Cleantech Trends: Energy Policy Debates
Production and Pricing – Fruits of Policy or Market Forces?
The second debate and the many positioning opportunities the presidential candidates have taken show a distinct difference in policy approach. The flamboyant statements that are seized upon as sound bites are often used out of context. Here are some recent claims from both Obama and Romney, and a fact-check to bring it back.
In the second debate, Romney stated “As a matter of fact, oil production is down 14 percent this year on federal land, and gas production was down 9 percent. Why? Because the president cut in half the number of licenses and permits for drilling on federal lands and in federal waters.” Obama retorted with the claim that under his administration public lands have been opened up. “We’ve opened up public lands. We’re actually drilling more on public lands than in the previous administration.” said the President.
Fact-checkers state that a spring Energy Department study reports that oil sales federal areas did fall 14 percent between 2010 and 2011 and in that time period the sale of natural gas production fell 9 percent. Lower oil production was mainly caused by a moratorium on offshore drilling imposed by the Obama administration after the BP oil spill in April 2010.
The Energy Department report however states that oil production from federal areas has increased 13 percent since Obama took office despite the 2010-2011 dip. Gulf oil production is expected to surpass pre-spill levels soon, according to analysts. Natural gas production has become less expensive due to technology advances and the discovery of vast reserves in formations under several states, making it less expensive to drill in those areas than on federally controlled lands, hence the decline of drilling on federal lands that has been trending for some years, quite independently of any policy.
A lot of people would like lower gasoline prices; is this a responsibility of the Energy Department, the government, or the president? A better question might be what actually figures into the prices of gasoline. Governor Romney said in the second debate “The proof of whether a strategy is working or not is what the price is that you’re paying at the pump. If you’re paying less than you paid a year or two ago, why, then, the strategy is working. If the president’s energy policies are working, you’re going to see the cost of energy come down.”
Gasoline prices are set on financial exchanges around the world, where enormous purchases are transacted. Price influencers include speculative purchases that are made for hedging and risk management, and the overall global demand. During financial crisis, crude and consequently gasoline prices plummeted because demand fell in reaction to the financial environment. The stabilization of the recession, and increasing demand from developing economies has raised the demand for crude and gasoline, and hence the price has risen.
Other energy prices have fallen during Obama’s term. Electricity prices, when adjusted for inflation, are down, and homeowners are finding it much cheaper to heat their homes with natural gas. That’s because natural gas production has surged, reducing prices both for homeowners and for utilities that burn gas to generate electricity. How much the Energy Department, the government, or the president could or should influence this mechanism is debatable. Home-grown energy sources however offer some level of alternatives to dependence on the global crude exchange.
Energy prices for natural gas and electricity, generated by burning natural gas, are down on an inflation-adjusted basis over the last several years. This has more to do with cheaper supply than with policy overall.
What will it take to manage both production and prices, and what is the role of the various stakeholders?
Fact check articles/sites:
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