Caleb

Resource Proposal #1 (more on proposals)

Type (Biz, Gov, or Soc): Society

Name of Resource and Citation: The outlook for US oil dependence

Jones, Donald W., and Paul N. Leiby. “The Outlook for US Oil Dependence.”Energy Policy 26.1 (1998): 55-69. Web. 14 Apr. 2015.

Topic for Paper: United States Energy Policy

Your proposal:

With the United States currently importing 7 million barrels of oil equivalent a day, the U.S. government should provide the necessary infrastructure through tax credits and government funded projects to increase the United States’ energy independence and capitalize on the United States shale revolution, thus reducing dependency on foreign oil, particularly from the Middle East.

My resource provided information on the extensive impact OPEC has on global oil prices and the effect an OPEC supply shock can have on the United States economy. This source begins by talking about how supply and demand responds slowly to shocks, with long-run oil market demand elastics ten times greater than short-run demand elastics. In the short run, oil supply is also very inelastic, meaning it is a cartel like OPEC has significant control over oil prices and can essentially set them where they want, given they control such a large portion of the world’s oil supply. OPEC doesn’t expand production even though their costs for developing a barrel of oil are dramatically below selling price, meaning they do not behave competitively. If they were to behave in a competitive manner, they would increase production levels and see the price drop to around the market price minus the cost of development. This monopoly behavior by OPEC has had a dramatic impact on the U.S. economy. During the 1970’s, the U.S. Department of Energy estimated the lost economic growth from the two oil shocks to be $1.2 trillion (when estimated in 1988 dollars).

Why use 1988 dollars?  You could easily recalculate in 2014 dollars…

There are three main causes a sudden increase on oil prices would create for the U.S. economy. First, there would be loss of the potential to produce because the economy can produce fewer goods for the same input, essentially lowering output. Second, there would be macroeconomic adjustment losses as wages and prices don’t adjust quickly enough to the change in oil prices. Lastly, there is a flow of wealth from US oil consumers to countries exporting oil. This report concluded by summarizing the problem with US oil dependence isn’t eventually running out of oil, but is the short-run inelasticity of supply and demand with oil, OPEC acting with monopoly power to control prices because they have a majority of the oil reserves and the US being too dependent on foreign sources of oil.

This article helped me develop my ideas on U.S. Energy policy. My idea is to write a white paper talking about how the U.S. government needs to help producers in North America, specifically the United States produce more oil and decrease reliance on foreign oil. I plan on using other resources to assess the geopolitical risks associated with oil coming from the Middle East and Latin America as a reason for why we need less dependency on foreign oil, but this source really detailed the effects a shock in oil prices would have on the US economy. If a few OPEC countries were to cease providing oil to the US, the effects would be catastrophic.

I found this information very reliable. It came from Oak Ridge National Laboratory, which is managed by the University of Tennessee – Battelle for the U.S. Department of Energy. They obviously have a bias, which is ensuring the United States has plenty of oil and doesn’t encounter any shocks, which would do harm to the economy.

What is Energy Policy?  If it is a peer-reviewed journal, you can assume even more so that it reflects the authors research as opposed to US government policy.

Your overview here seems useful for your paper, but I was surprised such background would come from the article.  Did they provide this background?  If so, and they had references, I would track those down as they seemed comprehensive.

As to “oil dependence” I have my own questions about that.  Isn’t it more of a political fiction than a policy goal?  Oil is such a global commodity, it is not like we will consumer US oil here only.  Maybe it means increase global supply to weaken OPEC pricing power.  

What do you say to the argument that if we burn all the hydrocarbons out there we will irrevocably harm the climate and ourselves?  Should that factor into US policy?  It may stretch your topic too broadly, but it seems relevant.

Also, you may want to look into recent price swings and if they are due to supply and demand shifts or speculative moves by traders.  If it is speculation, does limiting speculation to maintain stable price curves (so, they can go up, but steadily),  become a goal?

Resource Proposal #2 (more on proposals)

Type (Biz, Gov, or Soc): Business  (ok)

Name of Resource and Citation: Ernst & Young – Navigating Geopolitics in Oil and Gas

Topic for Paper: United States Energy Policy

Your proposal: A significant portion of the world’s oil comes from regions experiencing geopolitical challenges or bordering regions with geopolitical conflict, notably the Middle East, Northern Africa and Russia. With the rise in conflict and an increase in uncertainty regarding oil production in these regions, the United States should be mindful of our significant international exposure and dependency on foreign oil, as we are currently a net importer of about 7 million barrels of oil equivalent a day, largest of any country in the world. Though the United States is also the largest consumer of oil, the United States Shale Revolution and discoveries of oil in Canada have reduced our dependency on oil from the Middle East. Threats such as the Islamic State of Iraq and Syria (ISIS) are viable and credible, and could easily disrupt global oil supply. The United States should take steps to mitigate geopolitical risk, and ensure our access to oil can sustain a large drop-off in imports.

This report by Ernst & Young did a great job detailing why geopolitical risk is a major and relevant concern to oil and gas companies. They define geopolitics as “a broad range of frequently interconnecting issues, including diplomacy and security, global economics, financial and supplier market uncertainty, commodity constraints and pricing, exchange rate fluctuations, and civil and workforce distribution.” (E&Y Report) Due to the inherent volatility and uncertainty regarding geopolitics, the best way to be prepared to deal with them is avoid them as much as possible. The United States has a lot of exposure to foreign oil, and should work to mitigate this risk.

As the world has become increasingly destabilized, there is greater competition for natural resources and greater emphasis on geopolitics for the oil and gas industry. A major trend the energy space is the shift from International Oil Companies (IOCs) to National Oil Companies (NOCs). Nations are becoming increasingly concerned with energy security and this shift doesn’t look to change any time soon. These NOCs have become increasingly powerful and give significant power to sovereign nations with oil resources, like Saudi Arabia, Brazil, Libya, Russia and Iraq, while taking power away from countries like the United States and China, who are major importers of oil. IOCs have become increasingly dependent on NOCs and must partner, often under uneasy circumstances to develop oil in international countries beyond where they are headquartered.

Ernst & Young provides a great diagram of the geopolitical framework in which energy companies operate.

This white paper helped me better understand trends regarding geopolitical risk, especially pertaining to the energy industry. I plan on writing a white paper explaining how the United States needs to mitigate geopolitical risk, and the government should facilitate greater production in North America. Geopolitical risks from groups like ISIS present a large threat to oil production in the Middle East and generate a great deal of uncertainty in the region. Most Americans wouldn’t feel safe visiting one third of the world’s oil production. Such uncertainty coupled with greater production capabilities in the United States mean it is time for the United States to reduce our dependence on foreign oil.

This information is highly reliable. It is produced by Ernst & Young, a reputable accounting and consulting firm with global reach. They are a business source, so their bias is clearly to generate more business from oil and gas companies, but this doesn’t mean their views aren’t correct.

Navigating Geopolitics in Oil and Gas: Business Solutions for a Complex World. Publication. Ernst & Young, 2014. Web. <http://www.ey.com/Publication/vwLUAssets/EY-navigating-geopolitics-in-oil-andp-gas/$FILE/EY-navigating-geopolitics-in-oil-andp-gas.pdf&gt;.

Why do you think E&Y makes this kind of report publicly available?

Resource Proposal #3 (more on proposals)

Type (Biz, Gov, or Soc): Government

Name of Resource and Citation: White House Publication

Topic for Paper: United States Energy Policy

Your proposal:

The United States has made dramatic improvement over the past eight years in decreasing their (its) reliance on crude oil net imports, as it has decreased from around 10 million barrels of oil a day in 2007 to 7 million barrels a day, currently. However, this progress is not enough, as this increase has been driven exclusively by growing production here in the United States, a direct result of the shale revolution. The United States Government needs to make more of an effort to encourage and enable oil and natural gas producers here in the United States to continue increasing production. They can do this through providing tax benefits, approving infrastructure improvements such as the Keystone XL pipeline, and easing regulations that have made drilling challenging despite suspect environmental proof.

Are you as supportive of tax benefits or other forms of government support for other energy sources like coal, nuclear, solar, wind, bio, and so on?

This source, put out by the executive branch of the United States government, talks about how the United States government “all-of-the above energy strategy aims to harness American innovation and develop a diverse portfolio of American-made energy.” America’s dependence on foreign oil is at a 40-year low and declining. In November of 2013, for the first time in two decades, the United States produced more oil domestically than was imported from foreign nations. However, the United States government, particularly the executive branch under President Obama, has stated or failed to enact meaningful legislation to help the oil and gas industry. They have imposed strict restrictions on drilling in the Gulf of Mexico, refused to sign a bill into law that would enable oil from Canada to reach the Gulf Coast via the Keystone XL pipeline, and raised extensive questions on the environmental impact of fracking, a key drilling technique paramount to the increase in production domestically.

Instead, the United States government has focused on “clean energy”, like solar energy and wind power. Though these moves are important, they are not as important as oil and natural gas, which are crucial to keeping our country running. This focus on clean energy and lack of attention on oil and gas is concerning, as “The President called on Congress to make the renewable energy Production Tax Credit permanent and refundable, which will provide incentive and certainty for investments in new clean energy. Instead of continuing century-old subsidies to oil companies, the President believes that we need to invest in the energy of the future. Solar and wind power and other forms of energy may be the energies of the future, but the energy of the past, present and immediate future is oil and natural gas. Cars run on gasoline. Homes are heated with oil and natural gas. Oil and natural gas are incredibly important to the health of the United States and should receive higher attention and more preferential treatment from the government.

Even if doing so leads to irreversible climate change?  Look, transportation ran on horses and coal 100 years ago.  Homes were heated by wood and coal.  I don’t understand why you don’t think there can be technological shifts in transportation and housing.

This source helped me to see the ways the government, specifically the executive branch and President Obama, feel towards energy policy. They are perfectly complacent not helping oil and gas companies, instead focusing on cleaner forms of energy, which are not widely used sources of energy, and continue to leave us exposed to foreign nations in our dependency for oil.

I think this is a very reputable and reliable source on what the government plans to do for energy policy. It is clear the United States government is trying to focus more on renewable energy rather than oil and natural gas. Hopefully this white paper serves to offer insight on why this focus should be shifted.

“Advancing American Energy.” The White House. The White House, n.d. Web. 30 Apr. 2015. <https://www.whitehouse.gov/energy/securing-american-energy#energy-menu&gt;.

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