The oil and natural-gas industry probably won’t ever get a thank-you card from President Obama, but he has a few big reasons to be grateful for the fossil-fuel boom.
America’s vast resources of oil and natural gas have enabled Obama to move forward on aggressive policies, including tougher environmental rules and Iranian oil sanctions, which he would not have been able to do nearly as effectively without them.
The International Energy Agency predicts the U.S. will surpass Saudi Arabia as the world’s biggest oil-producer in 2015; and, by the end of this year, the Energy Information Administration says we’ll surpass Russia as the biggest natural-gas producer.
“I’ve joked before that for the last 30 years, our national energy policy has been implicitly predicated on a low-cost, trustable supply of natural gas,” said Jason Grumet, president of the Bipartisan Policy Center, who advised Obama in his transition to the presidency in 2008. “It is incredibly fortunate that it showed up in time.”
As recently as 2007, the Federal Energy Regulatory Commission warned we were running out of natural gas. Today, the United States is awash in the fuel, which is cleaner than oil and coal. Gas burns with almost none of the traditional pollutants like sulfur dioxide, nitrogen oxide, and mercury. It also produces 50 percent fewer carbon emissions than coal and 30 percent fewer than oil. That combination — abundant supplies of a cleaner, cheap fossil fuel — has paved a path for Obama to move forward on aggressive environmental rules with comparatively limited political push-back.
“Better to be lucky than good,” said Kevin Book, managing director of ClearView Energy Partners, a nonpartisan analysis firm. “The Obama administration was able to pull off the [mercury] standard because of America’s natural-gas production.”
Book is referring to the Environmental Protection Agency’s standards controlling mercury pollution from coal-fired power plants that it rolled out in 2012. While EPA faced a lot of push-back from coal utilities, the broader criticism was relatively muted because many companies were already shifting from coal to natural gas.
“The pollution that I’m looking at is traditional pollutants as well as carbon,” EPA Administrator Gina McCarthy said at an event last week hosted by the Center for American Progress, a liberal think tank with close ties to the White House. “And natural gas has been a game-changer with our ability to really move forward with pollution reductions that have been very hard to get our arms around for decades.”
EPA is now moving ahead with much more contentious rules controlling carbon emissions from the nation’s power sector as a way to combat global warming. Its draft rules for new plants could effectively prohibit coal plants from being built unless costly technology is installed. EPA’s rules for existing plants, which are expected in draft form next summer, are also expected to heavily favor natural gas over coal.
“The favorable gas price has more than a little to do with EPA’s ability to pretty much rule out new coal-fired power,” said William Reilly, EPA administrator for President George H.W. Bush, at an event at the Bipartisan Policy Center on Friday.
Grumet agrees. “EPA is obligated to think about the economic implications of their regulatory outcomes,” said Grumet, who has close ties to the agency. “The natural-gas boom has fundamentally changed the economics of the power sector. So it would be frankly bizarre if the [carbon] rules would come out the same way as they would have in a different economic environment.”
Wind and solar power, which emit no air pollution and have been a major focus for Obama since he became president, may also be benefiting from the gas boom because their inherently intermittent power production requires the backup energy that gas provides.
“Another Obama energy policy that benefited from North American oil and gas may have been renewable power, which expanded rapidly with little or no consumer backlash because low natural-gas prices keep power bills in check,” Book said.
Globally, America’s oil production, which is at its highest since 1996, is empowering Obama’s geopolitical hand. EIA predicts the U.S. will import just 28 percent of its oil next year, compared with almost 60 percent in 2008.
“The reason we could put sanctions on Iran is because the domestic U.S. production was making up the difference in the oil we were sanctioning and taking off the market from Iran,” said Robbie Diamond, founder and president of the Securing America’s Energy Future, a think tank dedicated to lessening the country’s dependence on oil (no matter where it comes from). “If we did not have that domestic production, the prices in the U.S. could have gone up.”
The administration isn’t so explicit in its handling of the issue, but it has implied as much. When the White House announced the deal with Iran last month, Obama issued a presidential determination saying that there is enough oil supply on the global market in part thanks to “increased oil production by certain countries” to justify keeping the oil sanctions in place.
To be sure, America’s oil and natural-gas boom presents significant challenges for Obama. Fracking, the technology that’s made all this oil and gas accessible, is controversial for its environmental risks, and it has prompted a fierce grassroots backlash. Scientists are also raising concerns about how much methane — a greenhouse gas 20 times more potent than carbon dioxide — is being emitted throughout the natural-gas production and transmission process. Administration officials maintain the climate benefits are not erased by methane concerns, but peer-reviewed studies are compelling a debate that this administration, and certainly the next one, will eventually have to address head-on.
Broadly speaking, the dual circumstances of fossil-fuel abundance and the economic downturn makes addressing climate change an even harder political sell than it already was. The scarcity problem we had just six years ago presented challenges, of course, but so too does abundance.
“It’s a very real question,” Grumet said when asked about the problems energy abundance creates. “On balance, I think the economic strength of this energy breakthrough creates more options and space than diminishing the competitive advantage of alternatives. But in order to make sure we do have a diversified portfolio, we’re going to have to continue to look at other policy options.”
Of course, nonrenewable resources like fossil fuels don’t last forever. The same IEA report that predicts we’ll be the biggest oil producer by 2015 also predicts that the North Dakota and Texas oil fields — which provide almost 50 percent of the oil produced in the U.S. — will be past their prime by 2020 and the Middle East will regain its dominance it had lost in the last few years.
The next few presidents may have to deal with the waning side of this fossil-fuel boom. Meanwhile, Obama is riding the crest of it.
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