The $797 billion economic stimulus bill signed by the president last week includes about $8 billion to $9 billion in federal money to push research and development on clean energy. While that’s only about 1% of the total package, it represents a massive investment in alternative energy.  However, the 1,400-page stimulus bill does not appear to include a dime for the oil and gas industry. That exclusion is certainly not an oversight.

To add insult to injury, the new administration in Washington has also delayed leasing on US offshore drilling, dropped support for development of US oil shale deposits, and canceled lease sales near national park land in Utah. And, as a candidate for president, Obama also supported a windfall profits tax on oil and gas companies.

Clearly, the Obama administration plans to push development of alternative sources of energy. Over the (very) long term, that is almost certainly the right thing to do. But in the near term, US reliance on hydrocarbons won’t disappear, and it may be short-sighted to jettison everything that could reduce US dependence on foreign sources of hydrocarbon energy.

The recent drop in gasoline pump prices from over $4.50/gallon to less than $1.50/gallon has pushed the energy story from the front page. Now, though, as gasoline prices start to rise again, consumers could once again begin to feel the pain of high energy prices. There will be calls, again, to do something about the profits going to oil companies.

The Obama administration has got to get out ahead of this issue. It needs to figure out a way to ease the pain that a return to $4+ per gallon gasoline would cause to consumers. Offshore drilling and oil shale development wouldn’t help in the short run, and everyone knows that. Oil companies will sound like a bunch of whiners if they pursue this effort.

Over time, the US will boost its offshore drilling because there is no choice and it doesn’t make sense to take that off the table completely. The administration should do a couple of things. First, it should add some real experience and expertise in hydrocarbons to its energy team. Second, it should seat the oil industry at the table.

Ignoring the role hydrocarbons will play for the next 50 years a mistake.  The team behind the administration might need to consider that “the enemy” might not be as large of an enemy as they think.  There is no single source of energy that will get us out of our current energy dependence, and allowing more drilling today could create an environment requiring far less in the future.

Paul Ausick
February 23, 2009

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