Policy Documents

Energy: Ripe Target for Obama's Critics

Bernard Weinstein –
January 10, 2012

The instability we’ve witnessed over the past year in Middle Eastern and North African oil-producing nations has contributed to significant spikes in global oil prices. Volatility in oil prices should serve as a reminder that the American economy can be adversely affected by global political uncertainties. It should also refocus our attention on increasing domestic oil production in order to mitigate our susceptibility to recurring price swings.

The U.S. imports about half of the oil we consume each year. With demand expected to increase by 25 percent (14.05 Btu) by 2035, America’s heavy reliance on imports will continue. But through greater domestic production, an improved energy infrastructure, and stronger energy relationships with allies, we can ensure relative stability in future energy prices.

Let’s start by addressing what’s right under our feet. From shale gas development to offshore production, U.S. operators are dependent on government regulators for access. Existing moratoria on offshore drilling, as well as regulatory barriers to on-shore natural gas production, continue to restrict domestic production that would result in hundreds of thousands of new jobs and billions of much-needed government revenue.

A plan to phase in utilization of the country’s plentiful energy resources and to further integrate natural gas into consumer markets could be a winning strategy for the President or a presidential hopeful. But production is not the only issue. The existing energy infrastructure limits our ability to distribute oil and gas reserves. In particular, a shortage of pipeline capacity restricts the cost effectiveness of shipping West Texas Intermediate (WTI) crude—the name for much of the oil produced in North America—out of the heart of the country to the coasts. Instead, the heavily populated coasts rely on Brent Crude, a higher priced foreign source of fuel. This inflates the price of all domestic crude by pushing the national average price higher. A better pipeline infrastructure could allow WTI to put downward pressure on the price of oil. But even with more domestic pipelines, we’ll continue to need foreign oil.

This continued dependence on imported oil makes it imperative that we secure future resources from stable countries. Canada, the top supplier of oil to the U.S., is the best option for America, and the vast Canadian oil sands can offer a reliable supply for decades to come. What’s more, the Canadians are eager to ship this oil to Gulf Coast refineries that are largely dependent on Venezuelan crude at present.

Unfortunately, political pressures have delayed approval of the Keystone XL pipeline that would deliver Alberta’s oil to the Gulf Coast. Meanwhile, the Chinese are not hesitating to secure these resources, having just recently purchased full rights to one of the many oil sands projects in Alberta.

Regrettably, America lacks a realistic, domestically-focused energy strategy. Failure to maximize development of our domestic resources has helped push oil and gasoline prices up which, in turn, is hurting consumers and energy-intensive businesses. Voters need to understand that high oil and gasoline prices can be ameliorated with a different approach to energy policy.

If the President is able to put forward a realistic vision for our energy future that doesn’t rely entirely on unproven or economically unfeasible technologies, this could play to his benefit. But considering the White House’s anti-carbon track record, such an outcome seems unlikely. Consequently, high and rising energy costs may prove to be one of the President’s more vulnerable areas in the November election.