CBO "Energy Security" Report Exemplifies Washington's Failures

Michael Whatley

5/19/2012 12:01:00 AM - Michael Whatley

It’s no wonder most Americans don’t trust politicians and government agencies in Washington, D.C. Too often the city’s power brokers offer talking points that seem to fly in the face of logic. Now, a report from the Congressional Budget Office on U.S. energy security serves as the most recent example as to why American’s take information from Washington, D.C. with a hearty grain of salt.

In their report “Energy Security in the United States” the agency makes many errors that one would hope the analytical arm of Congress might avoid. Among these, the report dismisses entirely the idea that increased domestic oil production can have even a modest impact on U.S. energy security. It makes this determination by accepting the premise, without question, that increased U.S. oil production will be offset by decreased production elsewhere. Such a one-for-one assumption is overly simplistic, denies the most basic principles of the marketplace, and makes the report look more like a collection of election year talking points than an effort to provide clarity to U.S. energy policy.

One of the most egregious oversights is the fact the report never even mentions the enormity of North America’s newly found resource base. New technologies have caused resource estimates in the western hemisphere to skyrocket. One example, the discovery of technology to economically produce the Canadian Oil Sands increased that nation’s reserves to approximately 175 billion barrels of oil. Similar developments have increased our resource potential as well. For example, the Energy Information Administration indicates the U.S. now contains more than 198 billion barrels of technically recoverable oil. Taken together, these resources total approximately 373 billion barrels of oil, more than the reserves of Iraq and Iran combined. For this reason, recent studies and news articles have highlighted the U.S. can gain energy independence – or at the very least self-sufficiency- within the next few decades. This seems to be a pretty large omission for a report focused on our nation’s energy security.

However, what’s more important than the size of these newly available resources is the stability of the governments overlaying them. Adding a resource base that exceeds two of the top five OPEC nations not only increases the global supply of oil, it makes that supply more politically stable. It does so by reducing the leverage, and influence, of producing nations prone to political instability- a key determinant in global price stability.

The report’s errors don’t end in failing to recognize our enormous resource potential. Even if one accepts the premise that increased U.S. production will automatically be offset by decreased production elsewhere the report still misses the mark on its U.S. energy security predictions. The reason for this is simple. This view completely ignores the additional capacities that will rise as new resources are discovered or as production from older resources is curtailed. The mere presence of these additional resources, and the ability to produce them, serves as a downward force on global oil prices. After all, when additional capacities increase there is reduced risk that an unexpected disruption will cause serious shortages given the increased diversity of supply. Further, there is a tremendous price spread between North American crude oil supplies and the supplies that we are buying from overseas markets – as much as $30 per barrel according to one recent report.

Simply put, increasing our reliance on friendly nations and our own supplies serves our best interest by increasing the reliability of those supplies, reducing demand from unstable sources, and reducing the importance of any one nation in the global energy picture by expanding the overall resource pie.

Unfortunately, CBO has either missed these fundamental points and has provided Congress with a faulty analysis.

Now, more than at any point in our history, our nation requires, and is equally able to achieve, a bold “all of the above” energy policy focused on strengthening our national self-sufficiency. This can only be accomplished through the application of market based principles and the diversification of our conventional and renewable domestic energy resources. Failing to recognize these key facts serves no one and only detracts from developing a responsible national energy policy that will benefit the American economy and consumer.