2011: The Best and Worst of Times for American Energy

The Energy Information Administration just released its Annual Energy Review 2011 that provides U.S. energy data trends from 1949 through 2011. In short, it was a year that might be called "the best of times and the worst of times." Production is up for oil, natural gas and hydroelectric power, but the largest landholder in the country--the federal government--is suffering from restrictive policies that are driving energy production to record lows and gas prices to record highs.

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The "positive energy trends" in 2011 were:

• The largest annual production of natural gas in U.S. history (7.8 percent higher in 2011 than in 2010) due to the advent of hydraulic fracturing and horizontal drilling to efficiently and economically retrieve natural gas from shale formations
• The lowest level of net natural gas imports since 1992 (25 percent lower in 2011 than in 2010) due to the explosion in domestic production of natural gas
• The largest annual domestic production of oil since 2003 (3.4 percent higher in 2011 than in 2010) due to hydraulic fracturing and horizontal drilling efficiently and economically producing oil from shale formations
• The lowest level of net petroleum imports since 1996 (10.6 percent less in 2011 than in 2010) due to the increase in production and the export of petroleum products
• The largest production of hydroelectric power since 1999 (25 percent higher in 2011 than in 2010) due to a good water year
• The largest production of non-hydroelectric renewable energy (wind, solar, geothermal and biomass) in U.S. history(8.4 percent higher in 2011 than in 2010) due primarily to state renewable mandates requiring increased levels of renewable power to be used for electricity generation and to the federal renewable fuels standard requiring increased levels of biofuels (e.g. ethanol)to be mixed with gasoline and diesel
• An 8 percent reduction in carbon dioxide emissions from energy combustion from its peak 2007 levels, due to a slow economy and the increased use of natural gas for electricity generation

The "negative energy trends" in 2011 were:

• The lowest level of federal offshore oil production since 2008 (15 percent less in 2011 than in 2010) due to the moratorium on offshore drilling by the Obama Administration, delays in offering offshore lease sales, holding fewer lease sales, permitting delays, and more regulations
• The lowest level of natural gas produced on federal lands since at least fiscal year 2003 due to difficulty and "red tape" in getting federal leases and permits
• The highest price for gasoline in U.S. history (in both nominal and real dollars) (26 percent higher than in 2010) due in part to Administration policies for drilling on public lands and waters
• The lowest share of coal-fired generation since data records have been kept in 1949 (42 percent in 2011) due to low natural gas prices and Obama Administration policies by its Environmental Protection Agency that are requiring significant investment in pollution control technology
• A 4.6 percent decrease in coal consumption from 2010 levels due to coal-fired electricity generation reductions
• The highest nominal residential electricity price in U.S. history (2.3 percent higher than 2010) in part due to the higher cost of renewable energy

While 2011 was a "good energy year" in many respects, it could have been an even better year for energy if it were not for policies that limited production of oil and gas on federal lands and in federal waters, state and federal mandates that required more expensive and/or less efficient technologies to be used, and over regulation of energy producing sectors by federal authorities. President Obama claims he has an "all-of-the-above" approach to energy, but his policies do not support that claim. In his first week as president, President Obama rescinded a Bush Administration plan for offering leases on the outer continental shelf (OCS) between 2010 and 2015 developed to reflect the lifting of the moratorium on 85 percent of the OCS in 2008. A few weeks later, his Secretary of Interior canceled 77 oil and gas leases in Utah followed by rejection of a plan to commercially lease lands for oil shale production despite the fact that the United States has the largest supplies of oil shale resources in the world. The Obama Administration then added two million more acres to the 107 million acres of designated wilderness to block the extraction of fossil fuels. Then, usingthe Deepwater Horizon explosion in the Gulf of Mexicoas a pretext, the Obama Administration put a moratorium in place on offshore drilling in the Gulf of Mexico that was extended de facto beyond the moratorium date due to delays in approving permits. It has also delayed the construction of the Keystone XL pipeline to transport Canadian oil sands and shale oil from the Bakken formation to Oklahoma. When the Department of Interior finally proposed a new offshore leasing plan in November 2011 for the 2012 to 2017 period, it offered only 15 offshore drilling leases--a record low--and kept the Atlantic and Pacific coasts off limits. The Obama Administration has decreased the number of acres and the number of tracts leased offshore by two-thirds and the number of federal onshore drilling leases by almost half. The total amount of land under lease has declined by about a fifth. And, the Obama Administration now wants to institute federal standards for hydraulic fracturing projects guaranteed to cause delays and generate large compliance costs that will increase energy prices. But the coal industry is suffering even worse under the Obama Administration with the Environmental Protection Agency (EPA) imposing stricter emission standards on coal to take effect in 2015 that require massive investments or closures of power plants. These EPA regulations have triggered the announced closure of 175 coal-fired generators over the next few years. Additionally, other new EPA regulations have caused the cancellation of plans to build new and cleaner coal-fired units. We already have the highest nominal electricity prices in history and prices are only poised to go higher. According to the U.S. Chamber of Commerce,at least 351 separate energy projects have been delayed or cancelled due to significant impediments such as regulatory barriers. According to the WesternEnergyAlliance, federal environmental analysis and approval for an energy development project was taking over seven years, but now companies are experiencing indefinite delays. So, with the right energy policy, 2011 could have been an even better year for energy production in the United States.