What's the U.S.'s Energy Policy?

At 72 dollars a barrel, oil today sits at a dramatic, 50% lower level than last year’s high of 147. However, 147 dollar oil is not a price that either you or I ever experienced. It was a brief moment in time over several trading days, and then it was gone. The relevant price of oil in 2008 was of course the average for the whole year: 99 dollars. Sorry, if you thought you were living in a world of 150 dollar oil last year. You weren’t.

What’s astonishing therefore is that with national unemployment just below 10% and surely to go higher, oil this summer has only been 25-35% lower than last year’s average. Oil at 65-75 is bad enough with 10% unemployment. When you consider the broader measure of unemployment however, now above 16%, oil prices in this range are a shocker.

This has left me wondering of late: what is the energy policy of the United States? I frankly have no idea. It’s never been articulated. It’s intriguing that the collective emotional firepower of the country is currently propelled in the direction of health care policy. Given that a number of papers and essays are finally being produced that suggest the advance in the price of oil from 2007’s average of 72.00 to 2008’s average of 99.00 played a key role in the triggering of the financial crisis, one would think there’d be some interest.

My guess is that Washington won’t deal with the issue until we get back to 100 a barrel. That could be quite nasty in the first half of 2010, should unemployment still be climbing. Additionally, now that the government has taken steps to control commodity trading, it will be harder next time to blame traders at the NYMEX or shadowy offshore “manipulators.”

My sense is that Energy Secretary Chu, who has spent his entire term so far hidden away from any public questioning, is not prepared to answer the simplest of questions: Mr Secretary, what is the energy policy of the United States?

Comments

[John Bowman:]

The refinery worker is clueless..diesel fuel is a waste product?

And the 100 mpg engine myth has been around for decades. That was before fuel injection became the norm for IC engines. Anyone who can get 100 mpg from a carbureted engine would be a legend and a saint. It's actually the equivalent of promoting the merits of snake oil.


On Sep 11 10:40 PM The Greatest Rip Off of our Time wrote:

> Letter from a refinery worker.
> I am a 22-year refinery worker. I have seen a lot of changes over
>
> the years in unit production. Make no mistake about it folks
> they are in the business of making money. Just 6 years ago they were
> profiting 40 billion a quarter on us. Now the oil CEO’s have put
> wage a wage and hire freeze on the 4 major plants where I live and
> work at. These oil giants are getting the message we are sending
> out, we just simply wont buy at a high price.
> The government needs to open the patent office take back the patents
> that the Oil Company owns for the cars that get 100 mpg.
> Then Americans would buy them, jobs would come back to the manufacturer,
> and the banks would make money on the loans and people wont mind
> paying over 2 or 3 bucks a gallon.
> It still costs refiner’s on average about 20 to 30 cents per gallon
>
> to produce gas, oh and buy the way diesel fuel is a by product from
> making gas, yes a waste product so why is that so expensive?
> Just a few thing to think about from the inside.
> Thanks and best of luck to all, because we need it

Sep 12 08:25 AM

[Michael Fit...:]

i big to differ with the author's comment that "big oil is irrelevant" for two main reasons:

1) XOM produces around 4 million bpd, CVX around 3, COP around 2 million bpd. with oil at $70/barrel (or at last year's $145/barrel, which we will see again shortly, any company producing these amounts of a commodity which the world cannot do without is surely not "irrelevant" (not to mention these oil companies will, once again, be printing money faster than the fed - and that's saying something!

2) big oil's lobbying efforts continue to be the main reason the US is not embracing natural gas transportation policies.

and this gets to the heart of your article: what is the US energy policy? the "change" we got from bush with obama is very minor. sure we have some wind and solar programs, but on the big issue, foreign oil imports, there has been no significant "change".

natural gas continues to be the only domestic fuel which can significantly reduce foreign oil imports over the next 5 years, which is imperative if we are to save the US economy (not to mention what is left of our democracy). we could reduce foreign oil imports by 6-7 million barrels per day by adopting a natural gas centric transportation plan. we could also dramatically reduce CO2 and toxic particulate emissions at the same time. we could reduce unemployment by creating millions of jobs to reindustrialize the US. we could plan for the future by building an infrastructure for nat gas that would be hydrogen ready when that day comes. we could send billions of dollars in royalties to US landowners and farmers as opposed to the leaders of countries we then fight oil wars with.
here is such an energy policy:

thefitzman.blogspot.co...

i repeat, energy secretary chu should be FIRED. anyone who believes in the myth of "clean coal" and is "agnostic" about natural gas transportation, and who has a nobel prize brain, must surely be bought off and owned by the coal and "big oil" lobbies. post $145/barrel oil and the kingston, TN environmental disaster, obviously the US is in desperate need of a new energy secretary. unfortunately, obama loves chu, so its at least another 4 years the US will go without an energy policy, and the clock keeps ticking on the US trade and fiscal deficits, we keep spewing emissions, and we become more and more dependent of foreign oil to run our "economy". meanwhile, the US dollar drops, we waste time, and we continue to fight oil wars: afghanistan is nothing but a wrong headed plan in an attempt to get caspian sea energy to market without going through russia and/or iran. speaking of iran....who can believe that the US doesnt plan on yet another oil war? and it all goes back to idiotic energy policies. all of it. buy gold, make a garden, and learn how to hunt.

Sep 12 09:11 AM

[longoil:]

Fitz,

You make the same mistake as Robert Hefner III.
(By the way, I did buy his recent book (The GET) and enjoyed it very much.)

An infrastructure that is used for natural gas cannot be used for hydrogen.

1) CH4 (methane or natural gas) is a huge molecule in comparison to the hydrgen atom. Existing infrastructure will easily contain natgas, but hydrogen would leak like crazy .

2) Furthermore, hydrogen is very reactive with most metals especially at low temperatures and would destroy infrastructure designed for natgas.

I agree with you and the other natgas advocates, but this idea of reusing existing natgas infrastructure is not feasible. A whole new infrastructure (estimated at more than 1 trillion dollars) for United Sattes would be needed. The Hydrogen economy is a fairy tale.

Sep 12 09:49 AM

[H. T. Love:]

On Sep 12 09:49 AM longoil wrote:

> Fitz,
>
> You make the same mistake as Robert Hefner III.
> (By the way, I did buy his recent book (The GET) and enjoyed it very
> much.)
>
> An infrastructure that is used for natural gas cannot be used for
> hydrogen.
>
> 1) CH4 (methane or natural gas) is a huge molecule in comparison
> to the hydrgen atom. Existing infrastructure will easily contain
> natgas, but hydrogen would leak like crazy .

I had raised this issue with MF some time ago. I don't recall what the response was.

>
> 2) Furthermore, hydrogen is very reactive with most metals especially
> at low temperatures and would destroy infrastructure designed for
> natgas.

And I didn't even think of this one. That would be real aggravation.

>
> I agree with you and the other natgas advocates, but this idea of
> reusing existing natgas infrastructure is not feasible. A whole new
> infrastructure (estimated at more than 1 trillion dollars) for United
> Sattes would be needed. The Hydrogen economy is a fairy tale.

Per a comment from one eye seekingalpha.com/user/...

We could look at HYGS which makes hydrogen right on site without additional infrastructure. I've not had a chance to follow up yet, but that sure sounds good.

HardToLove

Sep 12 10:28 AM

[Trane250:]

You don't understand the term "strong government." In order to curb gasoline use, we would need a hefty gasoline tax increase- at least $1 per gallon. That would be a political impossibility for our congress. A lot of other unpopular measures would need to be enacted. A "strong" government could impose these measures against a popular backlash. Read up on the parliamentary system.


On Sep 11 12:05 PM Alphameister wrote:

> We have a strong central government that is a major part of the problem.
> What we need is a wise central government and the US has lacked that
> for a long time.

Sep 12 10:54 AM

[aja8888:]

This is "Big Oil" these days:

[IMG]i54.photobucket.com/al...[/IMG]

Sep 12 10:56 AM

[longoil:]

H.T. Love,

You are probably with familiar with the other issues with Hydrogen like negative EROEI (Energy returned on Energy Investment).

I think there is more potential with natural gas than there will ever be with hydrogen.

Remaining proven conventional NG reserves are currently 6,400 TcF
To put this in context with other fossil fuels
1) remaining petroleum reserves = 6,800 TcF (NG equivalent)
2) remaining coal reserves = 24,000 TcF (NG equivalent)

According to Robert Hefner, the potential reserves of non-associated NG (unconventional NG, shale gas, tight gas, gas not dissolved with petroleum) are in the 30,0000 to 40,000 TcF range.

The USGS is even more optimist with methyl hydrates estimating a 100,000 to 300 million TcF worldwide reserve.

Even if both Hefner and the USGS are off by 95 to 99%, that still leaves an incredibably huge amount of natural gas for liquid fuel substitution.

Sep 12 11:23 AM

[Ricard:]

"My sense is that Energy Secretary Chu, who has spent his entire term so far hidden away from any public questioning, is not prepared to answer the simplest of questions: Mr Secretary, what is the energy policy of the United States?"

For the answer to that question, you'll have to go to Dick Cheney - I'm sure our energy policy is still locked up in a safe in his residence.

Sep 12 12:00 PM

[La Marque:]

The USA has no energy policy for the basic reason that our representatives cannot say no to any lobby. That said, if we want an energy policy, just vote with YOUR pocketbook: invest in a wide array of energy companies and buy your energy from whom you invest in. My choice is wind energy providers, along with certain refiners and pipeline operators.

Sep 12 12:13 PM

[Tony Daltorio:]

The US energy policy contines to be, as it has for decades, the "ostrich" policy.

Uninformed people continue to blame "evil" speculators while ignoring the fact that the emerging world with booming energy demand even exists.

They also blame "greedy" oil companies, even though oil companies are a minor player in world energy markets - the national oil companies are THE major players now in oil.

They also ignore the fact that most major oil finds today are located in very deep waters and getting to the oil in these harsh conditions will cost many billions of dollars.

Wkae up, America! The era of cheap, easily obtained oil is OVER!

Sep 12 01:29 PM

[H. T. Love:]

On Sep 12 11:23 AM longoil wrote:

> H.T. Love,
>
> You are probably with familiar with the other issues with Hydrogen
> like negative EROEI (Energy returned on Energy Investment).

Yes. But since I'm really new at all this stuff and learning through hard work, I'm not knowledgeable enough to dismiss anything out-of-hand.

>
> I think there is more potential with natural gas than there will
> ever be with hydrogen.

That's my gut feeling, but my view is that we are not always able to go directly from point A to point B via the most direct route. Influences beyond our control often make that a difficult or impossible route.

If we ignore that, we end up being "zealots" that can often hinder progress in spite of best intentions (Whoops! Sounds like our government there!).

So my thoughts are open to some kind of as yet unspecified interim long-term plan that leads us towards where we want to end up. In shorter form: how can we get there from here regardless of ...

Being ignorant, I can never presume what hidden gem may facilitate that, or where it may be found.

I see any *intelligent* long-term well-planned *migration* off oil and, possibly eventually, onto NG as an uncertainty for now. And other potential solutions are candidates for fair consideration through reasoned examination as *at least* an interim step.

Of course, last night Cramer got all over NG, so it's a shoo-in now.

Anyway, sarcasm aside, that uncertainty makes me approach any potential interim or final solution with a completely unbiased open mind.

When one eye (seekingalpha.com/user/...) mentioned HYGS, being rather nimble of mind, my associative processor immediately spewed thoughts along the following lines.

- Hey H is one of the oft mentioned "buzzword" sound-bite solutions
- It is the most plentiful element, if I recall correctly
- Might be very little political resistance
- Could wean us from oil dependency more quickly
- Seems that it might require less infrastructure build-out?
- What about electricity use - ok expand use of NG for that
- Helps the environment by getting off coal for generation and oil for transportation more auickly?
- What about generating H - water used (I've not read up on it yet)? We already have difficulty with clean in-land supplies. Maybe it doesn't have use water? Then what?
- Anyway, while the commercial trucking, metro-transit authorities, port authorities, cab companies, etc. continue their non-federal investment (it's private capital and civic investment at the local level) to continue to convert to NG, that will stimulate (non-federal) development and expansion of the NG infrastructure.
- Which will stimulate (non-federal) increased transportation use of NG, which will stimulate build-out, which will ... It becomes a positive feedback loop which eventually may lead to private passenger vehicle use of NG as the infrastructure expands.
- etc., etc., etc. (Thanks Yul Brenner).

>
> Remaining proven conventional NG reserves are currently 6,400 TcF
>
> To put this in context with other fossil fuels
> 1) remaining petroleum reserves = 6,800 TcF (NG equivalent)
> 2) remaining coal reserves = 24,000 TcF (NG equivalent)
>
> According to Robert Hefner, the potential reserves of non-associated
> NG (unconventional NG, shale gas, tight gas, gas not dissolved with
> petroleum) are in the 30,0000 to 40,000 TcF range.
>
> The USGS is even more optimist with methyl hydrates estimating a
> 100,000 to 300 million TcF worldwide reserve.

Yes and I wonder why this has not received more attention. As yet I know little of it, but the little I've read sure sound promising.

>
> Even if both Hefner and the USGS are off by 95 to 99%, that still
> leaves an incredibably huge amount of natural gas for liquid fuel
> substitution.

Unforunately, technical and supply issues are only part of the problems that need to be solved to get to a solution such as increased NG or methyl-hydrates. And I believe that interim steps will be needed to migrate there.

For myself, until I've become more learned about the H potential, I believe it is short-sighted to not consider if it has a role on the path to a good long-term solution.

HardToLove

Sep 12 01:38 PM

[Mad Hedge F...:]

iti. Since I have had such a hot hand in natural gas, many have asked me to comment on yesterday’s surprise announcement that the ETF, UNG, finally got permission to issue new shares. The easy answer here is that UNG will crater. There is no reason for the fund to trade at a premium whatsoever, which at one point traded as high as 20%, an overvaluation you normally only see in closed end funds at bear market bottoms. These ETF’s are simply pass through vehicles which make it easier for investors to own NG in stock form when they are legally unable, or too lazy to open a futures trading account. They should never trade more than 1% out of line with the underlying to account for the admin and execution costs of running such an instrument. The people who made the killing here were the handful of hedge funds that were able to borrow UNG shares, sell them short, and go long the futures, locking in a guaranteed 20% spread. They will cash in their profit next week. Something similar is still going on where smart industry players have locked up salt caverns to store gas, buy it cheaply on the spot market, and sell it forward. This is possible because yesterday you could buy October at $3.25/MCF and sell it for April delivery at $5.32, giving you an annualized return of 127%. Leverage that, and you are talking about some serious money. If you were wondering where the money was coming from to buy those G5’s, this is it. The fundamentals for the industry are still terrible, and there is a risk that the market could completely grind to a halt when the country runs out of storage, so the volatility will remain huge. This week’s move explosive 44% move from $2.40 to $3.44 was nothing more than pure short covering. I expect a quick double in NG once the storage issue is resolved, and the cheapest, cleanest, and most liquid way to participate is though the futures. If you need help in how to do this, e-mail me at madhedgefundtrader@yah...

Sep 12 02:06 PM

[one eye:]

MF, Get your ducks in a row before you make Unprovable statements:

"natural gas continues to be the only domestic fuel which can significantly reduce foreign oil imports over the next 5 years, which is imperative if we are to save the US economy (not to mention what is left of our democracy). we could reduce foreign oil imports by 6-7 million barrels per day by adopting a natural gas centric transportation plan. we could also dramatically reduce CO2 and toxic particulate emissions at the same time. we could reduce unemployment by creating millions of jobs to reindustrialize the US. we could plan for the future by building an infrastructure for nat gas that would be hydrogen ready when that day comes."

"we could plan for the future by building an infrastructure for nat gas that would be hydrogen ready when that day comes."

LongOil supports you but has this to say about your "Hydrogen Ready" infrastructure:

Fitz,

You make the same mistake as Robert Hefner III.
(By the way, I did buy his recent book (The GET) and enjoyed it very much.)

An infrastructure that is used for natural gas cannot be used for hydrogen.

1) CH4 (methane or natural gas) is a huge molecule in comparison to the hydrgen atom. Existing infrastructure will easily contain natgas, but hydrogen would leak like crazy .

2) Furthermore, hydrogen is very reactive with most metals especially at low temperatures and would destroy infrastructure designed for natgas.

I agree with you and the other natgas advocates, but this idea of reusing existing natgas infrastructure is not feasible. A whole new infrastructure (estimated at more than 1 trillion dollars) for United Sattes would be needed. The Hydrogen economy is a fairy tale." Sep 12 09:49 AM

The Hydrogen Economy Built on Reusing existing natgas infrastructure is not feasible, You would have to restart.

LongOil: A Trillion Dollars invested in a Hydrogen Economy is far Less than the Multi-Trillions needed for Full NG implementation and the Continuation of CO2 generation which H would eliminate entirely.

MF's Energy Policy is a short term Tax guzzling "Fix". It continues the Policy of Polluting the Air and now Includes Water pollution as well. And He doesn't care about either one.

Sep 12 03:29 PM

[Whippet:]

New energy plan- hook up MHFT's ego to a gas turbine.


On Sep 12 02:06 PM Mad Hedge Fund Trader wrote:

> iti. Since I have had such a hot hand in natural gas, many have asked
> me to comment on yesterday’s surprise announcement that the ETF,
> UNG, finally got permission to issue new shares. The easy answer
> here is that UNG will crater. There is no reason for the fund to
> trade at a premium whatsoever, which at one point traded as high
> as 20%, an overvaluation you normally only see in closed end funds
> at bear market bottoms. These ETF’s are simply pass through vehicles
> which make it easier for investors to own NG in stock form when they
> are legally unable, or too lazy to open a futures trading account.
> They should never trade more than 1% out of line with the underlying
> to account for the admin and execution costs of running such an instrument.
> The people who made the killing here were the handful of hedge funds
> that were able to borrow UNG shares, sell them short, and go long
> the futures, locking in a guaranteed 20% spread. They will cash in
> their profit next week. Something similar is still going on where
> smart industry players have locked up salt caverns to store gas,
> buy it cheaply on the spot market, and sell it forward. This is possible
> because yesterday you could buy October at $3.25/MCF and sell it
> for April delivery at $5.32, giving you an annualized return of 127%.
> Leverage that, and you are talking about some serious money. If you
> were wondering where the money was coming from to buy those G5’s,
> this is it. The fundamentals for the industry are still terrible,
> and there is a risk that the market could completely grind to a halt
> when the country runs out of storage, so the volatility will remain
> huge. This week’s move explosive 44% move from $2.40 to $3.44 was
> nothing more than pure short covering. I expect a quick double in
> NG once the storage issue is resolved, and the cheapest, cleanest,
> and most liquid way to participate is though the futures. If you
> need help in how to do this, e-mail me at madhedgefundtrader@yah...

Sep 12 03:45 PM

[longoil:]

One-eye,

I was about to disagree with you about the natgas infrastructure, but you are correct that natgas still has CO2 issues associated with it that could be very costly to contain and hydrogen does not.

My point is that coal is the worse offender in terms of emissions (high CO2 levels, toxins like sulfuric acid, mercury and other heavy metals as well as traces of radioactive waste), followed by liquid petroleum and natural gas being the cleanest fossil fuel in terms of total emissions.

Even though, the only emission you get from hydrogen is water vapor it still could be a problem in huge quantities. In the 1960's when catalytic converters were introduced to remove nasty emission like nitrous oxides, the sales pitch was cars now produce harmless CO2 that trees can breath and convert back to oxygen. But, in the large quantities produced by one billion cars and trucks we saw that CO2 is a serious global warming factor.

I suspect the large quantities of the water vapor coming out hydrogen powered cars and power plants will introduce new unforeseen problems like a huge number of rain clouds that could disrupt the ecosystem by blocking at the sun more frequently as well as the erosion effects of continous rain.

Sep 12 04:29 PM

[Alan von Al...:]

Fitz wrote:
"big oil's lobbying efforts continue to be the main reason the US is not embracing natural gas transportation policies"

The majors don't much care what the US government does or fails to do. Whatever taxes are imposed will be passed on to consumers. That's not the problem.

7/8 of the world's recoverable oil & gas reserves are controlled by governments (national oil companies) and there is progressively less opportunity for Exxon, Shell, BP to grow their business.

Your pipedream about CNG/LNG transportation is frustrated by the nonexistent infrastructure, nonexistent fleet, and higher cost of fuel and maintenance for less power. Your only hope is a mandate.

And *that* illluminates your basic position. Fitz knows best, like a soviet commissar, forcing people to scrap their vehicles and pay more for less -- or walk.

Sep 12 09:25 PM

[one eye:]

Longoil: I'm For putting up as many Nat. Gas Utilities as we can as fast as we can and putting up the rest of the Eco-Friendly Electricity generating nonpolluting, environmentaly friendly aternatives available.

This is Job Creation. Fitzsimmons has pounded it into our skulls that Hydrogen is the Fuel of the Future thatt we should all strive for, I agree.

But like his comment above, he doesn't have a clue that a Nat Gas Infra would be useless in that Hydrogen Future. So why Bother going that way? Why waste the money?

Take a look at the equipment that HYGS has to offer, a Picture of one of their Hydrogen Generators being Installed at a Gas station for the Refueling of Buses. Tell me that these Generators Can Not be installed as Stand-alone at Gas stations throughout the USA.

We have a Water problem as well as a CO2 problem, I can live with the CO2 problem, I can't live without water, our food supply needs uncontaminated water, I can't live without food.

Current Shale Gas extraction methods pollute the Water. Without Shale gas, his proposals are worth even less. He supports giving our Tax dollars to big Oil to construct a Pipeline to bring Alaskan Gas to the US and concedes that without it, Nat Gas Transportation is not Feasible.

Shale Gas=water pollution, No pipeline for another 9 years at best.

This is Progress?

Sep 12 11:13 PM

[longoil:]

One-eye

I checked out HYGS's website. They use electrolysis for hydrogen generation, is this correct ? HYGS is another cool Canadian alternative energy company like Ballard and Zenn.

I believe there is also a company in England (whose name escapes now) that sells home generating stations using natural gas which is converted to hydrogen and then fed to fuel cells.

Getting back to the focus of this article, the problem with Obama's administration and past administrations is they are shortsighted and only look for quick fixes and don't both looking long term. Obama's primary concern is getting re-elected in 2012. A comprehensive energy solution requires time (i.e. 40 yrs) and all of the above: New petroleum reserves (needed during the transition to alternative energy), aggressive conservation measures and finally accelerated adoption of alternative energy. This is what Robert Hirsch and Michael Fitzsimmons advocate.

I will give Obama credit on a couple of points: HR1835 "Legislation for Natural Gas Transportation" and the promotion of smart grid technology. Smart grid blends technologies like HYGS nicely into existing electrical infrastructures. But unfortunately, these items are only a few pieces of a much larger jigsaw puzzle.

Sep 13 07:25 AM

[one eye:]

LO: No problemo, Use it all and use it Now. Create jobs in a bunch of industries, just don't send us on a route that will be another Dead End in the Future by focusing all of our Money on One and Only one direction.

In the meantime, read this:

www.reuters.com/articl...

Sep 13 09:13 AM

[tripleblack:]

epp.eurostat.ec.europa...

Europe's unemployment is about the same as ours...

But Spain's is up to 18.7%. Wow.


On Sep 11 03:01 PM Ron2008 wrote:

> On Sep 11 01:23 PM tripleblack wrote:

Oct 01 09:06 AM