The “Yes, you can” vs “No, you can’t” energy plan
President Obama’s energy policies have kept investment and jobs out of America; Romney’s energy plan can bring money and jobs back. Analysts are picking apart Romney’s 21-page energy plan that was introduced in Hobbs, New Mexico, on Thursday. Is energy independence by 2020 possible, or is it, as the Financial Times posited, “an act of hubris?” More important than whether or not his energy play is realistic is the international implications of his “independence” assertion and how he plans to get there.
Mitt Romney and Paul Ryan in Ashland today (Photo credit: tvnewsbadge)
As the news coverage reminds us, “Every US president since Richard Nixon has set an objective of reducing the country’s reliance on foreign oil, and most of them have failed.”
President Obama’s approach has been to “end the age of oil.” To that end, he has poured billions of dollars into green energy projects–many of which were risky investments that have now failed or are headed for failure. His approach has done nothing to reduce our reliance on foreign oil–though we are importing less due to the bad economy and high prices, and the new oil boom presently centered on North Dakota. To companies looking to invest in any kind of extractive endeavor, his policies have screamed “You can’t!”
Romney’s plan is to open up US resources off the east coast and in Alaska; make it easier to obtain permits for oil and gas production, and other energy projects; transfer control of development from the federal government to state authorities; approve the Keystone XL pipeline; and ensure that environmental regulations do not prevent the use of coal. The Romney plan, shouts “You can!”
How will Romney’s plan invite global investment back to America, while Obama’s approach chased it away? The Gulf of Mexico saga offers a simple example.
Drilling rigs cost millions of dollars a day to operate. Following the Deepwater Horizon accident, the Obama administration put a moratorium on activity in the Gulf. Rigs sat idle; people were laid off; and companies lost billions. Ultimately, many of the rigs left our shores for countries that welcomed them–taking the potential jobs and revenues with them, and adding to the economic damage in the region.
Like the rig owners need to have their assets working, all companies need to have growth. If they cannot work in the US, they are virtually forced to do business in other countries. Those countries often have governments that do not respect the rule of law, making doing business there more risky than similar activities in the US. But, at least they can do business there. In America, they can’t. Additionally, the cheaper labor and lower taxes made the risk/reward ratio attractive.
However, recent history tells us that the reward may no longer be worth the risk.
A few days ago, ConocoPhilips announced that it is retreating from its position in Russia by disposing of its 30 percent stake in the NaryanMarNefteGaz joint venture to its partner Lukoil, the Russian oil group, and is now focusing mainly on developed countries and on North America in particular. Last month, a Russian decision against BP “demonstrates the perils faced by foreign investors in Russia.” The Financial Times reports: “the ruling has sent a chill through Moscow’s foreign investment community” and shows “the uncertainties faced by western companies that go into business with powerful local partners.”
Also last month, Shell shed its prolific onshore Nigerian oil assets for $850 million, less than the estimated $1 billion value. Shell is now refocusing its Nigerian efforts offshore, “where rigs are better insulated from oil theft, militancy, and the legal constraints of operating in an area that is vulnerable both environmentally and economically.” Shell’s appetite for Nigerian exploration has been waning for months. In February, Ian Craig, Shell’s director for sub-Saharan Africa, said: “The greatest challenge, however, is the massive organised oil theft business and the criminality and corruption which it fosters. This drives away talent … increases costs, reduces revenues both for investors and the government and results in major environmental impacts.”
In April, the Argentinian government under, President Cristina Kirchner “nationalized” Spain’s flagship oil company, Repsol’s YPF unit and caused Repsol’s stock to plummet. The relationship between Repsol’s YPF and Kirchner’s corrupt government has been troubled for at least four years, and the fate is now in the hands of the World Bank’s International Centre for Settlement of Investment Disputes in New York.
In South Africa a different verse of the same song is playing out, as apartheid-era type violence plagues mining operations. According to the Wall Street Journal, “Investors already have been worried this year by a debate about nationalization of South African mines.” WSJ reports: “Mining accounts for about 9% of South Africa’s gross domestic product. But despite the country’s rich resources, South Africa has failed to ride the global commodity boom due to lack of investment in infrastructure.” Addressing the violence at a platinum mine, owned by London-based Lonmin (one of the world’s largest primary producers of platinum group metals), that claimed 44 lives, Mathews Phosa, the treasurer general of the ruling African National Congress, said: “The incident at Lonmin has had a very negative and a very devastating impact internationally. It has created a lot of uncertainties for investors. We need to assure investors that this will never happen again.”
These are just a few examples of the risks multi-national companies are taking–nationalization, theft, corruption–by doing business in countries with unstable governments. The increased risk results in lower rewards. Yes, the extractive industries do have to go where the resource is located, but all things being equal, they’d rather, as ConocoPhillips has acknowledged, do business with “developed countries”–if they can.
Romney’s energy plan is the equivalent of rolling out the red carpet and inviting the global investment community to America, where, despite Representative Maxine Waters’ suggestion, we do not “nationalize” private industry–and we do have the resource.
A soon-to-be-released report from Noble Royalties Inc. and Netherland, Sewell and Associates Inc., based entirely on data from US federal government sources, reviews the potential of oil and gas development on Federal Lands in Alaska, the lower 48 onshore, and the Gulf of Mexico and offers insight into how the Romney energy plans could totally change the dynamics of America’s economy.
The report states that leasing on federal lands is at a 30-year low–50 percent of what it was under the Clinton administration. The report points out that allowing drilling in Alaska, just enough to fill the pipeline back up to historic levels, would generate $318.1 billion in gross revenue–which would result in $39.3 billion in new royalty revenues to the federal government. Combining the Alaskan numbers with oil and gas extraction from the lower 48 onshore and the Gulf of Mexico, bringing leasing on federal lands back to historic levels would generate $785.4 billion in new revenue for the federal coffers. Note: this figure does not include potential development from the east and west coasts or leasing beyond historic levels. The report finds that new activity on Federal lands will create $5.02 trillion in taxable revenue and significantly increase jobs (think North Dakota with the lowest unemployment in the country).
Not only will increased development on federal lands create new wealth and new revenue streams, but not adding to the current low-level of leasing will cause a loss of $40 billion over the next five years, due to declining reserves in Alaska.
The numbers from this new report are conservative. Remember they are based on known historic results (91 percent of undiscovered resources on onshore federal lands are either inaccessible or restricted), and do not include potential development. Additionally, the report only addresses oil and gas development on federal lands. It doesn’t include development on private land–which will also create new revenue streams for the federal government, development on either coast, and it doesn’t address other resources, such as coal, uranium, copper, tungsten, or rare earth elements that are all in demand in a global market and are found in abundance in the US.
If a President Romney uses the benefit of the bully pulpit to tout the new access to American resources, even half as much as President Obama has done to push green energy, companies could come flocking back to do business under the stable, rule-of-law, American government. Good paying jobs would be created, local economies would be stimulated, and new wealth would be developed–all without a penny of government investment.
This, not “independence by 2020” is the true benefit of the Romney energy plan–though as the WSJ states, “the ‘independence’ trope polls well.” Instead of “You can’t!” the Romney energy plan says: “You can!” It opens up a third option to solve America’s economic stagnation. There are more options than just raising taxes or cutting spending, the Romney energy plan has the potential to bring investment back to the US and introduces “wealth creation” that is like finding a pot of gold buried in the American backyard.
The author of Energy Freedom, Marita Noon serves as the executive director for Energy Makes America Great Inc. and the companion educational organization, the Citizens’ Alliance for Responsible Energy (CARE). Together they work to educate the public and influence policy makers regarding energy, its role in freedom, and the American way of life. Combining energy, news, politics, and, the environment through public events, speaking engagements, and media, the organizations’ combined efforts serve as America’s voice for energy