Commentary: Let’s decide on an energy policy

By Tammy Klein
Assistant Vice President, Hart Energy

Want to be prepared for the future? OK, repeat after me: “Zhè shì w?de míngpiàn.”

Not bad, but try again, this time with feeling. This is an important phrase because it melds two fundamental issues facing this country – jobs and foreign debt. You just said, “This is my business card” in Mandarin. Good for you.

What I’m getting at is more basic than how much publicly held U.S. debt lies within China’s control – $1.2 trillion or 8 percent of the total for those keeping score – it’s the direction that country is heading as opposed to the direction that ours is heading. Ours is shackled by political gridlock. Theirs is racing toward the future.

A fundamental issue exists that President Obama in his second term must address: energy. Economies run on it and the all-out-all-of-the-above approach treated like a badminton birdie during the campaign is taken seriously in Beijing.

Here’s what I mean: The growth in biofuels has reduced the level of fossil fuels consumed in the United States, and that has reduced this country’s dependence on foreign sources of energy. In fact, between 2020 and 2025, North America will likely achieve oil independence – no net oil imports – due to the surge in domestic oil and gas production. In fact, the U.S. may even catch Saudi Arabia in crude production by then.

Suddenly energy independence is a near-term reality instead of lofty rhetoric glossed over in a State of the Union address. But that begs the question: With all these domestic crude resources, what happens to biofuels?

Try this: In 2025, U.S. ethanol consumption is projected to reach about 15 billion gallons, or about 13 percent by volume of all gasoline used. Nearly all will come from corn. Sounds like a lot, but the goal, spelled out in the government’s Renewable Fuel Standard program, is 36 billion gallons by 2022. Three years after the deadline, this country will still be less than halfway there.

Why? There’s nowhere for excess corn ethanol to be blended domestically. There are only so many cars in this country, they burn only so much gasoline and that gasoline is limited, for the most part, to an ethanol content of 10 percent by volume (commonly known as E10).

Meeting the federal mandate would require a much higher ethanol blend. The average blend would need to be E25 or E30 to satisfy federal requirements. Not likely to happen. Compounding the issue is the slow progress in commercializing advanced ethanol from non-food sources. Not that there would be any place to blend it in the gasoline pool if there were.

We need course correction, big time. We need a direction and a plan – and neither party has put together anything credible. The necessity for regulatory certainty for the industries involved and for us as consumers cannot be emphasized enough.

The presidential campaigns had a knack for reducing important issues to mindless mnemonic devices. Energy became “drill, baby, drill”; education reform, “skill, baby, skill”; opening new markets for U.S. goods, “shill, baby, shill.” Those on stage at the presidential debates uttered over 53,000 words – only three were “biofuels.”

Meantime, China has been pursuing its own all-out-all-of-the-above strategy and is focused on developing new crude sources, renewable energies and advanced biofuels. Our failure to choose a direction in the next four years means surrendering to the political gridlock that binds us now. It will only lead to a collective sigh of “W? mílù le.”

That’s “I’m lost” in Mandarin, by the way.

Klein is Assistant Vice President of Houston-based Hart Energy, a leading information and data provider to the global energy industry, and head of its downstream research and consulting division.