes.
…
Home improvement store Lowe’s did a study comparing electricity costs of an LED vs. an incandescent bulb. Energy costs for the LED added up to $30 over the bulb’s 22-year lifespan. Energy costs for using an incandescent bulb over that same period added up to $165 – savings, certainly, but perhaps not significant enough for many homeowners over two decades to alter their buying habits.
Thus, even using the theoretical numbers from the article, using an LED versus an incandescent bulb would reduce electric bills by about $6.15 per year. If the cost of a traditional bulb is 70 cents while the LED runs $20, then it takes three years (even ignoring interest) for the LED to “pay for itself.” When we’re starting with such low expenses anyway—the incandescent bulb averages $7.50 per year in electricity usage, according to the numbers above—it’s easy to see why consumers haven’t been rushing into LEDs.
Furthermore, as we previously noted, to achieve these savings and a relatively quick payback, you have to use your new LED bulb for three hours per day. If you replace a 60-watt incandescent with an LED and only use it for 30 minutes a day, then it would take 14 years to pay off the LED bulb.
What would make sense is for large-scale businesses to switch over their lights, since they operate many lights, have long planning horizons, and thus can really significantly cut operating expenses over time. And that’s precisely what we do see: Even absent government mandates, plenty of businesses were swapping out incandescents for more energy-efficient and longer-lived alternatives, particularly in fixtures that were hard to access (such as the lighting for a mall or parking lot). But when it comes to, say, the bulb in a lamp in a residential home’s living room, it makes little financial difference to switch.
This brings us to yet another difference: color or quality of the light. The article explains:
Incandescents are known for their warm light, which looks particularly good against skin tones, Rey-Barreau [a lighting design professor at the University of Kentucky] said. On the other hand, fluorescent lights have gained a reputation for casting a harsh, bluish light.
Rey-Barreau goes on to argue that this view is now obsolete, because fluorescents can be matched perfectly with the light of the traditional incandescent bulb. Well, Rey-Barreau is the expert, but in my experience, the colors are different; I can still distinguish light from a traditional versus a new bulb, and the new light is definitely more “clinical” and less “comfy” than what we all grew up with.
So we see that the government is forcing consumers to buy bulbs in the name of energy efficiency even though the savings are modest for residential uses, and even though consumers might have a legitimate preference for the incandescent light. Here’s a radical thought: Rather than foisting their decisions on everybody, government officials could simply provide information to the public on the facts about energy usage, then let consumers make up their own minds.
But the federal government does not share our view that if you like your light bulb you should be able to keep your light bulb. So make sure to stock up at Amazon, eLightbulbs.com, or wherever else you can find 75 and 100-watt light bulbs and 60 and 40-watt incandescent light bulbs.
IER Senior Economist Robert P. Murphy authored this post.
LCFS: Imposing Expensive California Fuels on a Town Near You
March 24, 2014 by Leave a Comment
On March 21, the American Fuel & Petrochemical Manufacturers (AFPM), the American Trucking Associations (ATA), and the Consumer Energy Alliance (CEA), filed a petition for writ of certiorari to the U.S. Supreme Court challenging the constitutionality of California’s Low Carbon Fuel Standard (LCFS).
The LCFS came about in 2006, after the California Legislature passed and Governor Arnold Schwarzenegger signed AB 32, the Global Warming Solutions Act. AB 32 set a goal of reducing California’s greenhouse gas emissions to 1990 levels by 2020. Pursuant to the state’s emission reduction target, in Jan. 2007 Governor Schwarzenegger signed Executive Order S-01-07 establishing the Low Carbon Fuel Standard (LCFS). The LCFS requires fuel providers to reduce the carbon intensity of gasoline and diesel fuel by 10 percent by 2020.
Mandating a low carbon fuel standard is one thing; implementing one is something else. The implementation of the LCFS will make fuel more expensive and may even increase greenhouse gas emissions. The simple truth is that there is no cost-effective way to reduce the carbon intensity of fuel.
In addition to increasing fuel costs and harming the environment, the LCFS may also be unconstitutional. As AFPM General Counsel Richard Moskowitz explains:
California’s Low Carbon Fuel Standard (LCFS) discriminates against fuel produced outside of the state and is an unlawful expansion of California’s regulatory authority to control the manner in which fuel is produced outside its borders. Moreover, AFPM believes that the harm the LCFS impermissibly inflicts on interstate and foreign commerce is too great to ignore, and therefore, we have asked the U.S. Supreme Court to hear the case.
As we have explained on these pages before, California’s LCFS makes fuel more expensive for motorists and does not improve the environment. This is because biofuels (the alternative to conventional gasoline) are both more expensive and in some cases more carbon intensive than conventional gasoline. In fact, according to a forthcoming report from the United Nations, widespread use of biofuels actually harms the environment more than it helps. Moreover, as AFPM explains in its petition, LCFS empowers California regulators to dictate how fuel is produced in other states.
Litigation over the constitutionality of California’s LCFS began in 2010 when AFPM, along with ATA, CEA, and the Center for North American Energy Security, filed suit against the California Air Resources Board. Most recently, the Ninth Circuit Court of Appeals denied AFPM’s petition for an en banc rehearing of the case. For a full timeline of the litigation, click here.
To learn more about California’s flawed LCFS, click here.
IER Policy Associate Alex Fitzsimmons authored this post.
AEA Calls on President to Get Serious about Ukraine’s Energy Problem
March 21, 2014 by 1 Comment
Start Sending them Wind Turbines, Solar Panels, and the Tiny Cars that no Americans Want to Buy
“It’s about time we really help the Ukrainians out of their energy jam by restricting access to their own oil and gas and making them subsidize expensive and unreliable energy.”
Washington, D.C. – As the President and leaders in Congress continue to discuss steps to help the Ukrainian people keep Russian President Vladimir Putin in check, Thomas Pyle, President of the American Energy Alliance, today called upon the Obama Administration to get serious, step up his actions, and start sending Ukraine the vital help they need on energy.
“We need to send Ukraine every available wind turbine, solar panel, and tiny car that no American will buy. That is what the Ukrainian people want, and those are the sort of energy resources that will assist them in their struggle with the Russians.
“Additionally, it’s about time we really help the Ukrainians out of their energy jam by restricting access to their own oil and gas and making them subsidize expensive and unreliable energy.
“We should also deploy Secretary of State John Kerry to Kiev to alert Ukraine that their real challenge is climate change – the world’s greatest weapon of mass destruction and the true and immediate enemy of the Ukrainian people.
“We also hope that the Secretary of the Navy can spare the Great Green Fleet and send it to the region to show the United States’ solidarity with Ukraine.
“The last thing we should do is to increase Ukraine’s dependence on oil and gas by exporting more of either to them. All that will serve to do is deepen their reliance on these inexpensive, reliable, abundant fuels.”
###
U.S. Oil Production Reaches Highest Levels Since 1989
March 14, 2014 by Leave a Comment
U.S. oil production averaged 7.5 million barrels per day (bpd) in 2013, reaching the highest levels since 1989, according to new data from the Energy Information Administration (EIA). Domestic oil production hit 7.9 million bpd in December 2013, an 11 percent increase compared to December 2012. The following chart shows U.S. oil production between 1989 and 2013. Meanwhile, on the federal OCS, production again went down.
Domestic oil output rose by 966,000 bpd—15 percent—between 2012 and 2013, the largest annual percentage increase since 1940. Texas and North Dakota drove the boom, accounting for 83 percent of U.S. production growth since 2000. In December 2013, the Eagle Ford shale formation in Texas produced 1.22 million bpd, while the Bakken shale formation in North Dakota eclipsed 1 million bpd, according to EIA’s Drilling Productivity Report.
Thanks to the shale boom on state and private lands, America is now rapidly displacing imported oil with domestic production. Oil imports fell to their lowest levels since 1996 and 30 percent below the June 2005 peak of 10.7 million bpd, according to EIA. Domestic oil production now supplies 49 percent of U.S. oil demand, up from 43 percent in 2012.
EIA offers a bullish forecast for future growth in domestic oil production. EIA’s latest Drilling Productivity Report predicts combined oil production in key regions (Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, and Permian) to increase by a combined 67,000 bpd in April. EIA expects the Bakken to hit nearly 1.1 million bpd in April and the Eagle Ford to eclipse 1.35 million bpd.
America’s domestic energy boom is made possible by recent technological advancements that combine hydraulic fracturing and horizontal drilling to access previously inaccessible oil trapped in dense shale rock formations. This boom, however, is occurring almost entirely on state and private lands on which the federal government has little control. On lands owned by the federal government, domestic energy production has actually fallen by 15 percent over the last two years. America is becoming more energy secure despite federal policies that restrict access to the country’s vast energy resources. Americans are left to wonder how much more oil we could produce if not for federal policies designed to obstruct domestic energy development.
IER Policy Associate Alex Fitzsimmons authored this post.
