The homeland threat to affordable US energy

The homeland threat to affordable US energy
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The U.S. Congress and every administration since the 1973-74 Arab Oil Embargo have established laws and policies to expand domestic oil production. U.S. oil production has long been viewed as an effective instrument of national security to address fundamental risks from reliance upon expensive and insecure oil imports. Recently filed lawsuits in California could well undermine gains in U.S. energy security. 

Last summer several local California governments including the cities of Imperial Beach, Oakland, and San Francisco and the counties of Marin and San Mateo filed lawsuits against dozens of oil companies, including Chevron, ConocoPhillips, ExxonMobil, BP, Royal Dutch Shell for creating a “nuisance” by “knowingly and recklessly creating an ongoing public nuisance that is causing harm now and in the future to human life and property.” They seek billions of dollars in damages from current and future “catastrophic harm to human life and property.”

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The defendants produce crude oil, which is processed into gasoline, diesel fuel, jet fuel, and a large array of ubiquitous consumer products, used every day by American consumers. 

 

Should the plaintiffs succeed, other cities and counties will quickly join in, and the net effect would be to substantially increase the cost and legal risk of producing American energy.

New oil and gas development might not grind to a halt, but it will certainly take a toll on investment, threatening the remarkable gains from the North American petroleum renaissance.

According to the U.S. Energy Information Administration, between 2008 and 2014, household energy expenditures decreased by 17 percent for gasoline, 25 percent for natural gas, and 28 percent for fuel oil. The climate suits will make investment in domestic production both risky and costlier, curtail oil production, and make price increases more likely.

In an odd twist of fate, U.S. production will be replaced by imports from companies who enjoy sovereign immunity provisions in U.S. law unavailable to domestic oil and gas companies. 

Strangely, the federal government isn’t listed as a primary defendant. After all, the federal government’s long-standing policy promotes the expansion of domestic oil production, which enhances national security and provides revenues for a range of government services. Regarding national security, the federal government’s domestic production initiatives are directed at addressing two fundamental risks to U.S. energy security.

First, a relatively small number of producers can restrain oil production and rapidly increase oil prices, extracting enormous wealth from the U.S. to foreign producers. As U.S. production increases, this risk is diminished. The unprecedented expansion of the North American oil and gas production platform since 2008 has substantially reduced this risk, for American consumers and our allies

Second, a disruption in crude oil supplies from major world oil producers can damage the national economy and industrial base. America is fully integrated into the world oil market.

A supply disruption anywhere shows up everywhere. As a matter of national policy, the federal government undertakes measures to reduce supply disruption costs and ensure security of supply. Policy responses include the Strategic Petroleum Reserve, collective efforts on burden sharing with our allies through the International Energy Agency, and the U.S. Fifth Fleet. In the Persian Gulf alone, we have armed forces in Bahrain, Qatar, Saudi Arabia, and United Arab Emirates. Sure, we have lots of security interests in the region not related to oil, but does anyone really believe oil tankers would flow unimpeded through the Strait of Hormuz without the presence of the U.S. Navy? 

Federal initiatives to expand crude production include the recent opening up of the Alaskan Natural Wildlife Reserve, lifting the ban on oil exports, and royalty relief provisions on federal lands to sustain production when oil prices decline. These policies span both Democratic and Republican administrations.

Even President Obama emphasized the importance of domestic production in his 2012 State of the Union Speech, Nowhere is the promise of innovation greater than in American-made energy. Over the last three years, we’ve opened millions of new acres for oil and gas exploration, and tonight, I’m directing my administration to open more than 75 percent of our potential offshore oil and gas resources.”

The newfound abundance in American energy doesn’t mean these federal programs are coming to a halt. The Department of Energy just announced a new round of funding for a program to advance “the economic viability and environmentally sound development of unconventional oil and gas resources,” which includes direct research grants exceeding $30 million.

Expanding domestic oil production was deemed such a national priority that in 1980, Congress appropriated $19 billion to create the (failed) Synfuels Corp, a public/private venture to expand domestic oil production with advanced technologies. 

The North American petroleum renaissance has been a remarkable success. According to the U.S. Energy Information Agency, domestic oil production has doubled since 2006 from 5 million to 10 million barrels a day. Our net imports of crude and petroleum products are now at approximately 2.5 million barrels/day, and our biggest foreign supplier is Canada. Contrast the current situation with 2006 when net imports hit 13 million barrels/day, largely from OPEC nations. 

America is now the largest natural gas producer in the world, and will soon become the world’s largest producer of crude oil. Energy security threats have not disappeared, but rising domestic production has gone a long way to reduce these uncertainties. It would be ironic indeed if the newest threat to our energy security comes from a misguided attempt to use the courts to address what is in end a policy debate that should be solved by our political system. 

Lucian Pugliaresi is president of the Energy Policy Research Foundation. He served on the National Security Council staff during the Reagan administration.