Lots of energy, shortage of policy

National Petroleum Council
An Oil and Natural Gas Advisory Committee to the US Secretary of Energy

Executive Summary

Terence Corcoran
Financial Post
July 21, 2007

The U.S. National Petroleum Council's new report on global energy markets, believed to be one of the most extensive studies of its kind, received mixed reviews this week from greens and others whose policy ideas depend on an ever-present looming catastrophe. Especially put out by the 470-page report, titled Facing the Hard Truths About Energy, were the peak-oil theorists, who believe disaster is imminent as the world supply of conventional oil is set to peak, triggering a catastrophic decline.

There isn't much disasterism in Facing the Hard Truths. It certainly aims to send an alert to the effect that "total global demand for energy is projected to grow from today's huge base by 50% to 60% to 2030 -- the result of rising incomes around the world and population growth." Looking forward, it says that even 25 years from now oil, coal and gas will still account for 80% of world energy consumption

But such an increase in demand does not portend doom; it simply means making sure policymakers in the United States and around the world don't turn this increase in energy demand into a crisis, a crash or worse. "The world is not running out of energy resources," says the report.

One reason the report received lukewarm receptions is that it was produced by a committee headed by Lee Raymond, the former chairman and CEO of Evvil-Mobil, the world's largest oil company and a pariah among climate activists. They've been trying to get Mr. Raymond removed from the study since he was appointed by U.S. Energy Secretary Samuel Bodman. "Mr. Raymond is unquestionably the worst choice for leading a study on resolving America's energy crisis," said one activist group.

Au contraire. Thanks to Hard Truths, Mr. Bodman and U.S. politicians -- and the rest of the world -- have a comprehensive energy report at hand that doesn't slavishly track the Gorey hysterics and peak-oil fetishisms that dominate the media and much of the political landscape.

Just for starters, the report's forecast of an increase of up to 60% in energy demand by 2030 obviously doesn't give any serious credence to United Nations Kyoto-style calls for a 50% reduction in carbon emissions. What the report does acknowledge is that increasing CO2 emissions controls "could restrict fossil fuel use, which currently provides more than 80% of the world's energy." In other words, if politicians are going to try to cut emissions, they should do so in ways that don't destroy the energy supply system. The report pointedly sidesteps climate change altogether. "The NPC did not examine the science of climate change."

The main theme of Hard Truths, in fact, is that policymakers pose the greatest risk to energy supplies. There is plenty of fossil-fuel energy in the world, plus new renewable sources. The problem isn't supply, it's political. "Over the next 25 years, risks above ground -- geopolitical, technical, and infrastructure -- are more likely to affect oil and natural gas production rates than are limitations on the below-ground endowment."

If we have a national or global energy crisis, it will have been created by policy. The report estimates 40 billion barrels of oil and 250 trillion cubic feet of gas of reserves exist in areas of the United States currently off limits to exploration and development.

The report's optimistic outlook, especially regarding the United States, assumes that political obstacles to essential infrastructure will eventually give way to sensible policy.

Globally, the energy markets are increasingly at the mercy of national governments that "are likely to be influenced by geopolitical considerations and less by the free play of open markets and traditional commercial interactions among international energy companies." The objective, says the report, is to shape international energy policy to keep markets open. Getting all major energy-dependent nations -- the United States, China, India, Canada, Mexico, Russia, Saudi Arabia -- to adopt co-operative, market-expanding policies is essential to avoid risks that could severely curtail energy supply by 2030 and turn a world of plenty into a world of shortages.

The report goes out of its way to highlight a key policy issue for the United States. It needs to distinguish between calls for energy independence and energy security. As a report press release puts it, "the concept of energy independence is not realistic in the foreseeable future, whereas U.S. energy security can be enhanced by moderating demand, expanding and diversifying domestic energy supplies, and strengthening global energy trade and investment. There can be no U.S. energy security without global energy security."

When it comes to prescriptions, Hard Truths often promotes its own set of bad ideas. "Free and open markets should be relied upon wherever possible to produce efficient solutions," it says before trotting out a batch of not-so-free-market subsidies and regulations. Aid for shale oil, help for clean-coal technology, programs to "moderate demand," R&D funding, and support for carbon sequestration are among the proposals.

These are really sops to pacify political interests. While they pose some risks, governments could do a lot worse.

The value of the U.S. National Petroleum Council Hard Truths report on global energy is that it might help save the United States, and Canada and the rest of the world, from hard times.