There was a certain surreal disconnect in the State Of The Union address last night. President Obama set the stage early on: “At this moment — with a growing economy, shrinking deficits, bustling industry, and booming energy production — we have risen from recession freer to write our own future than any other nation on Earth.”
In terms of the economics and geopolitics of energy, the president was quite right that this moment in history is quite unlike anything in the past four decades.
But how exactly did it happen?
Energy was a big part of the story. In the past half-dozen years, domestic oil production grew 50 percent, making the United States the world’s fastest growing and now largest producer of hydrocarbon liquids.
If it were not for the $300 billion or so the oil and gas sector adds to the U.S. GDP each year, along with more than two million new jobs across the ecosystem, the nation’s economic growth would have been far slower, if not negative over most of Obama’s tenure.
Thousands of American shale businesses created the “booming energy production” that the president touted. They did so on private land, with private capital. Meanwhile, on land the federal government controls (more than half of America), regulatory constraints and heel-dragging have caused a production decline.
And all that “bustling” in American industry? The majority came mainly from the hundreds of billions of dollars the private sector invested in the infrastructure and manufacturing needed to supply and support that boom. And it came from $120 billion in private capital committed to building or expanding 200 new manufacturing plants to take advantage of abundant cheap energy.
Then there’s the “radically shrinking deficits.” Those were hugely helped by tax revenues from all that expansion in capital and jobs, as well as the nearly one trillion cumulative dollars added to the economy over the past seven years from the shale boom.
But now it’s like the dog that caught the car. What does one do with so much production that no pundit or president could have predicted?
All that new output has (temporarily) over-supplied world markets, and oil prices have predictably collapsed. And now many shale businesses and entrepreneurs are pulling back in the face of the huge drop in oil prices in play.
The “moment” alluded to in the State of the Union would have been an ideal time for the White House to be creative about helping, not impeding, the oil and gas industry. It would have been a good time to propose that Congress repeal the ancient legislation that makes it illegal for American oil companies to sell their product to other nations, while they have to live with prices set by world markets.
But petroleum isolationists believe that — unlike, say, wheat, tires, minerals, microprocessors, or just about any other American good — crude oil shouldn’t be exported. This ignores long-standing international trade conventions, violates the 1994 General Agreement on Tariffs and Trade, disregards the rights of American businesses, fails on basic economic principles – and just isn’t fair.
Allowing exports is no special favor to “big oil.” It’s the small and mid-sized oil firms in dozens of states that are collectively responsible for 75 percent of all domestic production.
So what should Congress do?
First, approve Keystone XL. Symbols matter, both for domestic businesses and the thousands of Americans that would be employed, and for Canada, our greatest trade and geopolitical ally. (It’s worth noting that Canada’s friendly heavy oil via Keystone would replace not-so-friendly Venezuelan heavy oil flowing into those same U.S. refineries.)
Second, take the advice of Senator Lisa Murkowski, who, having issued her own economic “endangerment finding” regarding the EPA, wants to rein in that agency’s over-reach. The EPA is currently ‘studying’ the shale boom and cooking up another rat’s nest of unneeded new rules, even though the states have been doing a fine job regulating this sector for ages. One could not imagine a worse time to assault such a great American industry.
Third, allow America’s fecund shale businesses to compete and sell in world markets, including and especially to our European allies, who remain over-dependent on the Middle East, creating economic benefits at home while easing tensions abroad.
It is precisely the right moment for these three simple steps.
Mark P. Mills is a senior fellow at the Manhattan Institute and author of Prime The Pump: The Case For Repealing America’s Oil Export Ban.