Forum on Global Energy, Economy and Security Oil and Gas in a changing World

Transcription

1 Forum on Global Energy, Economy and Security Oil and Gas in a changing World Challenges of Achieving Administration Goals by Herman Franssen President, International Energy Associates, Inc. Aspen, Colorado, June 25 28, 2009

2 Unfulfilled Promises of the Past Focused on National Security

3 US Energy Policy and Accomplishments President Nixon s Energy Policy America faces a serious energy problem. We have only 6 percent of the world population, we consume one third of the world s energy output. The supply of energy resources available to us is not keeping pace with our ever growing demand, and unless we act swiftly and effectively, we could face a genuine energy crisis in the foreseeable future. (Nixon on the pending energy crisis on June 29, 1973) "Let me conclude by restating our overall objective. It can be summed up in one word that best characterizes this Nation and its essential nature. That word is 'independence.' From its beginning 200 years ago, throughout its history, America has made great sacrifices of blood and also of treasure to achieve and maintain its independence. In the last third of this century, our independence will depend on maintaining and achieving self sufficiency in energy. What I have called Project Independence 1980 is a series of plans and goals to insure that by the end of this decade Americans will not have to rely on any source of energy beyond our own. (NEP address Nov 25, 1973)

4 President Ford s Energy Policy A few months after Gerald Ford became President, Project Independence Blueprint (initiated by Nixon) was published. The study Concluded that at $ 9 a barrel, the US could become self sufficient in Oil by At $ 11 a barrel coupled with an aggressive OCS leasing program, the US could become a net oil exporter by Based on this study, President Ford proposed the following firm measures to the Congress for achieving energy independence by 1985: Increasing domestic energy production ; Promoting the conservation of scarce energy supplies; New domestic energy supplies (fossil, nuclear, renewables) Strategic petroleum reserves for use in emergency; Provisions for oil price decontrol after 40 months; Standby emergency authority to deal with future energy emergencies; Coal conversion authority to permit conversion of oil and gas power plants to coal; Assistance for States in developing energy conservation programs; Accelerate OCS leasing with environmental protection ERDA Act and funding reduce fed energy use support for IEA clean coal Taking a longer look at America s future there can be neither sustained growth nor more jobs unless we continue to have assured supply of energy to run our economy

5 US Energy Policies and Accomplishments "Beginning this moment, this Nation will never again use more foreign oil than we did in 1977 never. From now on, every new addition to our demand for energy will be met from our own production and our own conservation. The generation long growth in our dependence on foreign oil will be stopped dead in its tracks right now and then reversed as we move through the 1980s, for I am tonight setting the further goal of cutting our dependence on foreign oil by onehalf by the end of the next decade a saving of over 4.5 million barrels of imported oil per day." President Jimmy Carter, "Crisis of Confidence" speech, July 15, 1979

6 President Carter s Energy Policy Energy Goals Announced in April 1977 President Carter: These are the goals we set for 1985: Reduce the annual growth rate in our energy demand to less than two percent. Reduce gasoline consumption by ten percent below its current level. Cut in half the portion of United States oil which is imported, from a potential level of 16 million barrels to six million barrels a day. Establish a strategic petroleum reserve of one billion barrels, more than six months' supply. Increase our coal production by about two thirds to more than 1 billion tons a year. Insulate 90 percent of American homes and all new buildings. Use solar energy in more than two and onehalf million houses.

7 President Reagan s Energy Policy Due to domestic oil price controls, refinery acquisition cost of imported oil rose from $ 4 in 1975 to $ in 1974 while refinery acquisition cost of domestic oil rose only from $ 4 to $ 7 a barrel (due to domestic price controls). By 1981, refinery acquisition cost of imported oil had risen to $ 37 a barrel. President Reagan accelerated domestic decontrol of oil which helped reduce consumption and increase upstream activities. Demand for oil in the US, Europe and Japan fell, leading to OPEC s decision to increase market share at the expense of price. By 1986, refinery acquisition cost of oil had fallen to almost the 1974 level. This initial success of oil decontrol coupled with almost fifteen years of OPEC surplus capacity kept oil prices sufficiently modest to leave oil demand, supply and prices to market forces. Reagan ended financial support for synfuels and renewable energy.

8 President George Bush Energy Policy No new policy initiatives favored OCS development like Reagan, Bush favored market oriented solutions to energy issues. Following the Gulf War, Congress In response to the war, Congress again considered an aggressive energy program and this time responded with the Comprehensive National Energy Policy Act of 1992.(46) However, this is in many ways most interesting for what was not included. Despite strong pressure to limit oil imports, the two measures most directly responsive to this need increased Alaskan oil exploration and more stringent auto efficiency standards were both defeated.(47) The legislation reflected the political tensions and interest group pressures that increasingly limited the federal role in energy policy. The Act's most significant provisions addressed constraints on the evolving role for competition in the generation and sale of electricity, which had gradually taken off in response to PURPA. The legislation also included measures to promote the use of alternative fuels by vehicle fleets and a significant production tax credit (1.5 cents per kilowatt hour)

9 President Clinton s Energy Policy President Clinton s energy policy was largely a by product of Environmental policy making. Extended the tax credits for wind and biomass energy production through Set a goal of tripling our use of bioenergy and bioproducts by Increased research funding to more than $1.7 billion in FY 2000 to provide a sound scientific understanding of both the human and natural forces that influence the Earth s climate system. Successfully negotiated the Kyoto Protocol, which sets strong, realistic targets for reducing greenhouse gas emissions and establishes flexible, market based mechanisms to achieve them as cost effectively as possible. Issued new energy efficiency standards for home appliances that will save consumers money and reduce emissions of greenhouse gases. Directed federal agencies to reduce energy use in buildings 35 percent by 2010, reducing annual greenhouse gas emissions by the equivalent of taking 1.7 million cars off the road and saving taxpayers over $750 million a year.

10 President Bush twenty in Ten Energy Proposal 2007 (twenty percent cut in in US gasoline consumption by 2010) The Administration has sent Congress Legislative Proposals to achieve "Twenty In Ten" With Two Steps: Increasing the supply of Renewable and other Alternative Fuels by setting a mandatory fuels standard to require the equivalent of 35 billion gallons of renewable and other alternative fuels in 2017 nearly five times the 2012 target of 7.5 billion gallons now in law. In 2017, this will displace 15 percent of projected annual gasoline use. Reforming And Modernizing Corporate Average Fuel Economy (CAFE) Standards For Cars And Extending The Current Light Truck Rule. In 2017, this will reduce projected annual gasoline use by up to 8.5 billion gallons, a further 5 percent reduction that, in combination with increasing the supply of renewable and other alternative fuels, will bring the total reduction in projected annual gasoline use to 20 percent.

11 Twenty in Ten program One way to get more fuel efficient cars on the road is to encourage more drivers to buy fuel efficient hybrids and new clean diesel vehicles (GM and others working on plug in hybrids) Federal tax credit of up to $ 3,400 for hybrid and clean diesel purchasers. Federal agencies to purchase more fuel efficient cars Encourage production of Flex Fuel vehicles (5 million run on E85 but only 1000 E85 pumps) Federal government support R&D on alternative fuels like biodiesel and ethanol (claim that nation is on the verge of breakthrough in cellulosic ethanol production) Plan to double SPR (now 700 million bbls) Other issues: Development of clean coal technology, wind and solar, nuclear..to reduce greenhouse gases and air pollution.

12 Remedies to Oil Import Dependence The Energy Policy Act of 2005 First piece of explicit energy policy legislation since 1992 (Gulf War) and following a period of sharp run ups in energy prices. Provides royalty relieve for certain types of oil and gas production Took some steps to reduce restrictions on offshore leasing for oil and gas development Provides tax incentives for advanced vehicles (hybrid, fuel cell, etc) Eliminates the oxygenate requirement for reformulated gasoline (enables shift from MTBE to ethanol) Calls for renewable energy (ethanol) to reach 4 billion gallons in 2006 (2.8% of gasoline) and 7.5 billion by 2012 (4.6%). Provides tax incentives for new refining capacity if put in service by 2012 Legislation puts cap on botique fuels Reduce sulfur to 15 ppm (2006)

13 2005 Energy Policy Act What was left out No change in automobile efficiency standards (CAFÉ) No move to lease ANWR which was expected to contribute more than 80% of the gain in oil production resulting from the 2005 Energy Policy Act. Non Oil Improved prospects for the construction of the Alaskan gas pipeline Measures to speed up approval of LNG terminals Tax credits for clean coal facilities Tax credit of 1.8 cents/kwh for nuclear power produced during the first eight years of service of a unit approved by the Nuclear Regulatory Commission. FERC to certify an Energy Reliability Organization (to enforce reliability standards in the public power system). Impact 2005 Energy Policy Act on Oil demand or supply: Negligible

14 Emerging Reality in the US Oil Market: From Energy Independence to Major Importer Consumption (mbd) US W.Europe Japan Production (mbd) US W.Europe Oil Imports (mbd) US EU Source: BP Annual statistics

15 Ignored for about a quarter of a century, energy security was once again recognized as a major issue during the oil price run up In the early 2000 s

16 Recent US Energy Policy Since the days of the Nixon Administration US energy policy was largely influenced by National Security considerations. Presidents Nixon, Ford and carter called for Energy Independence as were all Presidential candidates for the 2008 elections. Today, as a result of concern about the impact of global warming on the future of mankind, reducing CO2 emissions has become as important an objective of energy policy as National Security. Policies developed to fight global warming through improved fuel efficiency and alternative renewable energy sources, will also enhance national security by reducing oil consumption and oil imports. Global Warming and National Security considerations are now the main focus of future energy policy.

17 Energy Policy Interregnum From President Reagan until George W. Bush no major new Energy Initiatives Reagan Philosophy of market solutions worked in a period of fairly stable and modest oil prices (15 years of about $ 20/bbl oil); Global Warming and a future oil production plateau described in the Limits to Growth of the Club of Rome considered alarmist and ignored. * The steep increase in oil prices since 2004 triggered new concern about the high cost of imported oil to the US economy and renewed concern about oil supply security. During G.W. Bush second term, three energy bills were passed. The third bill, signed into law on December 19, 2007, was the Energy Independence and Security Act of 2007.

18 Policy Contradiction We want the Gulf Countries to Invest more in Production Capacity but.we intend to cut imports from the region. Breakthroughs on this and other new technologies will help us reach another great goal: to replace more than 75 percent of our oil imports from the Middle East by 2025 By applying the talent and technology of America, this country can dramatically improve our environment, move beyond a petroleum based economy make our dependence on Middle Eastern oil a thing of the past.» State of the Union Address, January 2006 I spend a lot of time worrying about disruption of energy because of politics or civil strife in other countries because tyrants control the spigots National Governors Conference

19 2007: Toward a Real Energy Policy? Failed Foreign Policy under the George W. Bush Administration Rising Geopolitical Tension in the Middle East, Latin America and Africa Rising cost of energy during economic boom in first half of the decade Democratic Congress ready for change in energy policy Energy is one areas where Democrats and Republicans may be able to compromise on a number of measures Rising fears of global warming California and a few other states were taking the lead on mandating Co2 emission controls

20 President Bush Advanced Energy Initiative of 2006 In His 2006 State Of The Union Address, President Bush Outlined The Advanced Energy Initiative To Help Break America's Dependence On Foreign Sources Of Energy. National goal: To replace more than 75% of our oil imports from the Middle East by How: With the use of advanced energy technologies The best way to break the addiction to foreign oil is through new technology. Since 2001, $10 billion spent to develop cleaner, cheaper, and more reliable alternative energy sources. Proposed Advanced Energy Initiative, providing for a 22% increase in clean energy research at the Department of Energy (DOE). The Initiative will accelerate our breakthroughs in two vital areas; how we power our homes and businesses; and how we power our automobiles. Expects breakthrough in cellulosic ethanol, hybrid batteries (plug in hybrids) and hydrogen vehicles.

21 President Bush twenty in Ten Energy Proposal 2007 (twenty percent cut in in US gasoline consumption by 2010) The Administration has sent Congress Legislative Proposals to achieve "Twenty In Ten" With Two Steps: Increasing the supply of Renewable and other Alternative Fuels by setting a mandatory fuels standard to require the equivalent of 35 billion gallons of renewable and other alternative fuels in 2017 nearly five times the 2012 target of 7.5 billion gallons in the law prior to In 2017, this is expected to displace 15 percent of projected annual gasoline use. Reforming And Modernizing Corporate Average Fuel Economy (CAFE) Standards For Cars And Extending The Current Light Truck Rule. In 2017, this is expected to reduce projected annual gasoline use by up to 8.5 billion gallons, a further 5 percent reduction that, in combination with increasing the supply of renewable and other alternative fuels, will bring the total reduction in projected annual gasoline use to 20 percent. Energy Independence and Security Act of 2007 first major energy legislation in a quarter of a century.

22 EISA Energy Independence and Security Act of 2007 Some Key Provisions: CAFE Standards to boost fleet wide mileage to 35 pg by 2020 (incl.light trucks). Biofuel mandate of 36 billion gallons by 2022 of which 21 billion must be second generation biofuels. Incentives for the development of plug in hybrids. Various far reaching energy savings and conservation measures. More Federal funds for solar, geothermal and other renewable research as well as for carbon sequestration technologies. Green jobs creation of a training program for Energy efficiency and renewable workers. Smart grid modernization of the electricity grid to improve reliability and Efficiency.

23 Obama Energy Program Campaign promises Senior Energy Policy Makers Progress To date Implications

24 The New View of Energy and Environment Policy ''We're borrowing money from China to buy oil from the Persian Gulf to burn it in ways that destroy the planet.'' Al Gore, former Vice President of the US Congressional Testimony, January 2009 Gore was on the right track but too simplistic in his proposed solutions on how to solve Global and US energy and environmental problems in an economically and financially sound way; within a reasonable time frame; and, politically acceptable to the Nation.

25 Basic Tenets of Obama E&E Policies Reduce/Reverse Trend of Rising Imports Improve Balance of Payments Outflow for Energy Promote Efficiency/Renewables Growth to Obviate Need for New (non CCS) Coal Plants Decouple GDP from Fossil Fuel Use Promote New Tech Green Jobs Address Changing Geopolitical Landscape Reduce CO2 emissions We need to put America on a path to a clean energy economy, and Congress has taken a big step forward in heeding this call." President Obama, February 17, 2009 Source: Frank Verrastro, CSIS, 2009

26 The Obama Energy Plan Reduce Oil Use in Transportation Reduce oil consumption within ten years to save more oil than the Nation was importing from the Middle East and Venezuela; Put one million plug in hybrid cars built in the US on the road by 2015; Create a new $ 7000 Tax Credit for purchasing advanced vehicles; Full flex fuel vehicle penetration by 2012 and increase fuel efficiency standards over and beyond the current 35 mpg in the Energy and Security Act towards a goal of 50 mpg CAFÉ standards by 2030; Speed up development of cellulosic ethanol, aiming at 2 billion gallons by 2013 (130,000 b/d); 36 billion in 2020 and 60 billion in 2030 ( 4 mbd); Establish a national low carbon fuel standard;

27 Obama Energy Plan Efficiency and renewable Energy Ensure that 10 percent of our electricity will come from renewable sources by 2012 and 25% by 2025; Deploy the cheapest, cleanest, fastest energy source energy efficiency; Weatherize one million homes annually; Create five million new jobs by strategically investing $ 150 billion over the next decade to catalyze private efforts to build a clean energy future; Make the U.S. a leader on climate change;

28 Obama Energy Plan Oil and natural Gas implement a use it or lose it approach to existing oil and gas leases. Opposes opening Alaskan NPR and proposes limited opening of offshore acreage for oil and natural gas exploration and development; Prioritize the construction of the Alaska natural gas pipeline. Implement an economy wide cap and trade program to reduce greenhouse gas emissions Promote the responsible domestic development of oil and natural gas and 80 percent by the year 2050; No new nuclear power plants until safer methods of nuclear waste disposal and non proliferation issues are resolved; Develop and deploy clean coal technology and ban new coal fired power plants without CO2 sequestration;

29 Source: Frank Verrastro, CSIS 2009 The Obama Administration: Energy & Environment Campaign focus combined E&E with emphasis on developing new green energy fuels, reducing import reliance and meeting climate goals Strategy premised on high energy prices World changed in September, but campaign stayed on message Deteriorating economic climate recast message to jobs growth, technology & security Transition heads reflect environmental priority

30 Source: Verrastro, CSIS, 2009 Current Priorities American Recovery and Reinvestment Plan job growth, education and research, new technology, infrastructure & climate Domestic Energy & Climate Agenda Green Energy & Efficiency in Jobs package Renewable portfolio and low carbon fuel standards Cap and Trade International face: Copenhagen

31 House Stimulus Bill Total Stimulus Package $ 819 billion Energy and Water Total $ 48.9 Of which Energy Efficiency and renewable energy programs 18.5 Federal Loan Guarantees for Renewable Energy systems and and electricity transmission 8.0 Other, including modernizing the nation s electric grid 17.0 Army Corps of Engineers 4.5 Other 0.5 Double renewable energy generating capacity over three years by an amount sufficient to power 6 million homes; Build more than 3,000 miles of new or modernized electric transmission lines and install 40 million smart meters in homes; Weatherize at least 2 million homes and 75% of federal buildings.

32 General James Jones, National Security Advisor Previous: President and CEO of the Institute for 21st Century Energy Steven Chu, Secretary of Energy Previous : Director, Lawrence Berkeley National Laboratory Carol Browner, White House Coordinator of Energy and Climate Policy Previous : Former Administrator, EPA Lisa Jackson, Administrator of the Environmental Protection Agency (EPA) Previous: Director, NJ Department of Environmental Protection (DEP) OBAMA Energy & Environment Team Larry Summers, Chair, White House National Economic Council Previous : Secretary of the Treasury under Clinton Nancy Sutley, Chair, White House Council on Environmental Quality Previous: Deputy Mayor for Energy and Environment, City of Los Angeles, California Hillary Clinton, Secretary of State Previous: US Senator from New York Ken Salazar, Secretary of the Interior Previous: US Senator from Colorado John Holdren, Director of White House Science and Technology Policy Previous: Harvard University

33 The Obama Energy Plan Constraints on Implementation Energy Plan focuses equally on climate change and supply security. Recent Pew Foundation poll put climate change as number 20 out of 20 issues considered important to the American people. High potential cost of carbon cap and trade to individuals and business MIT study estimates 29% increase in gasoline costs by 2015 and 55% cost increase for electricity (regressive taxes) other studies show different ranges. This will bite if, as some economist expect, the US will be in for years of below trend economic growth and high unemployment. Cap and trade income used for other than energy development. Lead time to achieve targets for renewable energy and alternative transportation fuels and cars much too optimistic (Al Gore). No balance in the program oil and gas as well as coal penalized no support for clean natural gas and nuclear power. US oil production may continue on the decline path of the past 30 years under the expected Federal leasing plan and new tax climate. The energy efficiency part (including CAFÉ standards) are perhaps the most realistic and cost effective of the Plan but, very ambitious.

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39 Hybrid Penetration in the American Car Market Can US Car Producers Make and Sell 1 Million Plug in Hybrids Between 2011 and 2015?

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41 Obama Plan Transportation CAFÉ Standards initiated under Carter Administration 1977, aimed at doubling fuel efficiency by 1985 Failed because SUV s left out. CAFÉ standards tightened during G.W. Bush Administration (Energy Independence and Security Act of 2007). Average miles for cars and light trucks improved from 18 m.p.g in 1978 to 26.2 in 1987 (peak year) and fell to 25 mpg in 2009 (27.5 for cars and 23.1 for light trucks). Under EISA (2007) average fuel efficiency standards have to improve by 40% to 35 mpg in 2020 (incl. light trucks). Savings of about 1 mb/d of oil if fully Implemented. Obama (2009) ruling: to achieve CO2 emission standards, new CAFÉ standards for , leading to overall new fleet efficiency of 35 mpg by 2016 (39 mpg for cars and 30 mpg for light trucks, a 5% annual efficiency improvement). If achieved, savings by could be as high as 2 mbd of gasoline. This could turn out to be the most successful part of the Obama Energy Plan. Will the American consumer still have sufficient options to buy the cars they like? GM (Government Motors, Chrysler and Ford have few options).

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48 Obama Plan Implementation Climate Bill (American Clean Energy & Security Act) Set for Friday Vote: Economist Magazine May 23, 2009: The first climate change bill with a chance of passing is weaker and worse than expected. Significantly watered down from Administration s Plan 17% reduction in greenhouse gases from 2005 levels by 2020 instead of 20% 15% nationwide renewable electricity standard by 2020 instead of 20% Obama Plan: Industry would buy permits to emit CO2 permits to be auctioned off and tradable to allow firms that found ways to emit less than they were entitled to reduce emissions in the most cost effective way. Auction would provide billions for government to compensate low income groups and allocate money for renewable energy. Waxman Markey bill: 85% of carbon permits free to electric utilities, energyintensive industries, car manufacturers, States with renewable energy programs, and so on until Only 15% auctioned little money to government no rebates to low income groups. Alan Viard (AEI): likens giving permits to polluters to handing proceeds of a tobacco Tax to the shareholders of Philip Morris.

49 Obama Plan Implementation Waxman Markey softer on coal (coal mining and coal producing states) and tougher on oil (only 2% of permits; repeal taxes; reduced access). Soft on first generation biofuels (agricultural states). Renewable Fuel Standards left intact and unflattering lifecycle emissions from first generation biofuels ignored. The bill leaves EISA biofuel mandates unchanged despite controversy about lifecycle greenhouse gas emissions of corn ethanol.