Under President Barack Obama, while we still lack a formal energy program that’s been developed in Congress, there’s little question that we’re now operating under a de facto energy program created by presidential fiat.
It began nearly four decades ago. In October 1973, in response to U.S. support of Israel in what had come to be called the Yom Kippur War, the Organization of Arab Petroleum Exporting Countries (OAPEC) — consisting of the OPEC nations, plus Egypt, Tunisia, and Syria — imposed an oil embargo on a large portion of the industrialized world. Among the results were a spike in worldwide crude prices and, in the U.S., lengthy lines of automobiles, as their owners sometimes not so patiently awaited their turn for access to gasoline pumps.
Pass the president’s policy, please.
The embargo, which ended in March 1974, precipitated what came to be called the 1973 “oil price shock,” the first clear sign that, among other things, we were in need of a national energy policy. These events occurred within months of the resignation of then-President Richard Nixon. But despite the new signs that increased attention to energy was now vital to U.S. economic stability, we’ve completed six subsequent administrations, from Presidents Gerald Ford to George W. Bush, without the emergence of even a vague energy policy. However, that situation has effectively changed during the administration of President Obama.
Why do I say that? Simply consider (1) at least some of the unilateral decisions that have been rendered by the current administration regarding the world of energy and (2) several of the difficult-to-substantiate statements made by the president two weeks ago in his State of the Union address. I’ll discuss the latter in the second part of this article. Once you’ve considered both areas, I think you’ll concur that our energy industry is operating under a program that is less than encouraging to traditional energy (read: fossil fuels), and one that has placed excessive credibility on the prospects of renewable energy making a meaningful contribution to power generation and transportation fuel in the near term.
The dragged-out moratorium
For starters, the administration-imposed moratorium on deepwater drilling in the Gulf of Mexico following BP‘s (NYS: BP) tragedy of April 2010 deserves at least passing mention. Before moving on, however, I’ll simply say that I believe the moratorium lasted too long, and, from the industry types with whom I’ve spoken, the permitting process continues to resemble driving with an emergency brake firmly engaged.
Who’ll get our neighbor’s oil?
However, perhaps more egregious was last month when the president blocked the Keystone XL oil pipeline that would have been constructed by TransCanada (NYS: TRP) . As you likely know, the line would have extended existing lines and would have connected the oil sands of Alberta, Canada, with refineries on the Texas Gulf Coast.
It would have been financed by private funds and been responsible for thousands of needed jobs in the U.S. Perhaps more importantly, it’s obvious that Canada will sign a buyer for its crude, and unless we cut a deal with TransCanada and the powers-that-be north of the border, it’s not unreasonable that a pipeline could be constructed to Canada’s West Coast for transporting the country’s oil ultimately to China.
It’s not as if China is without emerging connections with our northern neighbor. For instance, last summer CNOOC (NYS: CEO) , the biggest Chinese offshore producer, bought a 35% stake in a Nexen oil sands project in Alberta. And just last week, PetroChina (NYS: PTR) acquired a 20% interest in Royal Dutch Shell‘s (NYS: RDS.B) Groundbirch natural-gas development in British Columbia.
Stumbling on the greens
So, we may be effectively waving China through to contract for a major share of the oil produced by our No. 1 supplier and close ally. But we also need to consider an expanding horde of “clean,” “green,” or “renewable” (you choose your favorite word) energy producers that have received huge amounts of federal government funding — primarily from the Department of Energy — only to stumble almost immediately into a financial morass.
Let’s begin with the company you’ve most likely heard about extensively: Solyndra. The California maker of solar panels received final approval for a $535 million federal loan guarantee on Sept. 2, 2009, despite a March 10, 2009, email from a White House budget analyst maintaining that “This deal is NOT ready for prime time.” Last September, however, the company — which had been touted as the eventual provider of 4,000 jobs — ceased to operate, filed for Chapter 11 bankruptcy protection, and furloughed most of its 1,100 employees.
But Solyndra wasn’t the last of the stumbles in the Department of Energy program that had been established to offer loan guarantees to promising (green) energy projects. While it was hardly a trick-or-treat stunt, on the day before Halloween in 2011, Beacon Power — a small renewable power company that had also received a government loan guarantee — also declared bankruptcy. The result was a need for taxpayers to cough up $39.1 million to repay the company’s debts.
Just two weeks later, BrightSource, a designer and developer of thermal power systems, received a $1.4 billion bailout from the Department of Energy. Interestingly, the essential owner of the company is Robert Kennedy Jr., nephew of the former president.
And in his State of the Union speech last month, President Obama hailed a “partnership” that included the federal government that would become the vehicle for the U.S. to become the leader in developing car batteries. No sooner had the speech been completed, however, than the “partner” in the project filed for bankruptcy. Ener1 has requested that a federal bankruptcy court bless a restructuring plan and provide the company with $81 million in equity funding.
A new role for Uncle Sam
I don’t recall being informed in my high school civics class that serving as a giant venture capital firm was among the accepted roles for the federal government. Nevertheless, I could continue on with what I and others suspect will be a steadily growing list of companies to which taxpayer backing has been doled out unsuccessfully.
If you’re especially interested in the subject of federal loan guarantees to green energy companies, you might take a gander at author Peter Schweizer’s newly published book, Throw Them All Out. The fifth chapter is replete with discussions of recipients of such backing. Most, perhaps not surprisingly, have connections to what I’ll carefully and poetically call “the powers that be in Washington, D.C.”
In the meantime, I suggest that you move on to the second part of this article, where we’ll take a closer look at some of the president’s comments on energy in his recent State of the Union address.
- Are ‘green energy’ policies thwarting job growth? (energyindependenceforstates.com)
- What Are the Santorum, Romney and Gingrich Plans for Energy in the US? (energyindependenceforstates.com)
- Administration Hits and Misses With Energy Policy (fool.com)
- Green Energy Policies Harm the Poor (wallstreetpit.com)