U.S. CHAMBER OF COMMERCE

Energy Blog

Energy Blog

US Chamber of Commerce Blog

Sean Hackbarth Four oil pumpjacks outside Williston, North Dakota.Four oil pumpjacks outside Williston, North Dakota. Photo credit: Daniel Acker/Bloomberg.

Is the U.S. the world's top oil producer?

Robert Perkins at Platts asks that question after BP's annual Statistical Review gave the U.S. the number one spot, over Saudi Arabia and Russia.

According to Perkins, if you only include crude oil and condensate--a super-light form of oil--which are most like what we think of as oil, the U.S. falls to number three.

The Energy Information Administration (EIA) is in the "U.S. is Number One" corner. With its broader definition of oil that includes crude oil, natural gas liquids (NGLs), condensates, refinery processing gain, biofuels, and other liquids, the U.S. at number one.

eia_top_oil_natgas_countries_2014.png  U.S., Russia, and Saudi Arabia petroleum and natural gas production.EIA: U.S., Russia, and Saudi Arabia petroleum and natural gas production.Source: Energy Information Administration.

More important than the ranking debate is the fact that we're having this argument at all. It shows how much hydraulic fracturing has changed the energy discussion.

Remember "Peak oil?"

When once it looked like we'd be importing energy forever, we see the federal government slowly (too slowly) allowing increased exports of liquefied natural gas (LNG) and condensate. Now, policymakers and Members of Congress are seriously considering lifting the oil export ban.

Natural Gas Liquids as Feedstocks

Going back to Perkins, he lops off most natural gas liquids in calculating U.S. oil production, because "they are not suitable substitutes for crude oil."

They're not, but that doesn't diminish their important role in the U.S. chemical industry.

Petrochemical plants use NGLs components like ethane, propane, butane, and pentane as feedstocks for plastics, fertilizers, and other products, as Mukta Shukla and Ashok Shukla explained in American Laboratory:

Petrochemicals have enabled the creation of novel materials and products in countless manufacturing industries and in other fields such as agriculture, communication, and transportation. For example, in the new Boeing 787 Dreamliner, the latest modern aircraft to be launched, modern synthetic materials comprise about half of its primary structure. In addition, most of the tools on which we depend for daily existence--such as cars, computers, cell phones, children's toys, pesticides, fertilizers, household cleaning products, and pharmaceutical drugs--are derived from petrochemicals.

According to the EIA, U.S. NGL production has increased 66% from 2008 to 2014.

Not only do plants have more basic materials to work with, they also have cheap natural gas to power the plant.

The result has been increased investment from a revitalized domestic chemical industry that's now more globally competitive. The American Chemistry Council estimates that over the next ten years, the shale boom will create 461,800 direct, indirect and payroll-induced new jobs from $46.8 billion in new investment in the plastics industry.

U.S. is Tops in Petroleum and Natural Gas Hydrocarbons Production

Let's look at the EIA chart one more time. When natural gas is included, there's no question who is the top petroleum and natural gas hydrocarbons. It's the U.S. by leaps and bounds.

But no matter where the U.S. ranks, no one can deny the incredible impact hydraulic fracturing is having. In both of Perkins' charts, U.S. oil production launches 

Here's a chart from BP that isolates U.S. production. It goes up like a July 4th firework, from around 7 million barrels per day (b/d) in 2005 to nearly 12 million in 2014. It's a stunning achievement that no energy expert or Washington, D.C. policymaker could predict.

bp_us-oil-production-2014.jpg  U.S. oil production, 2014.BP: U.S. oil production, 2014.Source: BP.

Maybe the U.S. isn't the top oil producer. While it would be a nice title to have, not having it doesn't take away the fact that we're witnessing an energy renaissance.  Energy abundance is a catalyst for investment, jobs, and growth. That's something to be impressed with.

Dan Byers Indiana Governor Mike Pence. Photo credit: Andrew Harrer/Bloomberg

We opined last week that the decisions states make in response to EPA's power plant carbon regulations will have historic implications for their economic futures. On Wednesday, Indiana became one of the first states to chart this future path, officially informing the Obama administration that it does not plan to go along with EPA's unprecedented attempt to force dramatic and costly changes to America's electricity system.

In a letter informing President Barack Obama of his decision, Pence did not mince words:

If your administration proceeds to finalize the Clean Power Plan, and the final rule has not demonstrably and significantly improved from the proposed rule, Indiana will not comply. Our state will also reserve the right to use any legal means available to block the rule from being implemented. I believe the Clean Power Plan as proposed is a vast overreach of federal power that exceeds the EPA's proper legal authority and fails to strike the proper balance between the health of the environment and the health of the economy.

As is custom, reaction to Pence's decision among EPA allies was strong and swift. The Sierra Club feigned a sudden interest in state sovereignty, stating, "We would rather have Indiana be in control of our destiny than have a federal plan imposed on us." The message heavily pushed by EPA and its supporters is that compliance with the rule maximizes flexibility and will be empowering and protective of states' rights.

This narrative has increasingly been exposed as not just a hollow promise, but in fact the reverse of what will happen. A paper released by the law firm Sidley Austin last week details how compliance with EPA's rule as proposed would weaken state sovereignty and expand state and third-party liability to lawsuits from, ahem, concerned groups such as the Sierra Club. The bottom line on "state control" from Sidley Austin:

 The unprecedented beyond-the-fence line structure of the proposed ESPS, combined with EPA's assertion that all measures in a SS 111(d) SIP become federally enforceable, would substantially expand federal authority to enable enforcement actions against States as well as third parties separate and distinct from the fossil-fueled generating sources that are the subject of the SS 111(d) rulemaking.  It also could expose States to legal action under the citizen suit provisions of the CAA by NGOs seeking to compel such enforcement actions, as well as exposing third parties themselves to citizen suits.  The net result is that, if EPA's view prevails, approval of a SIP by EPA will entail the loss of a significant portion of a State's authority to regulate power production, distribution, and consumption within the State and to adjust its energy policies as economic circumstances within the State change.

EPA would no doubt like the public to believe that Indiana is an outlier in this fight, and that objections to its rulemaking are isolated to a small handful of coal states. But like so much that we encounter with EPA regulatory processes, reality is a much different place. A recent Chamber guide to state comments on the proposed rule found that 32 states have questioned the legal basis of the rule, 32 said it threatened electricity reliability, 28 said it would have negative economic consequences, and 40 different states questioned the achievability of at least one of the "building blocks" upon which EPA's rule is based.

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In all likelihood, more states can be expected to follow Indiana's lead. In fact, led by West Virginia, 15 states have already taken the extraordinary step of suing to stop advancement of EPA's rule before it is even finalized. In addition, Governor Mary Fallin of Oklahoma has announced that Oklahoma will not submit a compliance plan to EPA, Texas Attorney General Ken Paxton said he plans to challenge the EPA rule in court after it is finalized, and a number of states (Arkansas, Kansas, Louisiana, Kentucky, Missouri and others) have passed legislation restricting the form and manner of their state response to EPA.

Governor Pence is to be commended for his leadership on this critical issue to American jobs and the economy. As EPA's power plant proposal nears finalization later this summer and states further develop and refine their positions on the regulation, there is increasing likelihood that EPA will be forced to abandon its current unworkable and illegal approach. Stay tuned. 

Sean Hackbarth Electrical linesPhotographer: Kevin Dooley/Flickr. Licensed under a Creative Commons Attribution 2.0 Generic license.

House Energy and Power Subcommittee Chairman Ed Whitfield's (R-KY) bipartisan bill, the Ratepayer Protection Act--which the House approved--will block EPA's proposed carbon regulations. In an op-ed in The Hill, Rep. Whitfield calls EPA's plan to reengineer the power grid, "a bad deal for the American economy, businesses, and ratepayers."

He's right.

Stephen Eule, Vice President for Climate and Technology at the Institute for 21st Century Energy, explained to a House Energy and Environment Subcommittees that EPA's carbon regulations will be all pain and no gain.

Eule made four points using the Energy Information Administration's analysis of EPA's plan:

The economy will take a big hit. Electricity rates will go up The power grid will be less-reliable Carbon reductions won't matter much in the big picture. 1. The Economy Will Take a Big Hit.

With electricity as an integral part of our economy, it's odd that EPA hasn't looked at how its proposed carbon regulations will affect the economy. "Nowhere in this document [CPP's economic impact analysis] is there any discussion of how its rule will affect GDP," said Eule.

Wait, "odd" isn't the right word; "irresponsible" is better.

Anyway, EIA did look at the CPP's economic effects and found major costs:

[C]umulative economic costs over the Clean Power Plan's 2020 to 2030 compliance period are an estimated $1.23 trillion in lost GDP, with a peak annual loss of $159 billion in 2025. This amounts to an average annual GDP hit over the compliance period of $112 billion.

epa_cpp_gdp_losses_800px.jpg  2020-2030.EIA estimates of GDP losses from EPA's Clean Power Plan: 2020-2030.Source: Institute for 21st Century Energy. 2. Electricity Rates Will Go Up

EPA admits electricity rates will be higher--"an average of 6.5% in 2020, 2.9% in 2025, and 3.1% in 2030"--but it assumes there will be so much energy efficiency that consumers will pay less.

Eule notes that EIA doesn't buy it:

[T]he price increases overwhelm these declines, leaving consumers with bigger, not smaller, electricity bills. Using EIA's data, we calculate that average household electricity expenditures will be 3.8% higher in 2020, 2.8% higher in 2025, and 1.3% higher in 2030.

In total, consumers will pay $164 billion more for electricity from 2020 to 2040. "Pursuing the Clean Power Plan amounts to placing an entirely needless burden on families--especially low-income families--and businesses still struggling with a sluggish economy," Eule said.

3. The Power Grid Will Be Less-Reliable

To add insult to injury, EPA's carbon regulations will mean consumers will end up paying more for less-reliable electricity.

EIA estimates that 31% of all coal-fired power plants will be shut down by 2030. "A change in the generation mix of this magnitude this quickly will have repercussions for ratepayers," said Eule.

Such a sudden shutdown of existing generating capacity is unprecedented, and it raises serious concerns ... about the ability of the electric power system to handle such a rapid loss of base load generating capacity.

Regional power grid operators and state officials have expressed serious worries about this.

4. Carbon Reductions Won't Matter Much in the Big Picture.

When all is said and done, under EPA's carbon regulations, the U.S. will produce 6.2 gigatons less in carbon emissions by 2030.

Sounds like a lot, right? Eule points out that it will barely be a drop in the bucket globally:

As large as it is, however, the most recent forecast from the International Energy Agency suggests that in 2030 carbon dioxide emissions from China will offset this entire 11 years of reductions in a little more than 7 months.

When you put this all together--big economic costs, higher-priced but less reliable electricity, and little global effect--you can see that EPA's carbon regulations are a raw deal for Americans.