Perspective on Obama's Energy Plan

Barack Obama has made clear his membership on the bandwagon of presidents calling for cuts in U.S. oil imports. The club becomes less and less elite every four to eight years, going all the way back to Jimmy Carter. So is the president's speech yet another shot at something that is just an illusion, or is it something solid this time?

An ambitious plan
Obama has long called for a one-third reduction in oil imports by 2025. President Nixon started the call for a reduction in imports back in the early '70s. Since then, almost every president has had issues with U.S. dependence on oil from foreign supplies.

Obama has a set of energy proposals already in place and reiterated them in his speech to university students Wednesday: boost domestic oil production, develop bio-fuels, and make vehicles more energy efficient. The proposal that caught my attention was the one to increase domestic oil production. Until the larger oil problem is solved, that is the only practical solution to reducing dependence on Middle East and other foreign supplies.

How are we placed in this aspect?
Oil imports have actually fallen in recent times. Since 2005, imports have fallen by almost 15%. Domestic production rose in the last two years after two decades of decline.

Domestic production has been spurred by new discoveries of shale deposits throughout the country, especially in the Bakken formation. ExxonMobil (NYSE: XOM  ) , Continental Resources (NYSE: CLR  ) , Denbury Resources (NYSE: DNR  ) , and new players in the shale play -- like Kodiak (NYSE: KOG  ) and Linn Energy (Nasdaq: LINE  ) -- have already lined up to exploit the resources and are well-placed to make huge profits in the long run.

While the presence of oil shale resources has been known for a century, extracting the oil was the problem. However, with significant progress being made in this area in the last five years, these sources and others definitely look appealing. According to the United States Geological Survey, the Bakken Formation in North Dakota and Montana holds up to 4.3 billion barrels of technically recoverable oil, or about 230 days of total U.S. oil consumption. That's huge. Increasing domestic production will hold the biggest key to import cuts.

The Gulf deal
Of course, it would be unfair to ignore the ban on production in the Gulf of Mexico. While shutting down all production due to BP's oil spill was a move in the right general direction, especially if the president is really keen on achieving the long-elusive goal, measures must be taken to restart production sooner or make up for the vast domestic shortfall of production.

With two-thirds of the offshore leases sitting idle -- neither production nor exploration being done -- according to an Interior Department release this week, the potential reserves the government is sitting on is estimated to be more than 11 billion barrels of oil and 50 trillion cubic feet of natural gas. The point is that it's pretty hard to have one's cake and eat it, too.

The talk on efficiency
It is interesting to note that Obama has put considerable emphasis on alternate fuel options and fuel-efficient vehicles. In fact, he had called for a million electric cars on U.S. roads by 2015. The question is: Will this prove sufficient in the long run? How much will energy-efficient cars reduce the need for oil?

The figures indicating demand for hybrid vehicles are not encouraging. Fool contributor Sarosh Nicholas has clearly shown the dismal sales figures of hybrid cars and reasons behind them. Hybrid car sales fell for the third consecutive year, dropping nearly 6% in a year when overall vehicle sales jumped by 11%.

If the president is banking on this technology, companies like Toyota and Honda must ensure that hybrids are as alluring as gas-powered vehicles.

A final takeaway
In all, a lot of hard work must go behind the scenes in order to make this long-standing presidential wish come true. Again, there is no guarantee that global oil prices will fall, as demand from emerging economies like China and India is surging and will continue to do so.

While the president's speech looks like a great way to begin a re-election bid, a lot needs to be put into perspective. After all, many presidents over past decades have tried to wean the U.S. off foreign oil, but it never seems to happen. Let us know what you think in the comments section below.

Isac Simon does not own shares of any of the companies mentioned in this article. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 04, 2011, at 1:52 PM, voelkels wrote:

    Interesting article but the statement “While shutting down all production due to BP's oil spill was a move in the right general direction, . . . “ is untrue. All new drilling not production was shut down in the Gulf and is still not back to normal even in the shallow water (water depths less than 500 feet) areas.

    Also the statement “With two-thirds of the offshore leases sitting idle -- neither production nor exploration being done -- according to an Interior Department release this week, . . .” is being disputed by the American Petroleum Institute. See “Oil industry challenges Gulf leasing complaints” , which was published in “The Times-Picayune” on Sunday and can be read at http://www.nola.com/business/t-p/index.ssf?/base/money-5/130....

    ;-)

    C.J.V. - now if you could convert all that hot air coming out of D.C. into work . . .

  • Report this Comment On April 04, 2011, at 6:34 PM, rickalaskan wrote:

    President Kennedy once said I remember, pay no attention to what we say. Watch what we are doing.

    Obama is giving lip service to increasing oil and gas production, and yet he has not budged on getting the energy to us: note no action on Alaska or the Gulf. He wants the words to be heard and believed so he can get elected, but when it comes to action, we will be waiting quite a while. It will not happen as long as he is in power.

  • Report this Comment On April 05, 2011, at 9:18 AM, jjed88 wrote:

    >> the Bakken Formation in North Dakota and Montana holds up to 4.3 billion barrels of technically recoverable oil, or about 230 days of total U.S. oil consumption.

    Do you mean 230 years instead of days? Just curious.

    Seems Obama's re-election bid is now ramping up. I'm getting the feeling that his new Energy Program proposal is just that....a proposal and Half-hearted at best. Something to use for a sound bit during his campaign. I wish him well but I don't have trust in him. All spin.

  • Report this Comment On April 05, 2011, at 8:03 PM, BEFleming wrote:

    Since President Obama has been in office, there has been considerable lip service paid to developing and implementing a cohesive national energy policy by our federal government. Such discussions may not reflect a lack of interest as much as a lack of being able to produce realistic strategic objectives without political sensitivities attached. Having spent a great deal of time and effort on this issue since 2008, I offer the following objectives for review/critique/criticism to kick the national debate to the next level...before we lose another four years discussing merits and/or challenges versus actual specifics of a national energy policy.

    National Energy Policy Objectives

    - Reduction in domestic crude oil consumption by 50 percent by 2020

    Consumption of crude oil in the United States is reduced 15 percent by the end of 2013, based on a 2008 consumption level of 20.5 million barrels per day (mbpd). Consumption is reduced by five percent each year after 2013 through 2020, for a total reduction of 50 percent from the consumption level in 2008.

    - Increase in capacity of strategic petroleum reserve (SPR) to 1.5 billion barrels of West Texas Intermediate (WTI) grade and Outer Continental Shelf (OCS) light sweet grade crude oil by 2025

    Resume pumping 70,000 barrels per day of light crude oil from offshore platforms in the Gulf of Mexico into four SPR sites currently available, and begin pumping a minimum of 60,000 barrels per day into an expanded SPR from oil obtained from other domestic sources, including Outer Continental Shelf (OCS) production beginning in late 2017. Development of oil reserves in the Arctic National Wildlife Refuge (ANWR) is supported if proven oil reserves are of sufficient quantity to justify cost of exploration and production as well as potential disruption of natural wildlife habitats.

    Significantly increase the capacity of the domestic Strategic Petroleum Reserve (SPR) to 1.5 billion barrels of crude oil by locating and preparing additional underground storage facilities in the South and Midwest. Additional SPR storage capacity would be developed and available no later than 2014.

    - Reduction of global food shortages caused by indiscriminant diversion of agricultural output to produce biofuels by 2015

    Group of Twenty (G20) industrialized nations convenes a global food production summit to focus further on two key topics of the High-Level Conference on World Food Security held in Rome in June 2008. Summit agenda includes a critical evaluation of protective export bans and tariffs in place among key food producers and regional impact of consumable grains used to produce biofuel.

    - Significant reduction in the deforestation of the Amazon basin and other endangered regions to grow crops for use as biofuel feedstock by 2020

    - Increase in stockpiles of corn- and sugarcane-based ethanol to augment reductions in gasoline production through 2021

    Organization for Economic Cooperation and Development (OECD) member nations, through sponsorship of the United States, actively petition OPEC member nations to increase direct food aid contributions and indirect monetary and humanitarian investment in the Amazon basin and other areas endangered by indiscriminate deforestation identified by the Food and Agricultural Organization (FAO) of the United Nations and the International Food Policy Research Institute (IFPRI).

    - Significant increase in baseload and peak electrical power generation by integrating wind, solar, and geothermal power plants with new or modified coal, nuclear, and hydroelectric power facilities

    - Establishment and enforcement of long-term standards for energy efficiency, greenhouse gas emissions, and carbon capture and storage (CCS) for new and existing coal-fired power plants

    Implement an aggressive domestic energy diversity strategy to rapidly increase baseload and peak electrical power generation capacity through integration of upgraded coal-fired, nuclear, and hydroelectric power plants with wind, solar and geothermal power plants. Transmission system upgrades and new infrastructure installation are key criteria for upgrades or modifications of existing power plants or installation of new renewable and non-renewable fuel power plants.

    - Increase in natural gas supplies for domestic consumption through sequestration and storage of stranded deposits worldwide and from development of unconventional sources

    Develop and implement a full-spectrum strategy for ensuring sufficient supplies of natural gas are available in the next decade for power generation, transportation, residential and industrial use, leveraging a combination of political and economic approaches.

    - Substantial expansion and modernization of the national electrical power switching, transmission and distribution system, and

    - Federal government support and funding provided through 2020 for:

    a) National freight and passenger rail system improvements, and

    interconnection of transcontinental freight rail lines and deep-water

    seaports located on East, West and Gulf coasts

    b) Clean energy and alternative fuel development incentives and tax

    credits

    c) Conventional and alternative fuel efficiency technology initiatives, and

    d) Incentive tax credits (ITCs) and new construction credits for renewable energy projects.

    Establish and maintain sufficient domestic fuel reserves to support a transition from an oil-based economy during the next decade. Multiple petroleum and ethanol fuel sources are required to build sufficient domestic capacity to support automobile and aviation needs, which decline over time but are not eliminated. Ethanol from corn, grain, switchgrass, and biomass feedstock is primarily produced in the Midwest, and sugarcane-based ethanol is produced in Florida and Hawaii and/or imported from Brazil.

  • Report this Comment On April 06, 2011, at 3:16 PM, birge1 wrote:

    perspective is simple: he has no plan, never has, never will.

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