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          The Week In Congress .com                    

Week Ending August 19, 2005                  August Recess Edition #3                           Volume 2 Number 26

U.S. Energy Policy: The Extent of the Problem

   Energy is the central player in US productivity and lifestyle both of which are currently under unprecedented stress as crude oil prices march steadily to $65 per barrel this week, up from $40 per barrel in less than a year, and are expected to continue rising unabated.

   Nuclear power, coal, natural gas, hydropower and sustainable sources of energy such as wind and solar power are used primarily to produce electricity with the exception of biomass fuel products such as ethanol that can be used in motor fuel, too. Various types of energy will keep the lights on but crude oil remains the key element that is inextricably interwoven with the individual American’s lifestyle and the most basic elements of American society: transportation, earning and spending.

   Thirty percent of the crude is transformed into non-gasoline petroleum products including burning the oil to create electricity. Seventy percent of oil is made into gasoline and 40 percent of that gas is used by SUVs and light trucks, Congress has found.

    The interstate trucking industry uses gasoline and diesel to move over two thirds of all products to market. Gasoline also fuels the personal transportation that gets employees to work to earn a living and to the stores to spend the earnings on those products. Mass transit moves greater numbers using less fuel but the absence of mass transit in areas of sprawl has made many communities accessible only by car. Vacation travel, emergency services, airline travel are all consumers of processed crude oil. So as consumers watched gasoline prices follow the increase in crude prices they are now beginning to watch product and service prices increase as well. That is far from an insignificant adjustment when considering that $1000 fuel cost added to the cost of delivering a truckload of products will soon be $2000 added per truckload when crude reaches the $80 per barrel, double what it was just a few months ago.

   There are four primary reasons given for increased gasoline prices: Profit taking by oil refineries in the US, increased demand, foreign policy and diminishing supply. Profit taking by the oil companies has reached new highs in just the past year reaching an average of $50 billion for each of the four major oil companies and their stockholders according to news reports. Demand has increased not only from the US consumers who seem determined to drive vehicles that consume a lot of gasoline but from China seeking to fuel its unprecedented economic growth for the past ten years. India, too, requires more fuels as its economy blossoms. Over the past three years Russia has begun to shape its own energy policy and management of substantial petroleum reserves.  China has defined and acted on pipeline construction to send gas and oil from the Caspian Sea area to the Korean peninsula and has cut deals for oil delivery from Canada and Saudi Arabia and is exploring relationships with South American countries.

    Hardball trading and negotiating for oil and gas rights in foreign countries is probably not exclusive to American oil companies, but aside from traditional sources of crude from Saudi Arabia, other countries are showing signs of favoring other oil clients over the US. Bolivia has announced its intentions to raise the price of crude to American oil companies and stated it has been taken advantage of for too long by those companies. Venezuela President Hugo Chavez has caused concern to US officials since the effort to unseat him as president failed and he was elected a second time by Venezuelans. Cuba, far from consuming anywhere near the amount the US consumes, is favored in contrast to US interests by Mr. Chavez as is China. Venezuela sells more than fifty percent of its' oil to the US.

   As demand increases and US negotiating sins of the past catch up to US consumers, the world supply of crude oil is at its peak and will soon decline. Once supplies begin to shrink noticeably, prices will rise even more noticeably raising the question if a commodity so important to productivity, the overall economy and the national security of the American people should be left to free market influences that could soon make the stuff unavailable to those who can no longer afford it.

   What the US is doing to insure a secure supply of energies for all types of uses is not likely to create a stable pricing structure as long as the market drives the price. Transforming corn into motor fuel or motor fuel additives, for example, will raise the price of corn, higher corn prices will increase the price of corn syrup used in most sweetened beverages, livestock feed corn and probably the vegetable version that humans consume. Lower fuel prices, the hoped for results of blending less expensive bio-fuels with gasoline for a less expensive product, could also reduce the amount of taxes paid per gallon. Fuel taxes around 19 cents per gallon provide funds for a great many transportation projects from national highways to city street lighting. If nothing changes and Americans simply use less gas, the impact would be significant: less tax revenue, fewer projects can be financed.

   Hydropower remains a stable source of electricity as does nuclear but nuclear power plants are aging and soon, at least one new plant must be built. Solar power remains a good idea for meeting smaller energy needs such as hot water at home. Wind power is showing promise but continues to meet concerns about noise and danger to birds. The recently passed Energy Policy bill, HR 6, provided incentives for renewable energy sources and requires some decisions to be made concerning the stability of the national electric grid and control over wholesale prices of electricity.

   It is oil for transportation and also heating homes and businesses that need serious attention. Congress’ efforts to create an energy policy might have begun nearly fifty years ago when domestic consumption began to outstrip domestic supply of oil. It appears though that it was easier to buy from other countries. Clearly, we now have a problem with our relationships to sources of foreign oil and on a regional basis, those sources come with significant threats of being suddenly disrupted by terrorist activities.

   In considering HR 6 Congress based its decisions on some formidable facts from the USEIA (US Energy Information Administration) that paint a picture of rocketing demand world-wide and diminishing resources also world-wide, but with the added twist that the US and North America may be sitting on enough energy resources to become free from foreign oil and to do so in less than 20 years. Although little has been made of it, the bill created the U.S. Commission on North American Energy Freedom, a 16 member group that would include Mexico and Canada among the members appointed by the President.

Where is This Taking Us?

  Americans in 2001 used 19.8 million barrels of oil per day, 12 million of it for transportation. Conservation does not seem to be part of the national consensus. Consumption is projected to be 28.3 million bpd in 2025.

   Putting the US consumption figures in perspective; Canada and Mexico used a combined 4 million bpd in 2001 and will use a combined 6.3 million bpd in 2025.

HR 6, the Energy Policy bill recently enacted and signed into law was Congress' primary energy bill this year with the exception of spending for the Departments of Energy and Interior in which there was allocations for energy projects related to water, nuclear and renewable energy research.

HR 6 has taken a scattered approach to solving the impending energy crisis by devoting resources across the board and appearing to devote them in amounts relative to the viability and current use of different energy sources.

Much has been made in the media about the nearly $15 billion in tax breaks provided to energy companies, largely the oil companies, but that is the result of the continued policy of leaving energy prices exposed to market forces. Oil extraction is a business and although prices are now approaching a level where oil that was more difficult to extract or refine is now financially viable, the cost of exploration is not something those companies want to take a chance on without incentives or guarantees against loss. Other provisions in the bill provide loan guarantees up to 80 percent for a variety of energy research including renewable energy sources. Primarily, though, the bill provides finances for oil and gas exploration through tax incentives, loans, picking up liability for environmental damages and cutting or eliminating royalties paid on extraction from public lands. Exploration, particularly in those areas considered environmentally fragile such as on ocean floors and coral reefs, is expected to be somewhat damaging so the bill provides liability protection to the company doing the exploration. Photo: MorgueFiles

Energy Efficiency

  The bill's most publicized provision is the change in Daylight Saving's Time that would start a month earlier in March and end a month later in November. A report on the impact of that decision would be required in nine months after enactment of the bill into law.

   The bill also looks to public buildings for energy savings but the requirements are more towards studying the problem and possibilities and educating users about energy efficient behavior in the workplace. Congress would spend $2 million yearly to reduce energy use in federal buildings by 2025. The task at hand involves 20 percent of the 500,000 federally owned buildings.

  Big energy-using businesses could find themselves in a contract with the Secretary of Energy to find ways of reducing energy use. The program is voluntary.

   The bill also aims to reduce energy through weatherization assistance and would spend $500 million in 2006 adding $100 million yearly through 2008. About $50 million would be used for energy efficient appliance purchases at the State level. $20 million in grants would hope to improve energy efficiency in low income community public buildings and FHA mortgage insurance would also see some relief for energy efficient single- and multi-family housing. Consumers would find some educational efforts regarding maintenance of home heating and air conditioning systems and energy use per product would be labeled on the product within two years. Photo: Morguefiles

Energy and National Security

   Congress also looked at a report from the Department of Energy’s Sandia National Laboratories in New Mexico that illuminated how reliance on foreign oil has potential national security risks. Primarily the report notes that most of the countries that export oil and natural gas to the US are unstable or potentially unstable. Terrorist interruption of that oil flow could increase not only the availability of the petroleum but an increase in prices due to reduced supply against a stable or increasing demand.

A North American Problem Not Just an American Problem

  Recent meetings between Canada, Mexico and the US and recommendations by the United States Energy Information Administration (USEIA) suggest that policy makers will move towards a continental view of energy problems and solutions rather than just in America.

   Congress considered that energy self-sufficiency is a shared interest among North American countries and that each has a significant part to play in reducing energy reliance on potentially unstable governments across the sea. Each country, however, must maintain its sovereignty. To deal with the possibilities and challenges of a Continental energy plan HR 6 created the U.S. Commission on North American Energy Freedom. The President would appoint the 16 members and the chairman. Members could be from Mexico and Canada. Map: USCIA

What Energy Resources Does the U.S. and North America control?

All three North American countries produce oil but the sources (with the exception of Mexico) are not as prolific or easy to extract as resources in other countries. Oil production in North America was 15.4 million bpd in 2001 and should rise only to 18.3 million bpd in 2025, but North America harbors 492.7 billion barrels (bbls) of oil equaling about 16.8% of the world resources. The 492.7 bbls does not include significant resources in US shale rock and Canadian sand. Not including the shale and sand oil, North America could rely on its own oil resources for an average of 48 years.

   America sits on 2 trillion of the world’s 2.75 trillion barrels of oil from oil shale rock from which it could, given a successful and economically viable way to extract it, produce 10 million bpd for over 100 years. Canada has 1.7 trillion barrels of oil in its Alberta oil sands and could also produce 10 million bpd for 100 years. The US also has 80 billion barrels of heavy oil resources and 400 billion barrels of conventional oil that could produce 60 billion barrels using advanced CO2 recovery technology. In oil sand the US has 54 billion barrels in place. In the Alaska National Petroleum Reserve there are 9.3 billion barrels and in the Arctic National Wildlife Refuge (Coastal Plain) that this bill would have opened for exploration, development and production has more than 10 billion barrels.

    The EIA said that 12 to 18 billion barrels could be produced from the Canadian Atlantic and other Canadian sources. Mexico has extensive oil resources.

   Oil and natural gas (of which the US controls offshore resources of an estimated 300,000 trillion cubic feet) are used to produce electricity and move vehicles but coal is the Nation’s energy strength the USEIA said. The US holds close to 300 billion short tons of coal or 25 percent of the world resources that are economically recoverable. The US is expected to use 1.6 billion short tons of coal in 2025. The final version if HR 6 provides funding to continue efforts to produce energy from coal with little or no pollution. Coal burning has proven to add excessive amounts of Carbon Dioxide to the atmosphere and causes the phenomena known as Acid Rain. Particulate matter that endangers human health is also a by-product of burning coal.

What other Energy Resources Are Available in the U.S.?

   Biomass, the EIA said, equals 48 percent of the renewable energy market production where renewable energy in general is at about 6 percent of the total energy produced and bought. Hydroelectric equals about 45 percent of renewable energy, geothermal 5 percent, wind 2 percent and solar 1 percent. The US resource for renewable energy resources is vested in the 2.25 billion acres of land and water that makes up US public land.

The Benefits of Increasing Energy Production in the U.S.

   Noting a report from the Clinton Administration, Congress finds that "the US imported 4.7 billion barrels of oil in 2004 of which only 1.4 billion barrels came from Canada. Should the additional 3.3 billion imported barrels eventually be produced here and sold at $40 per barrel the US GDP would increase by $336 billion and create over 1.7 million jobs earning around $50,000 per year, the report alleged. Royalty payments would equal $16.5 billion yearly and 25 percent of the US trade deficit could be almost erased."  HR 6

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Photo: Darren Hester

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