Opinion

The Great Debate

The architecture of abundance: Building energy infrastructure

By Fred Upton
July 25, 2013

For the past 40 years, energy policymakers in Washington worried about a seemingly intractable menace: managing the risks of scarce fossil fuels.

Energy supply issues have been nettlesome at least since the Nixon administration, often producing long gasoline lines, sluggish economic growth, dependence on unstable foreign regimes and even backlash at the ballot box. Most policy solutions — including government subsidies, exotic fuel mandates, even restructuring the Department of Energy — were all oriented around this scarcity paradigm.

That was then. Today, technological innovations like horizontal drilling, better seismic imaging and hydraulic fracturing have done what new laws and regulations never could. We now produce massive amounts of North American energy that will lower prices for consumers, create a domestic manufacturing renaissance and even influence geopolitical alignments.

Policymakers in the 1970s and ‘80s never envisioned “tight oil” or “shale gas.” Colossal energy reserves in places like Bakken in North Dakota, the Niobrara in Colorado, the Eagle-Ford in Texas, the Marcellus in Pennsylvania and the Utica in Ohio were unthinkable 10 years ago.  Conventional wisdom insisted we were running out of oil and natural gas.

But energy scarcity was yesterday’s conundrum. Today, we face a new challenge: How to overcome government-imposed roadblocks to building the infrastructure and unleashing the innovation necessary to harness our new energy abundance.

Washington increased regulations during the 1970s and 1980s, when policymakers assumed energy supplies had peaked. Congress either created or greatly expanded the Clean Water Act, the Endangered Species Act, the National Environmental Policy Act and the Clean Air Act — to name a few. These statutes — while helping to institute critical environmental protections — also ushered in myriad complex rules and bureaucracies, and the accompanying permit requirements that now make building energy infrastructure so challenging. These laws also boosted the supply of environmental special interest groups by creating new opportunities to litigate and challenge infrastructure development.

As energy production grows across the United States, building the infrastructure to move these supplies to consumers is emerging as the real challenge of the 21st century.

The House Energy and Commerce Committee, where I serve as chairman, is now addressing this issue. We are developing legislation to expedite the new architecture of abundance.

Modernizing the process for the Federal Energy Regulatory Commission (FERC) to approve new or repurposed natural gas pipelines is a key component of this new architecture. Pipelines are a safe, efficient way to transport energy resources, and increased pipeline capacity is needed for our growing energy supplies to consumers and markets.

But bureaucratic red tape and special interest lawsuits often delay, or even kill, promising projects. We will put FERC on a shot clock, giving potential builders and investors a chance for quicker approval, producing jobs and lowering energy costs to consumers while preserving environmental protections from underlying statutes.

We also seek to modernize the nation’s electric transmission infrastructure, improving the process for siting and constructing new transmission lines. In doing so, we will respect the rights of states to police what crosses their borders.

The Keystone Pipeline debacle reveals that we must also rationalize the trans-border approval process. Other proposed international projects to increase North American energy independence should not face a similar fate. The maze of opportunities to delay the permitting process, and politicize it through studies and lawsuits, is unacceptable. It also endangers our relationship with our closest ally, Canada.

We need to encourage investment in U.S. energy infrastructure by implementing a transparent, modern and standardized permitting process for all energy projects that cross U.S. borders and bring certainty for modifications and changes in ownership to existing projects.

We must also continue robust oversight of the approval process for building liquefied natural gas and coal export terminals. By making it easier for the nation to use these abundant resources — as a source of domestic innovation as well as a strategic tool of diplomacy and geopolitical stability — will help create jobs, spur investments and improve our balance of trade.

We should reduce regulatory burdens for private sector risk-takers if they modify transportation vehicles — whether barges, locomotives or other large fleets — to run on natural gas, or other cleaner technologies. Despite the major benefits to the environment, many industries fear more stringent future regulations. Companies should have simpler processes as a reward for forward-thinking energy use, not face expensive risk because of complex regulations.

Today, we confront different perils than policymakers in the disco era. The need to manage energy policy centrally, as if we lived in an era of scarcity, has crumbled like the Berlin Wall.

Instead of holding on to outmoded laws and regulations, we need to build the new Architecture of Abundance to create jobs; power our economy, and lower prices to consumers.

 PHOTO (Top): A Chesapeake Energy Corp. worker walks past stacks of drill pipe needed to tap oil and gas trapped deeply in rock like shale at a drilling site on the Eagle Ford shale near Crystal City, Texas, June 6, 2011. REUTERS/Anna Drive

Comments
12 comments so far | RSS Comments RSS

The is a continuation of the failed energy policies of George W. Bush.

Crude oil prices have quintupled since the nineties. Global oil production peaked in 2006. The “new” tight oil was there in the “disco era”, but it was too expensive to drill. They are drilling now because cheap oil is running out.

The regulations in place are their for a reason — to protect the environment. They should stay.

America has been bleeding cash for decades on the feel-good myth that we have plenty of oil. In the real world, even Texas was a net oil importer for years.

We are still a major oil importer. US production doesn’t even cover half of demand. We will never get back to the production levels of the sixties.

American demand for oil is falling as consumers react to high prices. The government should work to ease the pain of permanently high oil prices. Cheap oil in North Dakota is a fantasy.

Nice to see a picture of Chesapeake! The company’s shares have collapsed. It dumped its CEO and more than $10bn of assets because its drilling costs are wildly out of control. So much for “cheap”.

Posted by BFinuc | Report as abusive
 

The idea espoused in this article that oil exploration will benefit America due to lower prices is hogwash. Oil prices are set on an international level. Increased production will not drop prices here at home, though under a local economic model it should. Viva globalization!

Posted by pragmatist7 | Report as abusive
 

Nonsense. The main roadblock to new natural gas pipelines is capital. I know of no major natural gas pipelines currently hung up on NEPA issues. I know of several where investors have pulled out because of low natural gas prices (over-abundance of gas production in the U.S.), which results in an inability for gas companies to pay a premium on delivery of their product. We have natural gas piped to nearly every home and office building and store in America. The infrastructure is in place. Infrastructure is not the dogging agent. There is currently a surplus of natural gas in America. Over-abundance = low price = low investment incentive for peripherals. Doy.

Posted by AlkalineState | Report as abusive
 

@alkaline The major roadblock to natural gas development is demand, as the flat growth of the economy for the past five years has reduced the need to produce (and thus depressed prices due to oversupply.) Increased economic, and in particular “industrial”, activity will provide the year-round demand to fund the delivery infrastructure. Residential demand is very seasonal, and as you mentioned, the infrastructure is already in place.

E.g. in Western Colorado your breakeven price is $5.50/MCF, about $2.00/MCF below the current market price. At current prices there is little motivation to drill new wells.

The only other alternative is to export the BTU’s as LNG–which literally takes years to navigate the federal approval process. NB: there are two major facilities on the coasts originally built as import facilities, that have petitioned to convert from export facilities. Should that happen, you will see massive investments in the infrastructure to move natural gas from the producing areas to the export facilities.

Posted by COindependent | Report as abusive
 

COIndependent, I think we’re roughly on the same page here. Gas price is the driver for gas pipelines. The good Congressman who wrote this article is still caught up blaming environmentalist boogey men for his imagined problem of no new natural gas pipelines (There have been LOTS of new natural gas pipelines). While it’s fun to blame fake enemies, it leads to misguided policy. The congressman should be focusing on ways to incentivize natural gas exports and vehicles.

Posted by AlkalineState | Report as abusive
 

The technologies now employed to frack us have been around for decades. They were developed back in the seventies. They are now implemented because the prices on energy are high (average price of a barrel of oil is about $100). So, this idea that things are getting better because we now have the technology is a false statement. The correct way to view it is that now that prices are high we can use these more expensive means to produce energy. By the way, if we were to develop these new sources to their fullest, we would still need to import oil from foreign sources. The billions and billions of barrels of oil laying under the ground of Bakken and other sources are not enough to satisfy our demand. But hey, the oil companies will continue to make lots of money and we can still have our oil wars and we can still suck the pungent aroma of nitrogen oxides, carbon monoxide, and unburned hydrocarbons into our lungs like a perfume (and there is more truth in that than you might believe since most perfume components are simply oil derived hydrocarbons). Best of all, we can blame the high price on the environmentalists, and the average moron will buy that like a double whopper with cheese.

Posted by brotherkenny4 | Report as abusive
 

“as if we lived in an era of scarcity”

Mr.Upton, this is your introduction to economics professor. Please review the concept of “scarcity” in your textbook (page 1) prior to your next attempt at sounding knowledgeable about energy supply issues.

Posted by changeling | Report as abusive
 

The congressman is conspicuously silent on the issue of eminent domain and pipelines. Should a private company, who gets to pocket the proceeds from the pipeline, get to claim “public good” for their private business, and cut through your property? If your argument is, “well, we all need energy,” then you’re essentially arguing that we should just nationalize the supply. No? Public good?

Conversely, ‘we all need shelter.’ Doesn’t mean you let people build on your lawn for what the government calculates as ‘fair market value’ for the acreage displaced. So Congressman, you brought up the subject of energy infrastructure. And presumably you do read your own blog. What is your position on using eminent domain for private pipelines?

Posted by AlkalineState | Report as abusive
 

“We now produce massive amounts of North American energy that will lower prices for consumers, create a domestic manufacturing renaissance and even influence geopolitical alignments.” Sounds wonderful! And disingenuous.

“Instead of holding on to outmoded laws and regulations, we need to build the new Architecture of Abundance to create jobs; power our economy, and lower prices to consumers.” Yep, that’s what we NEED to do. But “WE” won’t. I would never have said this in my younger days, when I was a believer in free market capitalism, but here I go…

Citizens become taxpayers only when they have jobs and can get to them and back. Resulting earnings are then taxed. The very viability of some small businesses hangs on the price of fuel at the pump. “We, the people” are being raped at the gas pump even during “abundance” due to forces beyond our control with no end in sight.

I therefore propose that some of the energy in the form of natural gas, methane, propane, gasoline or diesel have a “special” tier that is distributed substantially at “cost”. This “tier” would include all such fuel as is sold to consumers (that cannot deduct such purchase on their taxes), and all such fuel sold for the direct production of income, such as delivery trucks, couriers, truckers, taxis, ships and the production of electricity.

This tier of “low cost fuel” would stimulate American economic activity, and I would point out that many nation-states have found such subsidies necessary to the viability of their very economies. The rate at which states in the U.S. can tax such fuel should be standardized and regulated in the economic “public interest”.

Lower fuel costs should mandate lower consumer electricity kw charges. Surcharges could then be mandated to fund modernization and upgrading of related generating and distribution infrastructure. Grids could be better interconnected, not for profit, but reliability in emergency and inter-region flexibility in the “public interest”..

Any lowering of “business costs” of large companies will reduce associated “business deductions. If their CPAs are constrained in relocating these saving under another “shell in the game” there will result greater “net profit” to be taxed. Nobody promises “easy”, but this can be a “win-win” of immense effect.

Other energy such as remains for refining or export would be marked up and sold in the same manner as today at “market” pricing. This should assure that American consumers are not pushed aside by “shareholder interests” that export all they can to fatten corporate dividends.

Such assets belong in SOME part collectively to The citizens of this country have NO voice today in what is done or “rights” to a portion of the “spoils”. The “bounty of the country” should not belong, by default, to the “investor class” to the exclusion of everyone else.

Those citizens owning subsurface rights should be able to join collective negotiation of access without being taken advantage of by large companies’ “divide and conquer” tactics or wholesale abrogation of contractual responsibilities as municipalities and states can with taxpayer-funded legal power.

In short, let’s demand Congress MANDATE that this “new age” of American energy actually benefits ALL Americans, and not just international energy speculators.

Posted by OneOfTheSheep | Report as abusive
 

OneOfTheSheep, I agree the price distortions on gas at the pump are mysterious at best. It is a highly manipulated market tied loosely crude to oil price, but very loosely.

One of the most interesting things about oil and natural gas in America is that the public already owns most of what is in the ground (federal minerals). Rather than retain ownership and contract with companies for extraction and delivery of the oil and gas, the government ‘leases’ a piece of ground to a company for about a dollar an acre and gives the oil and gas away with it. Then the public has to buy this back at a very high mark-up. It’s the craziest money-losing scheme out there for the public. And it never gets talked about in Congress.

Posted by AlkalineState | Report as abusive
 

The Chairman obviously works for the energy companies. What a load of crap! I’m surprised OOTS! Great opinion for such a capitalist.

Posted by tmc | Report as abusive
 

@tmc,

You and I are not always speaking “across the fence”.

Only a fool believes they are right 100% of the time. I remain utterly convinced that capital economic activity is what makes possible all improvements in quality of life.

That said, however, my idea of common sense compromise is in keeping with those who say with regards to the stock market: “You can make money as a Bull and you can make money as a Bear, but no one ever makes money in the long run that is a hog.”

It becomes less and less a matter of what can be done, but of what SHOULD be done to increase the size of the “economic pie” being divided. If the actions of the government or others “in charge” of economic decisions get too greedy they adversely affect the economic well being of the country. Those on top wind up with more and more of less and less. They didn’t get where they are by being stupid.

Posted by OneOfTheSheep | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •