Under pressure from Fox News, President Obama to defend his record on gasoline prices at the University of Miami on February 23. The best I can say for his speech was that it wasn’t entirely wrong. Almost, but not entirely. Let’s have a look at the key points he made:
President Obama: “We’re not going to transition out of oil anytime soon. And that’s why under my administration, America is producing more oil today than at any time in the last eight years. That’s why we have a record number of oilrigs operating right now — more working oil and gas rigs than the rest of the world combined.”
Reality: First of all, most of the increase in oil production comes from private lands, particularly oil shale in North Dakota, which are not subject to federal control. On federal lands and offshore areas, it takes more than 10 years from the time the federal government offers acreage for lease and the time oil begins to flow. Virtually all the new oil production in the US in the last few years is the result of the policies of his predecessors. The results of his policy of limited and highly restricted leasing will not be evident until after 2019. Energy Secretary Steven Chu has been crystal clear that the objective of this administration is “to decrease our dependency on oil.” The President is claiming credit for the failure of his own policy.
President Obama: “Over the last three years my administration has approved dozens of new pipelines, including from Canada. And we’ve opened millions of acres for oil and gas exploration. All told we plan to make available more than 75 percent of our potential offshore oil and gas resources from Alaska to the Gulf of Mexico.”
Reality: In very Clintonian language, the truth of this statement depends on the meaning of “potential”. The President may indeed have opened up a large share of the acreage he is prepared to offer for development. The overall leasing rate for federal lands, however, has fallen dramatically under the Obama Administration. The federal government held only one offshore lease sale in 2011.
President Obama: “Last week, we announced the next steps towards further energy exploration in the Arctic. Earlier this week, we joined Mexico in an agreement that will make more than 1.5 million acres in the Gulf available for exploration and production, which contains an estimated 172 million barrels of oil and 304 billion cubic feet of natural gas.”
Reality: “Next steps toward further energy exploration” is not the same as energy production. As we saw with the Keystone pipeline, it’s easy to study issues, but harder to make crucial and controversial decisions. President Obama has a track record of making lots of promises, but caving in to his base when it’s time for a decision. The settling of the boundary issue with Mexico is helpful, but the United States consumes 172 million barrels of oil every nine days. We need to give the oil industry access to the real promising areas on federal lands and offshore.
President Obama: The oil market is global; oil is bought and sold in a world market.
Reality: Hooray! The president got this one right.
President Obama: “When uncertainty increases, speculative trading on Wall Street increases, and that drives prices up even more.”
Reality: When uncertainty rises, more speculators will bet that the price of oil will increase in the future. That futures price is what you see on CNBC all day long. The actual price of oil may be different, depending on what actually happens in the Middle East. Futures markets have been an excellent predictor of oil prices, but they do not cause price variations.
President Obama: “Over the long term, the biggest reason oil prices will probably keep going up is growing demand in countries like China and India and Brazil.”
Reality: Half true. Rising demand in China, India and other developing countries will put upward pressure on oil prices. New technology and opening up new areas for development, such as Canadian tar sands, will put downward pressure on oil prices. The net result is unclear. In resource economics, technology can beat both demand growth and resource depletion over very long periods of times. In the case of copper, for example, the real price has been falling for at least 3,000 years, despite continuous increases in demand.
President Obama: “The United States consumes more than a fifth of the world’s oil — more than 20 percent of the world’s oil — just us. We only have 2 percent of the world’s oil reserves. We consume 20; we’ve got 2.”
Reality: The United States BUYS oil from other countries at a hefty price. We do not confiscate it, steal it or extort it. The US sells food to other countries so they can consume more than they produce. That’s called foreign trade.
President Obama: “We’ve got to develop new technology that helps us use less energy, and use energy smarter.”
Reality: Technology does not appear because it “has to.” The US is a huge technological engine, but physics constrains what we can and can’t do. Furthermore, we must never assume that technological outcomes are proportional to federal research dollars. The US has spent some $150 billion on energy research since the first oil crisis in 1973, and we have generated no new technologies of any commercial value. If we could manufacture technologies out of thin air, why waste time with electric cars when we could invent a Star Trek transporter beam?
President Obama: “In 2010, our dependence on foreign oil was under 50 percent for the first time in over a decade. We were less reliant on foreign oil than we had been. In 2011, the United States relied less on foreign oil than in any of the last 16 years.”
Reality: The reduction in oil import dependence comes from (1) increased oil production on private lands, as noted above and (2) lower demand during the recession. The President cannot take credit for (1), but is certainly entitled to take credit for (2) if he wishes.
President Obama: “And because of the investments we’ve made, the use of clean, renewable energy in this country has nearly doubled -– and thousands of American jobs have been created as a consequence.”
Reality: Technically correct, but misleading. Since 2008, solar power has increased dramatically, mainly through mandates and massive subsidies, but still contributes only 0.3% of our electricity. If solar power continues to grow at its current high rate of 8.5% per year, it will still account for less than 3% of our electricity production in 2050. Wind power, again supported by mandates and subsidies, has more than doubled, but accounts for only about 3% of our electricity production. These increases have come at an enormous and unsustainable cost. Be careful of claims of big percentage increases. Twice nothing is still nothing. Furthermore, the jobs that “green energy” has created are fake. The workers making solar panels and wind turbines are, in effect, producing machines that cannot be sold in the marketplace without subsidies. Their pay is therefore partly welfare.
President Obama: “We’re taking every possible action to develop, safely, a near hundred-year supply of natural gas in this country — something that experts believe will support more than 600,000 jobs by the end of the decade.”
Reality: The increase in natural gas reserves comes from shale gas through a process known as hydraulic fracturing or “fracking.” President Obama’s Environmental Protection Agency and Department of Energy have been fully dedicated to the accelerated phase-out of hydrocarbons from the US economy. The surge in natural gas production is in spite of not because of the actions of the Administration.
President Obama: “We supported the first new nuclear power plant in three decades.”
Reality: True, but so what? One 1-gigawatt nuclear power plant will cover about two months’ growth in our electricity demand. Furthermore, nuclear power plants, as we currently design and build them, are very expensive, generating electricity at nearly twice the cost of natural gas-fired power plants.
President Obama: “Our cooperation with the private sector has positioned this country to be the world’s leading manufacturer of high-tech batteries that will power the next generation of American cars — that use less oil; maybe don’t use any oil at all.”
Reality: We are certainly spending a lot of money on electric car batteries, but we may end up being the leading manufacturer of a product that nobody wants. Recent advances in battery technology have improved the amount of energy storage per pound of battery weight, but batteries are getting more expensive, not cheaper. The battery for the all-electric Nissan Leaf costs as much as the rest of the car. The market for $45,000 subcompact cars is going to be very small.
President Obama: “And after three decades of inaction, we put in place the toughest fuel economy standards in history for our cars and pickup trucks -– and the first standards ever for heavy-duty trucks. And because we did this, our cars will average nearly 55 miles per gallon by the middle of the next decade. That’s nearly double what they get today.”
Reality: This goal is purely aspirational. We have no technology to meet such standards, unless we all drive tiny, expensive cars. By the time we find out whether this standard is meaningful, President Obama will have long since retired. These kinds of promises are easy to make, but very difficult to keep.
President Obama: “Right now, $4 billion of your tax dollars subsidize the oil industry every year — $4 billion. They don’t need a subsidy. They’re making near-record profits. These are the same oil companies that have been making record profits off the money you spend at the pump for several years now. How do they deserve another $4 billion from taxpayers and subsidies? It’s outrageous. It’s inexcusable. And every politician who’s been fighting to keep those subsidies in place should explain to the American people why the oil industry needs more of their money — especially at a time like this. I said this at the State of the Union — a century of subsidies to the oil companies is long enough.”
Reality: This statement is pure nonsense, cooked up by campaign strategists using focus groups. The President doesn’t mean the oil industry is subsidized. He simply means he’d like to tax it more. For a full explanation, see my post of February 17th entitled “The Oil Subsidy Myth”.
President Obama: “On a typical day, the wind turbine at the Miami-Dade Museum can meet about 10 percent of the energy needs in a South Florida home”
Reality: Is this something to brag about? How much did this wind turbine cost? How many days are “typical”?
President Obama: “Our job is to help outstanding work that’s being done in universities, in labs, and to help businesses get new energy ideas off the ground — because it was public dollars, public research dollars, that over the years helped develop the technologies that companies are right now using to extract all this natural gas out of shale rock.”
Reality: Fracturing technology was developed by the oil companies. Full stop. The assertion that hydraulic fracturing was the result of government research is absurd – another example of the Elizabeth Warren Rule that any business that uses public roads or the Post Office must attribute its success to the government.
President Obama: “The payoff on these public [energy R&D] investments, they don’t always come right away, and some technologies don’t pan out, and some companies will fail. But as long as I’m President, I will not walk away from the promise of clean energy.
Reality: Please name one government program that has produced an energy technology of commercial significance? The federal government is not picking winners and losers, it’s just picking losers.
President Obama: “We’re making new investments in the development of gasoline and diesel and jet fuel that’s actually made from a plant-like substance — algae. You’ve got a bunch of algae out here, right? If we can figure out how to make energy out of that, we’ll be doing all right. Believe it or not, we could replace up to 17 percent of the oil we import for transportation with this fuel that we can grow right here in the United States. And that means greater energy security. That means lower costs. It means more jobs. It means a stronger economy.”
Reality: Algae-based biofuels are an interesting and promising IDEA, not a commercially available technology. Lots of companies, including ExxonMobil have invested heavily into the development of this fuel. It may work, and it may not. Let’s not count this chicken before it’s hatched.
President Obama: “Now, it’s the easiest thing in the world to make phony election-year promises about lower gas prices. What’s harder is to make a serious, sustained commitment to tackle a problem.”
Reality: I couldn’t agree more. Newt Gingrich has not helped his (or the Republican) cause one iota with his $2.50 gasoline promise. A commitment to accelerate the production of domestic oil and gas makes sense whether or not it brings down gasoline prices. It’s much better for our economy if the investment, jobs and royalties are earned here rather than in another country.
Overall, I give the President a grade of 10 out of 100 on this speech. Still an “F” but an improvement over his earlier work.