We need a change of plan.
As President Barack Obama searches for a replacement for Steven Chu, who said last week he would step down as energy secretary, he needs to search for a new energy strategy as well.
After four decades of policies based on a scarcity of energy resources, we need a plan that capitalizes on abundance, that recognizes the tremendous fortuity that increased domestic production represents.
“There’s a tectonic shift in terms of the opportunity,” said Stephen Arbogast, a University of Houston finance professor and former Exxon Mobil executive. Rising domestic production “really is medicine for a lot of ills we’ve struggled with for decades.”
Chu, a Nobel-winning scientist with expertise in renewables, was a secretary for a different era. Much has changed since he took office four years ago.
During his tenure, hydraulic fracturing unleashed a production boom in the U.S. that hit a 17-year high in December and shows little sign of abating.
“The new energy secretary will have an excellent opportunity to achieve balance in the administration’s stated goal of an ‘all-of-the-above’ energy policy,” said Ryan Lance, chief executive of Houston-based ConocoPhillips. “One of the ways is a commitment to giving natural gas and oil technology development its proper place in our nation’s energy options.”
Some key initiatives the new secretary must consider include:
* Shifting toward a more fossil-fuel-centric strategy without losing the progress that’s been made in renewable research. After all, we still will need renewables in the future.
“We’re going to have fossil fuels for the next 50 years,” Dallas billionaire Boone Pickens, an outspoken champion of natural gas, told me.
* Promoting demand for natural gas, the best immediate option for reducing carbon emissions.
* Resisting increased pressure from the industry to repeal regulations. As drilling increases, the government must make sure existing safety and environmental protection rules are followed.
* Allowing the industry to pursue initiatives such as exporting liquefied natural gas and building the Keystone pipeline. Infrastructure improvements may be the key to unlocking the full economic benefits of increased domestic production.
* Striking the right balance between increased production now and renewable development for later to help shield us from future supply shocks.
* Revisiting antiquated programs such as the Bush-era mandate for ethanol production. It was designed to reduce oil dependence, and it’s been rendered ineffective by rising domestic production.
“The next secretary of energy needs Washington experience and credibility – for his or her understanding of the national security implications of energy in the broadest sense, accompanied by a sense of reality and proportion, not to mention thick skin,” said William Arnold, a professor of energy management at Rice University.
None of the 12 energy secretaries since the position was created in 1977 have come from the industry, which probably won’t change. While Arnold said industry insiders such as Anadarko Chairman James Hackett or former Sunoco CEO Lynn Elsenhans should be considered, he also suggested former Houston Mayor Bill White, former Ambassador Carlos Pascual, now a counselor to the secretary of state on energy issues, and Karen Harbert, the former assistant secretary of energy for international affairs who’s now president of the U.S. Chamber of Commerce.
Whoever gets the job inherits a shifting fiscal climate. For the past four years, much of the department’s focus has been using stimulus money to fund research into renewables.
“There’s still general support for R&D, but the dollars are going to be tighter,” said Michael Skelly, president of Houston-based Clean Line Energy Partners, which develops long-haul transmission lines to connect communities with renewable power.
Forecasts often wrong
There’s another characteristic that the new energy secretary must demonstrate: caution. It’s easy to get swept up in the potential of our new energy abundance, to become so enamored of the economic possibilities that we forget how often forecasts are wrong.
The surge in domestic production is undeniable, but there’s also no guarantee it will last. As I’ve written before, the production increases have come from some of the most expensive drilling operations ever, and maintaining that higher production will require billions in new capital every year. We can’t afford to ignore the lessons of the past.
“If there’s anything we should have learned on energy policy in the past 30 years, it’s beware the full pendulum swing,” Arbogast said.
Rather than scrapping all alternative energy research, we can allow the research to continue apace while recognizing its limitations. Think of it as an insurance policy against future shortages.
Regardless of who is picked to run the Energy Department, he or she should build a new strategy that leverages today’s abundance while preparing for the possibility that it won’t last.