Just how much in the way of energy policy will President Barack Obama and Vice-President Joe Biden accomplish at the outset that will benefit the US oil and gas industry?
Or should that read: How little?

Perhaps surprisingly to some, I found a few items in the Obama-Biden energy policy position paper that, at first blush, are seemingly designed to benefit the oil and gas industry. Or are they? Don’t break out the champagne just yet.

In the Obama-Biden position paper, the then-candidates noted that while “the US cannot drill its way to energy security…US oil and gas production plays an important role in our domestic economy and remains critical to prevent global energy prices from climbing even higher.”

They then reiterate their opposition to opening up “currently protected areas” while citing several “key opportunities” to support increased US production of oil and gas. Among these are the Bakken shale in Montana and North Dakota, Barnett shale in Texas and Fayetteville shale in Arkansas, and National Petroleum Reserve-Alaska. An Obama policy objective would “set up a process for early identification of any infrastructure obstacles/shortages or possible federal permitting process delays to drilling” in these regions.

Whew! What a relief. Now we can dispense with all that fierce opposition to drilling in Texas. Especially the Barnett shale—you know, where opposition to drilling is so intense that the industry is readily getting permits to drill practically on the freakin’ tarmac at DFW. Puh-leeze.

Another one of those “key opportunities” is the previously reported “use it or lose it” approach to existing leases.
This bullet point subtly revives the hoary old chestnut that the Democrats used to combat the Republicans’ “Drill, baby, drill” mantra to end offshore drilling bans during the election campaign. Speaker of the House Nancy Pelosi invented the ridiculous canard that “Big Oil” was sitting on acreage that could somehow magically double oil production from US federal leases to 4.8 million barrels per day but for the fact that these evil plutocrats were suppressing domestic production to keep oil prices high.

According to the position paper, the Obama administration “will require oil companies to diligently develop these leases or turn them over so that another company can develop them.”

Quick show of hands, please, from all of you Big Oil types sitting on all of these hydrocarbon riches while oil was above $100 per barrel.  Oh, wait. Independent producers—which have on average about 20 employees—drill 90% of the nation’s wells and produce 68% of domestic oil and 82% of US natural gas. So I guess that, since it is Big Oil that’s sitting on all of this unproduced oil and gas, it must underlie a tiny fraction of the federal acreage in question. Just where is this Prudhoe Bay-sized accumulation? And where can I buy the stock of the megagiant company that is suppressing its development until oil bounces back to $200 per barrel?

No, instead Big Oil sits around shelling out billions of dollars each year to acquire and maintain leases just to hoard them while they blithely liquidate themselves by not replacing production—or so it goes in the Obama-Pelosi fairy tale. I’m still trying to figure out where the “key opportunity” is here.

And, finally, to encourage all of this drilling that could and should be occurring, Obama said he “will require oil companies to take a reasonable share of their recording-breaking windfall profits and use it to provide direct relief worth $500 for an individual and $1,000 for a married couple. The relief would be delivered as quickly as possible to help families cope with the rising price of gasoline, food, and other necessities. The rebates would be fully paid for with 5 years of a windfall profits tax on record oil company profits.”

The jawboning window for a windfall profits tax is pretty short if oil prices don’t rebound sharply between now and 4th quarter earnings reports. That “windfall” won’t look so convincing then.

During the campaign, Obama also claimed that his opponent, John McCain, “will give more tax breaks to Big Oil,” cutting their taxes by nearly $4 billion.

As it turns out, that number relates to McCain’s proposal to cut the corporate tax rate—second highest in the developed world—to 25% from 35%. The Obama campaign, apparently borrowing Speaker Pelosi’s crackerjack energy policy analyst, figured out what the tax savings  would be under McCain’s plan to the five biggest US oil companies, based on taxes paid in 2007 to the federal government on income from US operations.

What Obama neglects to mention is that McCain’s proposal would have applied to all US corporations, and McCain’s intent was to stem the flight of businesses and jobs overseas. There was no proposed tax break targeting oil companies.

So the question of the day for President-elect Obama is: With the imposition of the 5-year windfall profits tax, the foregone corporate tax reduction, the oil and gas price collapses, and tighter, costlier credit in today’s economy—where will the cash come from for oil and gas companies to fund these “key opportunities” to boost domestic oil and gas production?

You thinking “bailout” too?

Which way will President Barack Obama go on energy?
Will it be President Obama, pragmatist?  Or President Obama, ideologue?
That’s a tough one to call because, to a large extent, we’ve had to deal with Presidential Candidate Obama, enigma.

This week’s blog will kick off a series, of indeterminate duration, of analyses and commentary on how energy will fare under the new regime.

No. 1 on Obama’s to-do list, of course, will be the economy. Short-term fixes, such as a bailout of the auto industry and pressure on banks to further loosen credit will take priority over longer-term challenges that would include alternative energy and climate change questions.

Certainly, Obama has outlined an ambitious agenda for energy, but he also has shown that political expediency can undercut some of those ambitions. He vehemently opposed an expansion of offshore leasing and drilling until gasoline prices topped $4/gallon and polls showed that Americans overwhelmingly favored more drilling, a stance that benefited his opponent in the campaign. That led him to adopt a more pragmatic stance to favor some expansion of offshore drilling. Now that oil prices have plummeted, and it’s beginning to look a bit more like 1999 at gasoline pumps, don’t be surprised if President Obama issues an executive order to re-impose the offshore leasing ban

Obama also has backpedaled a bit over some of his more aggressive proposals on climate change, hinting that such efforts might be a bit more attenuated than expected because of the floundering economy.

The centerpiece of his energy agenda has been a plan to pump $150 billion over the next 10 years “to catalyze private efforts to build a clean energy future.”
He also wants to put 1 million plug-in hybrid cars on the road by 2015.

Both of these efforts will be tied to jobs creation. Obama estimates that the clean energy initiative will create 5 million new jobs. The trouble is that this initiative would be funded from the sale of carbon cap-and-trade permits he puts at $15 billion/year. The devil is in the details, however, as carbon credit trading to date in Europe has proven horribly complex to implement and subject to abuse. So that initiative could take years to implement.

As for the plug-in hybrids initiative, this will no doubt be preceded by a massive bailout package for the Big Three automakers that Obama is already signaling he will undertake early on.  It is likely that his administration, in concert with a Democrat-dominated Congress, will insist on commitments to a quota for low-carbon-fueled vehicles as part of the Detroit bailout deal. One million new vehicles is really just a tiny fraction of the nation’s vehicle fleet, but the initiative will resurrect the debate over alternate-fueled vehicles and their potential. That revived debate will now occur against the backdrop of $2/gallon gasoline vs. $4/gallon gasoline. Remember California’s failed mandate for a certain minimum percentage of autos sold in the state to be zero-emission? Sometimes you can build it…and they won’t come.

Given Obama’s already-demonstrated predilection for political pragmatism, a windfall profits tax seems a sure bet, especially if Congress proceeds with his plan to confiscate oil company revenues—remember, the earlier WPT was an excise tax on domestic production, not on “excess” earnings—in order to redistribute that unseemly wealth to all Americans.  The trick is in the timing. Count on quick action here, as Obama and Democratic congressional leaders will point to ExxonMobil’s record 3Q 2008 earnings to justify the raid on oil company coffers to hand out $500 to $1,000 to individuals and families under the banner of economic relief. Once the 4Q2008 earnings reports are released, and the picture of voraciously greedy petrocrats doesn’t look quiet so convincing, then Robin Hood will have disappeared into the forest. The very, very green forest.

I have a confession to make:  I am a tree-hugger.
Yes, I’m sure I elicited guffaws from certain quarters when some weeks ago I used this space to identify myself as an environmentalist. There are those would disqualify from the ranks of environmentalists anyone who favors development of oil and gas resources to meet our energy needs. I threw the term out there in my attempt to point out that renewables are not always good for the environment, with the subtext that the term “environmentalist” has ceased to have any real meaning.*

But I love trees. As a boy, I often roamed alone in nearby woods just to “explore.” I still bear a few childhood scars from the backyard pecan tree I favored for climbing. (For the record, pecan tree branches are notoriously fragile when one is pretending to be Tarzan swinging through the jungle). I have backpacked in rain forests from Alaska to the Amazon, in woods from the Sierras to the Grand Tetons to the Rockies to the Ozarks. I mourned the loss of much of Tulsa’s urban forest canopy due the massively destructive ice storm of last December. I have given the Shel Silverstein book The Giving Tree as a gift more often than any other kind to children, including my own. Joyce Kilmer may not rank with Keats or Shelley as a poet, but he was spot on in his sentiments about trees.

I was especially appalled when the frantic rush to anoint biofuels as the magic bullet to address energy and climate change issues resulted in the destruction of huge swathes of pristine rain forest in Asia for the sake of producing more palm oil to be used for biodiesel in Europe. Even the environmental pressure groups wouldn’t give that snafu a pass.

Now there is new evidence emerging that trees may play a key role in addressing climate change concerns.

I won’t revisit my usual sniping at the climate change alarmist bunch. Let’s assume, just for the sake of argument—and that argument not only isn’t over, it seems to be getting louder—that greenhouse gas-induced global warming is accelerating at a dangerous pace, and we have to do something about it. All the screeching back and forth about Kyoto’s flaws and costs and ending our addiction to fossil fuels isn’t getting us anywhere.

Here’s a notion that we can all agree on: Why don’t we plant more trees and better manage the timber resources we already have to help mitigate carbon emissions?  The Intergovernmental Panel on Climate Change has concluded that “a sustainable forest management strategy aimed at maintaining or increasing forest carbon stocks, while producing an annual sustained yield of timber fiber or energy from the forest, will generate the largest sustained mitigation benefit.”

In a new study by the Institute for Climate & Atmospheric Science at Leeds University in the UK, scientists found that forests produce particles of terpene compounds (which give pine trees their distinctive smell). These terpene particles reflect sunlight back to space and make clouds brighter, which acts to cool the climate. In a study published in the Philosophical Transactions of the Royal Society, institute scientists Dominick Spracklen and Ken Carslaw have shown that these forest-derived particles could exert a considerable cooling effect that may offset the warming. Hmmm. Maybe we could synthesize these compounds and seed clouds everywhere with them.

There’s more. Researchers at Södra, a Swedish company that is Europe’s largest producer of wood pulp, claim that if half the world’s forests were run like Sweden’s, the entire greenhouse effect could be eliminated. They contend that a radical overhaul of global forestry along Swedish lines would see carbon locked in a growing reserve of timber rather than remain in the atmosphere in the form of carbon dioxide.

According to Södra’s siviculture manager, Göran Örlander, “The world’s forests cover some 4 billion hectares. We could increase forest growth by more than 1% per year across half of this area (only half of the world’s forests are suitable for management based on the Swedish model). To implement this, we would need to break the negative trends of deforestation, forest damage, and poor forest management on a global basis, but we’d be rewarded with an increase in carbon uptake of almost 2 billion tonnes per year.”

Continuous growth of 1% in half the world’s forests could halt growth in emissions of CO2 altogether, possibly within as little as 20 years, the Swedish company says. And it isn’t promoting a ban on cutting down trees to get there. Because timber is Sweden’s most valuable resource, intelligent forestry management is a must—and Sweden manages to increase the amount of timber in its forests every year even as it constantly harvests more.

But the Swedes are the exception. Every year, 7 million hectares of forest are felled, Södra estimates—the worst case being Southeast Asia, which has lost almost 1% of its forest every year in the past 20 years. Everyone agrees that mindless deforestation is a bad thing. The World Resources Institute has estimated that during the past 150 years, deforestation has contributed about 30% of the atmospheric build-up of CO2.

While I am reluctant to resort to business buzzwords, maybe it is time to “think outside the box” on the conjoined issues of energy and climate change.  If that box is made from Swedish wood, so much the better, because it contributes to the global economy.

And even if afforestation and reforestation don’t provide a magic bullet to end the purported climate crisis once and for all—well, hey, it couldn’t hurt. That was the usual verdict on moms serving sick kids chicken soup—until science caught up with Mom’s wisdom and found that, yes, chicken soup contains compounds with health benefits to ameliorate colds.

So let’s try to open our minds to possible out-of-left-field solutions that might just work without having to wreak havoc on an already stressed economy.

And go hug a tree—preferably one you’ve planted.

*http://www.pennwellblogs.com/pennenergy_perspectives/2008-09-29/renewable-good-for-the-environment-not-always/

Just curious:  Why are some environmental groups allowed to retain their tax-exempt status while they campaign aggressively against selectively targeted politicians? For most of these groups, that’s not allowed under IRS rules, and yet some questionable activity has enabled an explosion of spending by these groups to topple politicos of a certain party they don’t like.

Outright political involvement by 501(c)(3) tax-exempt organizations is a violation of IRS rules, and the tax agency is stepping up its monitoring and enforcement of its ban against these tax-exempt organizations’ participation in partisan politics.

The IRS determines which organizations qualify for tax-exempt status. IRS rules state that while nonprofit organizations may be involved in advocacy and legislative activism, they may not engage in partisan politics. So they risk losing their tax exemption if a significant portion of their activity can be construed as political.

In fact, in recent years, a number of churches have either lost or been threatened with losing their tax-exempt status for inveighing against or urging votes for a candidate for public office.

As always with the US tax code, there are loopholes with qualifications. Certain types of nonprofit, tax-exempt entities are allowed to participate in some political activity and retain their tax-exempt status overall, although that activity may be subject to tax (e.g., MoveOn.org) . Not so 501(c)(3)s. But reinvent yourself under said loophole, and the partisan guerrilla war is on, baby.

A recent surge in partisan political activity and campaign spending by environmental organizations has raised eyebrows in Washington, DC.

Sen. James Inhofe (R-Okla.), ranking member of the Senate Environment and Public Works Committee, recently launched an investigation into the political activity of environmental groups and their supporting foundations.

According to a report to the Senate Environment and Public Works Committee, “supposed nonprofit, nonpartisan organizations can shift funds very easily to organizations formed for the sole purpose of partisan political activity.”

For example, 501(c)(3) entities can shift funds to 501(c)(4) organizations, which can participate in partisan activities, although those shifted funds cannot be used for campaign activities.

“Clearly, without a system for tracking funding in these types of organizations, a donor could contribute to a nonpartisan, nonprofit organization, and the donation could ultimately be used for partisan political activities,” the committee report said. “While this practice, if caught, would cause a 501(c)(3) to lose its tax-exempt status, it is nearly to impossible to detect these funding shifts.”

That’s because the 501(c)(4) is not subject to donor disclosure requirements. The committee noted that in 2006 two entities affiliated with the League of Conservation Voters (LCV) were fined by the Federal Election Commission for several violations of federal election law, including failure to register with the FEC as a political action committee and donor disclosure violations. Afterwards, the LCV restructured its organization into a 501(c)(4), which allows the organization to function with fewer disclosure restrictions.

In an Oct. 22 article, the trade publication Greenwire reviewed the partisan activity of major environmental groups in certain key battleground political campaigns and concluded that “in every instance, the environmental groups are backing the Democrats” and that “since the start of the fall campaign, every dollar spent by these organizations has been aimed at helping Democrats.”

(Disclaimer: Believing that the two-party system should go the way of the dodo, buggy whip, and 8-track, this writer has always and always will register as an independent.)

Inhofe, not exactly the BFF of the LCV, said in late September:
“Campaigns to ’save the cuddly animals’ or ‘protect the ancient forests’ are really disguised efforts to raise money for Democratic political campaigns.’
“Environmental organizations have become experts at duplicitous activity, skirting laws up to the edge of illegality and burying their political activities under the guise of nonprofit environmental improvement.”

Perhaps there is a certain irony in the IRS cracking down on churches for partisan politicking while environmental pressure groups seem to be getting a pass. After all, in a column I wrote for Oil & Gas Journal some years ago, I likened environmental extremists to the ancient people who would sacrifice humans in worship of trees they held to be sacred. I thought I was pretty clever in dubbing them “Neodruids.”

That was before Google. Now I find that there are, in fact, actual practicing Neodruids. So I guess apologies are in order to atone for my cultural insensitivity.

In fact, I got a hint of the existence of Neodruidism after that column appeared: Someone wrote a letter to me that used some pretty harsh verbal pummeling to question my intelligence and cultural awareness on the topic of ancient beliefs.

The writer didn’t sign his or her name. But the return address was one of the tonier, think-tank-harboring suburbs of Washington, DC.

I wonder if there’s going to be tax code-writing congressional committee retreat at Stonehenge next year.

We Americans are in the thick of the silly season—no, not football, for in these parts that subject is discussed in hushed, reverential tones.

This silly season in fact involves a much less rational game: US energy politics in an election year.

Note the specific reference to US energy politics, not US energy policy. The former term is said silly game, the latter, an oxymoron.

There is no and never has been a US energy policy. There have been occasional, piecemeal efforts to address concerns—meaning when the public gets riled up—about energy supply and prices. As in, respectively, not enough and too high. Those efforts have included white elephants (Synfuels Corp.) and the creation of a giant (is there any other kind?) agency that has “energy” in its name yet devotes 39% of its budget to maintaining the nation’s nuclear weapons stockpile.

But no one in the US talks about energy policy unless Joe Sixpack is getting apoplectic at the gas pump and Granny is shivering under layers of clothing because she had to choose between paying her heating bill and paying for her medicine.

There have been some fairly respectable efforts at cobbling together a US energy policy. The energy task force led by US Vice-Pres. Dick Cheney—whatever your opinion of the man—was one such effort. Unfortunately, much of the momentum the resulting task force policy report might have had was dissipated by Cheney’s truculence over not disclosing the participation of energy producers in policy discussions. Gee, input on energy supply from the entities that actually supply energy. The horror.

Energy “policy” often has been framed in the context of the “moral equivalent of war” that quickly lost resonance when its symbol was a cardigan sweater.

Sometimes energy “policy” initiatives are couched in terms of an Apollo Project or a Manhattan Project. But those accomplishments, however technically impressive and important, were engineering feats with a single goal in mind. Energy is such a multifaceted and all-pervasive part of an even more multifaceted world that addressing it as a single “mission” is, well, silly. Move along, no magic bullets here.

What passes for US energy policy is really the crazyquilt legacy of decades of knee-jerk measures on energy from politicians reacting—often overreacting—to an irate public that itself needs education on basic economics.

In other words, the best energy policy may be none at all. The market pretty well sorts things out by itself, as has been borne out by the 50% drop in oil prices since July owing to demand destruction and a similar decline in natural gas prices because of an emerging supply glut.

And yet politicians still talk about taking on Big Oil—yeah, the guys who own a whopping 3% of the world’s oil reserves—and smacking them with a new “windfall profits” tax. Yes, the same WPT that crippled upstream investment in US E&P that in turn helped get us to almost $150/barrel oil. Of course, that WPT applies only to US operating companies. So our government would slap a massive confiscatory tax on US companies that already have among the highest finding and development costs in the world, while the state oil companies in countries often hostile to the US and that enjoy the lowest F&D costs garner an even bigger competitive advantage. As we saw before, such a tax simply causes capital investment to shift abroad and ultimately results in reduced flow to US Treasury coffers.

One of the few semi-bright spots in the US energy scene has been the lifting of the ban on Outer Continental Shelf leasing. Or so it would seem. It must be recalled that congressional Democrats reluctantly agreed to let the 26-year-old OCS leasing ban expire at the end of September because President Bush threaten to veto a stopgap funding bill—which would have shut down the federal government amid a financial crisis—because it contained the ban renewal. And yet those same congressional Democrats and their friends in antidevelopment pressure groups have vowed to reinstate OCS leasing bans, under the presumption that they will have the White House and bigger majorities in Congress next year. I’m sure that was music to the ears of Hugo Chavez and Mahmoud Ahmadinejad.

These are the same folks who brought you the “analysis” that concluded that oil and gas companies were “stockpiling” federal leases they weren’t drilling and thereby “hoarding” potential oil and gas production in order to keep energy prices high. As preposterous as that claim was, it no doubt resonated with some of the True Believers, or every Democratic Party leader wouldn’t have repeated it ad nauseam in the weeks that followed the claim.

Now that gasoline prices have plummeted in recent weeks, perhaps the chants of “Drill, baby, drill” will die down. And antidevelopment forces will seize the opportunity created by lower energy prices and a friendlier DC regime to redouble their efforts in 2009 to hobble new US oil and gas production.

It’s true that new production from lifting the OCS ban won’t do much to lower oil and gas prices in the near term. The impenetrable thicket of permitting delays, environmental impact studies, lawsuits, etc., will ensure that such new production is years away.

But it boggles the mind that, in the midst of an emerging economic catastrophe, the US government isn’t doing everything it can to bolster revenues to the Treasury and create more jobs right away in a way that doesn’t hit the average American with still more taxes or further indenture future generations with once-inconceivable debt through subsidy of unproven energy technologies.

A recent Congressional Research Service analysis found that leasing and developing acreage on the OCS and in the Arctic National Wildlife Refuge would generate roughly $1 trillion in federal royalty and corporate income tax revenue. That doesn’t include the economic ripple effects of the additional high-paying jobs such development creates. Or lease sale bonus payments in the tens–perhaps hundreds—of billions of dollars that new leasing in these untouched and highly prospective areas would bring.

So instead of a coherent energy policy in 2009, we will probably see more incoherent—and self-destructive—energy politics that reduce revenues, shift investment overseas, destroy jobs, help keep energy prices high, and help bolster some unfriendly regimes.

One wonders whether we will run out of toes before we do bullets.

So as you go into that voting booth Nov. 4, please try to remember the distinction between energy policy and energy politics and consider who comes closest to an energy policy that makes sense for America.

Maybe that is just a really simple energy policy that rests upon a borrowed phrase from the physician’s oath:

“First, do no harm.”

Ecofascism is alive and well.
It is the height of irony (or maybe just hypocrisy) that the anti-fossil-fuel zealots equate climate crisis skeptics with Holocaust deniers. These zealots seem pretty adept at polishing their own fascist credentials:

Use police power to make sure everyone toes the party line? Check.
Self-appointed Planet Savior Al Gore recently told the Clinton Global Initiative (CGI)  annual meeting, “I believe for a carbon company to spend money convincing the stock-buying public that the risk from the global climate crisis is not that great represents a form of stock fraud because they are misrepresenting a material fact. I hope these state attorney generals (sic) around the country will take some action on that.”

Those are my italics in that quote. Not only has the debate surrounding catastrophic anthropogenic climate change ended, what was hitherto a hypothesis is now legally indisputable fact, according to Obergrünenfuhrer Gore. Should I have placed an SEC-type disclaimer at the top of this blog?

Heidi Cullen, The Weather Channel’s self-styled “climate expert” (really, that’s her blog byline title) wrote in her TWC blog, “If a meteorologist can’t speak to the fundamental science of climate change, then maybe the [American Meteorological Society] shouldn’t give them a Seal of Approval.”

On the other hand, break the law to attack those you have demonized as the enemy? Check.
At the same CGI meeting, Gore exhorted his younger disciples, “If you’re a young person looking at the future of this planet and looking at what is being done right now, and not done, I believe we have reached the stage where it is time for civil disobedience to prevent the construction of new coal plants that do not have carbon capture and sequestration.”

We have already seen instances of ecoterrorism, and here’s a broad appeal from a Nobel Prize-winning political figure exhorting youthful zealots to inflict at least economic damage to the demonized enemy. Will energy suppliers eventually face their own Kristallnacht?

Indoctrinate the very young, as they are pliable, convenient, and ubiquitous monitors of dissent? Check.
The New York Times recently reported on a growing trend of children hectoring their parents to hew to the Gospel According to Gore. The article refers to what experts say is “a growing army of ‘eco-kids’—steeped in environmentalism at school, in houses of worship, through scouting, and even via popular culture—who try to hold their parents accountable at home. Amid their pride in their children’s zeal for all things green, the grown-ups sometimes end up feeling like scofflaws under the watchful eye of the pint-size eco-police, whose demands grow ever greater, and more expensive. They pore over garbage bins in search of errant recyclables. They lobby for solar panels. And, in a generational about-face, they turn off the lights after their parents leave empty rooms.”

The Times article quotes a Natural Resources Defense Council spokeswoman as saying, “One of the fascinating things about children is that they don’t separate what you are doing from what you should be doing. Here’s this information about how we can help the environment, and kids are not able to rationalize it away the way that adults do.”

Yes, we certainly wouldn’t want our kids to “rationalize” imposing their beliefs on others. Read the Times article at http://www.nytimes.com/2008/10/10/nyregion/10green.html?_r=2&th=&emc=th&pagewanted=print&oref=slogin&oref=slogin

So where are the kids getting the party line? A lot of teachers are showing Al Gore’s movie An Inconvenient Truth in classrooms. Harry Potter and Huckleberry Finn get banned by some school boards, and the cinematic Mein Kampf of ecofascism gets not just a pass but mandatory viewing in classrooms? Then again, films, unlike textbooks, are not chosen by school boards. Stage 1: Die grünen Jungvolk; Stage 2: Gore-Jugend.

Prepare a Final Solution? Check.
Anthony Watts, a meteorologist who operates a weather technology and content business, reports that Aussie TV network Australian Broadcasting Corp. has created a website that helps kids calculate their carbon footprint through an interactive game that inflates a cartoon pig as the carbon tally mounts until it explodes into bloody bits: “When you’re done, click on the (skull and crossbones) to find out what age you should die at so you don’t use more than your fair share of Earth’s resources!”

Check it out at http://wattsupwiththat.com/2008/05/31/tv-network-tells-kids-when-their-carbon-footprint-says-they-should-die/
Maybe the ecofascists will eventually feel so guilty about their own carbon dioxide exhalations that they end up “drinking the Kool-Aid,” thereby leaving plenty of carbon footprint for the rest of us to share. (And my pig won’t explode and tell me I should have died 49 years ago).

Was that over the top? Or was it in keeping with a mindset that insists that the earth won’t recover from environmental damage until humanity has disappeared? Or that humanity is a cancer on the face of the earth? Or that the ongoing economic meltdown would be good for the environment because of its crippling effects on carbon-adding economic activity?

Is the Gospel According to Gore that extreme? It’s not as if there isn’t precedent in the environmental movement, which was launched with Rachel Carson’s Silent Spring, the book that led to the nearly universal ban on widespread DDT spraying to control mosquito-borne malaria outbreaks.

Robert Gwadz of the National Institutes of Health estimated in 2007 that “The ban on DDT may have killed 20 million children” in developing countries due to outbreaks of malaria and other mosquito-borne diseases that were curbed by DDT spraying.
I guess the ecofascists would consider that earth-friendly “population control.”

Hey, brother, can you spare a line of credit?
Maybe the energy industry isn’t quite ready for that twist on the old Depression-era song, but it could be around the corner.

No one knows how severe the credit crunch will be in the months to come or how the US Congressional bailout plan will play out.

What seems a certainty is that corporate debt will become scarcer and costlier. And a booming energy sector won’t be immune from the credit meltdown fallout.
Those observations come from J. Marshall Adkins, analyst with Raymond James & Associates Inc.

The global energy outlook has undergone fundamental change from just a month ago because of the Wall Street collapse, Adkins points out. We’ll need to ratchet down energy price and demand forecasts because of the weakening economy.  Highly leveraged companies will be more likely to see weaker earnings and sagging growth because of the  capital availability squeeze and greater debt costs. Asset valuation will become more volatile and less reliable, along with a slump in merger and acquisition action. Capital budgets will be cut. Cash-flush companies with low debt will pounce on the overleveraged firms. Investors will smile on the former and spurn the latter.
Gee, Marshall, thanks for that pick-me-up.

Remember those bumper stickers from the later 1980s offering a prayerful entreaty heavenward to deliver another oil boom that the entreater promises not to squander this time (albeit put in earthier terms)? Looks like Wall Street’s latest crop of the Masters of the Universe managed to preemptively flush for you this time, folks.

Raymond James assessed the energy sector in terms of which subsector would be the hardest hit by the credit crunch. In delivering that assessment, Adkins cautions that it is important to remember that not all debt is created equal: “For example, those companies with longer-term, fixed-price credit facilities should be much better off than those with floating rates from bank lines of credit. Additionally, bank covenants and other factors make each debt situation different.”

So who fares the best among energy sector companies in a credit crunch?

E&P companies will be hard-pressed to maintain robust capital budgets, making it tough to replace or expand production. M&A action will slow further among these companies, creating a buyer’s market over time for companies not mired in debt and enjoying strong cash flow.

Oil field service and supply companies have low debt leverage and strong cash flows, but a lack of credit for E&P companies will dampen drilling activity and ultimately crimp service company earnings.

Some alternative energy companies will take it on the chin, especially ethanol producers facing not only tight credit but slim margins. However, solar photovoltaic manufacturers generally have strong balance sheets, and utility adoption of solar and wind energy probably won’t be hit as hard by the credit crunch because utilities have good access to debt.

Although coal companies are highly leveraged, a big improvement in pricing in 2009 contracts will spawn strong cash flows and substantial deleveraging of debt next year.

Midstream master limited partnerships will see their growth slow because of their heavy reliance on capital markets for funding growth. But attractive yields, stable cash flow, and the urgency of upgrading energy infrastructure add up to MLPs being “one of the most compelling long-term risk-to-reward equations across the entire energy spectrum.”

On balance, energy market fundamentals are as robust as they’ve ever been.  Oil and gas prices, while down sharply from summer record peaks, are still strong.  The long-term outlook for energy demand and new energy infrastructure is exceedingly bright.  Most energy companies are flush with cash.

But it looks as if that little credit crunch will squeeze growth and activity and thus will have many energy sector companies singing a different Depression era-tune in 2009:
I Got Plenty o’ Nuttin.’

Contrary to what some of my readers might believe, I think of myself as an environmentalist. Whatever that means. I loathe louts who litter, for example.  Does that make me an environmentalist?

I have been an avid backpacker for decades and believe that some wilderness areas must be preserved regardless of their other resource values. I once spent 2 weeks hiking and camping in the back country of Yellowstone National Park—an unforgettable experience. Yellowstone probably has enough geothermal energy to power a small city, but I don’t want to see a power plant mounted atop Old Faithful. Does that make me an environmentalist?

But people are an integral part of the environment too, an inconvenient truth often overlooked by the environmentalist lobby.

I believe that 92% of the 19 million-acre Arctic National Wildlife Refuge should remain pristine. But the remaining 8%, the Coastal Plain—of which an even smaller sliver, 2,000 acres, would be affected by oil and gas development—lies in an area that has seen human habitation for centuries as well as military and commercial operations for decades. In fact, the Inupiat who have lived there for generations believe that efforts to designate the Coastal Plain as wilderness represents yet another broken promise by the US government to Native Americans and violates their heritage and rights to the land. The Inupiat favor  developing the potential 16 billion barrels of oil underlying their land and fear that wilderness designation could uproot them—as has often occurred in the past with this country’s shameful treatment of its first inhabitants. Does that make me anti-environment? Or pro-humanity? It’s all about balance.

Read this excerpt from an online article written for anwr.org by George Tagarook, vice-mayor of the city of Kaktovik, the only village on the ANWR Coastal Plain:

“Step by insidious step, outsiders pushed us aside, set up rules that made it harder and harder for us to use our lands and waters. The worst thing they have done is to declare part of our homelands wilderness. Not only is that a massive insult to say that places where we are have no people, as if we do not even exist, but also the management rules for such places make it impossible for us to continue to use them. Now they want the entire coastal plain made wilderness. That is code for finally removing us from our homelands. That is code for genocide.

“We passionately oppose attempts to expand wilderness designations to our remaining homelands. We suffer not from pollution or harm brought here by the oil and gas industry. It has so far been one of the least disruptive and most positive forces ever to invade Alaska’s Arctic shores. We suffer from the pollution of lies spread far and wide to advance an agenda we do not understand, and from the disrespect shown our positive, progressive people.”

One would think that caring for the needs and desires of the people who actually live in a so-called pristine wilderness area also comes under the heading of preserving environmental values—the human environment, at any rate. (Come to think of it, isn’t “inhabited wilderness” an oxymoron?)

But when you’re trying to balance competing values, rational discussion eludes folks who believe that “humanity is a cancer on the face of the earth” and espouse the slogan “Back to the Pleistocene!”

This line of thought was prompted by a new study by the International Energy Agency of the need for more renewable energy. IEA estimates that nearly 50% of global electricity supplies will have to come from renewable energy sources if the world is to halve CO2 emissions by 2050 “in order to minimize significant and irreversible climate change impacts.”

IEA advises, among other steps, removal of noneconomic barriers, including the tackling of “social acceptance issues,” i.e., the NIMBY (not in my back yard) Syndrome, to unleash this ambitious renewables effort.

The US Energy Information Administration forecasts that renewables’ share of US electricity markets will climb to 12.5% in 2030 from 8.4% in 2007. Well, I’m no math whiz, but I believe that jumping 37.5 percentage points in 20 years after gaining 4.1 points in 23 years pretty much qualifies as unprecedented exponential growth for any energy source.

So where will all that renewable electricity come from? According to EIA, hydropower today accounts for 71% of renewable energy-produced electricity in the US. But the US is No. 2 when it comes to renewable energy production

Hydro is what placed—get ready for it—China at the top of the list of countries producing the most electricity from renewables. China? The same China that renders the Kyoto Treaty moot because its CO2 emissions growth will offset that treaty’s mandated reductions elsewhere? The same China that had to shut down much of its industry so that Olympians wouldn’t keel over in a toxic smog?

Yep. That China. A country that vaulted to the top of the renewables list because of the Three Gorges Dam project, widely condemned as a human and environmental disaster of mind-boggling scale:  1.3 million people displaced, many of which still face resettlement problems; 13 cities, 140 towns, and 1,350 villages flooded; dozens of temples and other cultural and historical landmarks submerged; hundreds of species of flora and fauna threatened; and massive erosion causing landslides whose sediments are threatening one of the world’s largest fisheries in the East China Sea. In addition, the resettlement of hundreds of thousands of farmers is accelerating deforestation and erosion in other, once-pristine areas.

Beijing itself has tacitly acknowledged the environmental damage resulting from Three Gorges but will proceed anyway with plans to make Three Gorges the anchor of a string of 12 similar hydro megabases along the Yangtze River, which ultimately could have as many as 100 hydropower stations. This is the centerpiece of China’s much-vaunted renewables push. Over the years, dam building has displaced 23 million people in China. Beijing didn’t have much trouble overcoming the NIMBY Syndrome; it executed some of the village leaders who protested against the Three Gorges dam.

Just as drilling for oil and gas does not necessarily equate to environmental damage, renewables development is not automatically a good thing for the environment.

This December, my son—a student at the University of Oklahoma College of Law—and I will go backpacking in the Ozark Mountains of Arkansas. I’m eyeing the Buffalo National River Wilderness area, an area I’ve backpacked and paddled a canoe in and as pretty a piece of this country as there is. This place has a special resonance personally, and I want it to be the same for my son for a special reason:  It will be his last backpacking trip as a single man, as he will be married a few weeks later.

Seeing a pumpjack in that glorious wilderness would be jarring.  I wouldn’t like it, but I could ultimately live with it, knowing our desperate need for energy and knowing that it would be gone and the land fully restored in the not-too-distant-future. But what if this scenic treasure disappeared altogether—permanently?

A hypothetical: Would that 50% renewables share of electricity require us to do something as drastic as dam the Buffalo—America’s first National River? Would we go as far as the Chinese are going, all in pursuit of a carbon-free energy future? Would we allow our latest environmental obsession to strip us of our right to enjoy and use this gift of nature? Or would this be the line drawn in the sand against the frenzied, damn-the-consequences push toward renewables as the One True Path?

I think I know what George Tagarook would say.

“It’s the economy, stupid.”
Whatever your politics, it’s hard to argue against that phrase standing as one of the most effective sound bites ever concocted.

It was conceived and promoted by James Carville, the brilliant campaign strategist for then-presidential candidate Bill Clinton who used the phrase to put the final nail in the coffin of President George H.W. Bush’s political career.
(Carville also has pulled off the neat trick of achieving success in the public sector while camouflaging, with aw-shucks folksiness, the most reptilian demeanor since Wormtongue; every time I see the man, I expect a foot-long forked tongue to dart out and snatch a passing mayfly. But I digress.)

“It’s the economy, stupid” has come roaring back with a vengeance as Wall Street’s meltdown continues and has us all staring nervously into a fiscal abyss. And despite OPEC agreeing to cut production, hurricane devastation crippling US oil and gas output, and continuing threats of oil supply cutoffs by key suppliers, energy prices continue to freefall.

I was reminded of this in contemplating yet the latest barrage of increasingly ubiquitous news features about tips for cutting energy costs (and saving the planet too, of course). According to Consumer Reports, making a number of “smart choices” can help the average homeowner save about $2,000 per year on energy costs. The magazine highlighted energy-saving alternatives in models of washers, refrigerators, dishwashers, furnaces, water heaters, light bulbs, computers, televisions, and automobiles to arrive at the annual savings.

Well, gee, that’s keen. Trouble is, the combined cost to acquire all of these “smart” alternatives totaled $23,000, according to my decidedly unscientific calculations (I even factored in my gas-guzzler’s trade-in on the Prius). Spend $23,000 today to save $2,000 over a year—that’s a federal government economizing strategy, right?

Yes, I know that these “smart choices” are supposed to be made when one is actually in the market to purchase one of these items. But that’s my point. For these savings to materialize, one must shell out the bucks now. At my house, a perfectly good 10-year-old GE refrigerator hums along nicely, doing everything I ask of a refrigerator without ever requiring a major repair. I expect it to last another 10 years. The refrigerator Consumer Reports holds up as an example costs about $1,500 and would save me $72/year in energy costs vs. a refrigerator built 15 years ago. Now my GE refrigerator, having been built only 10 years ago, is probably much more energy-efficient than the 15-year-old model yet not as energy-efficient as the snazzy new model. But why would I get rid of an appliance that works great and fulfills my needs to spend $1,500 on another appliance to save at best $6 per month? What’s the break-even for that investment? 20 years?

Of course, the eco-squawkers at this point will have invoked the other “green”—ostensibly nobler—rationale: environmental rectitude. You know these folks: the painfully earnest trust fund kiddies in their hemp Birkenstocks and free-range sisal ponchos grilling you on the whereabouts of your recycling bins, or the Hollywood celebrity who kvetches about evil Big Oil gouging the public before jumping in his limo to his Lear jet to attend an Earth Day concert 10 time zones away. It’s for the planet, you know.

So I end up ditching a nicely functioning appliance with another 10 years in it for an investment that won’t pay for itself until my (hypothetical) great-grandson enters pre-school? All to pat myself on the back?

The bottom line here is…the bottom line. There is a reason that US public opposition to offshore drilling has melted: It couldn’t stand the white-hot glare of $4 gasoline, regardless of how tenuous opponents say the connection is. The public is making a connection between an environmental piety and its collective wallet, and all the sanctimonious sermonizing won’t change that.

By the same token, US automakers report that demand for trucks and SUVs recently increased slightly as gasoline prices came well off their early summer peaks.

The economic outlook is still as bleak as it’s been in years, maybe decades. And if it’s true that high energy prices contribute to a recession, it’s equally true that a recession will pull down energy prices. Economic catastrophe looms, and energy prices have trended back down, sharply and suddenly. In such an economic climate, why expect anyone to be eager to invest significant capital in something they don’t really need now when the return is so negligible?

That view just underscores another kind of inconvenient truth: Energy environmentalism is a luxury of the affluent.

Don’t agree? Then offer this deal to a farmer in an impoverished developing country facing a possible drought: In order to get you to stop burning cattle dung or endangered rain forest trees for your energy needs, we’ll pay half the cost of your choice of 1) a solar energy system or 2) a diesel generator. The former costs $20,000 and doesn’t work all the time, but there are no fuel costs; the latter costs $400 and is reliable 24/7, but diesel could cost you as much as $2,000 per year. Then point out to him that while the diesel generator is better for his health and the environment than burning dung and wood, the solar option is really the best choice overall for the planet. Which do you think he’ll choose? Do you really think he has a choice?

To that end, I submit a slightly revised sound bite, this one about environmentalism dictating energy choices: “It’s the economics, stupid.”

Vehicular CNG just got another big boost.
What was the Pickens Plan is now Aubrey’s Agenda.
That’s Aubrey as in Aubrey K. McClendon, CEO and chairman of Chesapeake Energy Corp., the No. 2 independent US natural gas producer.

Just as T. Boone Pickens launched a major media rollout to promote his “Pickens Plan” to replace natural gas burned in power plants with wind power and then divert that gas to vehicular CNG, Chesapeake kicked off a big multimedia campaign dubbed “CNG Now!” Televsion and print advertising and a snazzy new website are said to serve as a “public education campaign.”

In fact, McClendon and Chesapeake talk up the Pickens Plan quite a bit, with McClendon declaring, “My good friend Boone Pickens and I agree about compressed natural gas—CNG is the best fuel to reduce America’s addiction to foreign oil.”
(I would like to take a moment here to recommend a 12-step recovery program for anyone who can’t stop referring to US oil consumption in the context of a heroin habit.)

In case there were any doubt about the Urgency for Our Nation’s Security of switching from gasoline to CNG, here’s a quote from Pickens that appeared in the Dallas Morning News:
“When we finally get this story told, you’re going to be unpatriotic if you’re using foreign oil when you don’t have to. If you have a domestic alternative, and you’re not using it, you’re unpatriotic.”

Hmmm. Guess I’ll have to go all CSI forensic on the family flivver’s gas tank to trace those cracked crude molecules back to their country of origin. I wouldn’t want to face rendition for my treasonous gasoline-swilling ways, although I hear Gitmo is lovely this time of year—assuming it hasn’t been swept away by Ike by now.

Pickens isn’t the only one in this CNG push who knows how to play hardball. McClendon wasn’t wearing kid gloves when he recently took on utilities seeking to install coal-fired power plants in Oklahoma, Kansas, and Texas. Chesapeake funded local opposition groups and spent more than $1 million on advertising to decry the construction of what the ads termed “filthy” coal plants in states where there is suddenly an embarrassment of natural gas riches to fuel those power plants now for a long time.

I’m not sure how Aubrey and his good friend Boone are going to reconcile their differences over whether natural gas or wind energy will keep all those power plants humming. Maybe McClendon just needs to show Pickens the Navigant Consulting study that really jacked up estimates of US natural gas reserves in the wake of the booming gas shale plays: 2,247 trillion cubic feet (tcf), or a 118-year supply at 2007 demand levels. The American Clean Skies Foundation, of which McClendon is chairman, funded the Navigant study. McClendon also told Oil & Gas Journal this summer that the Navigant study, if correct, “takes a lot of pressure off us to open more of the OCS.” I’m not sure how much pressure there was on Chesapeake in that regard, since it has no OCS holdings.

Shale gas production growth has been so successful that it’s turning around the US natural gas production profile—so much so that Freeport LNG Development LP last month requested permission to re-export LNG imported into its Freeport, Tex., terminal. The culprit: lower gas prices and increased domestic production from the shale gas plays.

Is it conceivable that the much-ballyhooed North American LNG boom could fall victim to the explosion in shale gas? Or will the US still need all of that foreign gas as well to feed all the gas-fired power plants (as backup to Boone’s erratic wind power) and CNG vehicles?

Evidently McClendon is so bullish on the prospects for natural gas that he told analysts in August that Chesapeake is looking at ways to invest in US LNG export facilities because natural gas in global markets can sell for twice what it does domestically. Oops. That didn’t raise the Homeland Security threat level to magenta, did it? Don’t tell Boone.

A key part of the CNG Now! agenda is to lobby for a host of government incentives in the form of tax credits to automakers, consumers, and fuel retailers and mandates for CNG refueling pumps at all service stations owned by major oil companies. These would be designed “to incite the purchase, usage, and sale of natural gas vehicles,” according to the CNG Now! website.

Whatever the pros and cons are for vehicular CNG—and it stacks up better against gasoline than some other alternatives—it is clear that the fuel cannot compete with gasoline and increase market share without government mandates and incentives. And those mandates and  incentives come with taxpayer costs—none of which are spelled out by CNG Now!

It’s no secret that Chesapeake’s core strategy is to assemble a dominant position in unconventional natural gas, notably the shale plays. Just how dominant does the company want to be? Just how much commercial shale gas is really there?

My good friend—and widely respected reserves evaluation consultant—Dr. Rafael Sandrea, who developed his own study of future oil and gas supply (yes, I’m slipping in a plug; check out the study at  http://www.pennenergy.com/index/resourcecenter/reports/new_future_global.html), is still scratching his head over the Navigant numbers. The best Rafael can come up with for remaining US gas conventional and unconventional reserves is 554 tcf. Not bad, but now we’re looking at about 30 years of reserves at 2007 consumption rates—but those rates could double or triple with all these CNG vehicles and extra gas-fired power plants. So we’re down to, what, a decade or two now?

And shale gas ain’t cheap. Some of these shale plays require a gas price of more than $7/MMBTU to be economic. A show of hands, please, for anyone who can remember the gas bubble and sub-$2/Mcf gas.

So let’s review: Shale gas dominance. Check. Decline in competing gas supply from LNG imports, with possible upside for LNG exports of domestic gas. Check. Decline in competing domestic oil and gas supply from the OCS. Check. Government-mandated taxpayer support for new and expanding natural gas markets. Check.

That appears to be Aubrey’s Agenda. How does it jibe with yours?