Energy Issues

 Vol. 233 No. 10

Policy or platform, that is the question (to paraphrase The Bard). On the eve of the U.S. presidential election, and elections for various lesser offices, it is important to recognize the difference. The candidates’ energy platforms are part of a larger platform that comprises a list of the actions that a candidate supports, to appeal to the general public for the purpose of securing his/her election to office. On the other hand, an energy policy is the manner in which a given entity or government has decided to address energy issues. To be sure, both presidential candidates have energy platforms that will be discussed elsewhere in this publication. But, does the U.S. have an energy policy? Despite what most of you might think, the answer is yes. To determine what it is and how it evolved, we have to wander back in history a bit.

Back a hundred years. One might point to the application of the Sherman Anti Trust act to the Standard Oil Companies in 1911 as the first instance of an energy policy. The act was passed in 1890, but the U.S. Supreme Court put it on the map in 1911, when it found the firm guilty of antitrust violations and forcefully broke up John D. Rockefeller’s monopoly, following national dialogue fostered by Ida Tarbell writing about the Standard Oil monopoly in McClure’s magazine. Readers nationwide awaited each chapter of the story, serialized in 19 installments by McClure’s between 1902 and 1904. The enforcement of the act was not an energy policy but, rather, an antitrust policy. Additional wins followed against American Tobacco (also in 1911), Alcoa (1945) and AT&T (1982), before the challenge to Microsoft during the 1990s. Each time the act was used, it was employed to deal with a crisis, imagined or otherwise.

Fast forward to 1942, with the U.S. and its allies engaged in an energy-intensive, two-front global war. Never before had the demand for energy been so high. In 1942, the U.S. government imposed a number of rationing statutes aimed at limiting public consumption of vital war supplies, among them fuel and oil. The average American had an “A” ration card, meaning that he/she could buy four gallons of gasoline per week. Americans were encouraged to lower their thermostats to ease fuel use. This might also be deemed a policy, although a short-lived one, but it was a war-time policy aimed at critical goods from rubber to food, not an energy policy. And it, too, was in response to a crisis—a very real crisis. One energy policy did come out of this crisis, however, but it was an industry policy—the creation of the American Petroleum Institute to proactively promote oil and gas development in the U.S.

Oil supply crises. Let’s skip to 1973. In response to Western support for Israel in the Yom Kippur war, OPEC embargoed oil shipments to the U.S. and, later, The Netherlands, creating fuel shortages and outrageous oil prices. A number of you will remember the U.S. rationing scheme. You could fuel your automobile on alternate days, generally after waiting in long lines, depending on whether your license plate ended with an even or an odd number, assuming that the gasoline station had fuel to sell. I drove, and raced, a souped-up Camaro in those days, and began to fear that I might have to take up the violin instead.

A second oil crisis followed, beginning in 1978, shortly on the heels of the 1973 crisis. It was caused by a strike by the Iranian oil sector during the Iranian Revolution. The strike removed 4.9 million bopd from the world market, or 7% of worldwide supply. The oil price, in today’s dollars, soared to more than $200/bbl. The U.S. and world economy were severely shocked. Again, two crises demanded action. But this time, the reaction was a nascent energy policy, never officially promulgated but, none-the-less, put in place. It was two-pronged: 1) examine ways to increase indigenous oil and gas production while 2) defending access to Middle Eastern oil at all costs.

Two items that still make a difference. With regard to increasing indigenous oil, two long-term programs were put in place. The first, The Eastern Gas Shale project under DOE, led to the characterization and subsequent development of the country’s vast shale resources. I wrote about it last month. The second was the Deepwater Royalty Relief Act, passed in 1978. It was the primary driver for deepwater Gulf of Mexico development. Did the elements of the policy succeed? Yes, indeed. It is estimated that U.S. shale oil production will increase by 4.2 million bopd by 2020. In the years from 1985 to 2010, deepwater oil production rose from about 20 million bbl per year to 460 million bbl per year.

And what of defending oil supply access in the Middle East? Surely you haven’t missed Desert Storm or the long Iraqi war, or our more than 25-year military presence in an area where we previously showed little interest.

This two-pronged energy policy is defacto, to be sure. Never was the policy, to my knowledge, presented or adopted as a cohesive policy. It was a reaction to the oil price crises of 1973 and 1978–1980.

And what of energy platforms during this time? There were none until the 1973 and 1978 crises. Beginning with Richard Nixon in November 1973, each president, including Barack Obama, has promised as part of his party’s platform, by one method or another, to end U.S. dependence on foreign oil. These platform promises were promulgated with the certain knowledge that the promise would be impossible to fulfill in the short-to-medium and, even, long term. How fortunate are President Obama and candidate Romney. The same promises are being made in this election. Fortunately, due completely to extraneous forces, the promises might very well be met.