Yesterday we posted this article: The latest showdown in the Legislature’s interminable oil tax fight has loomed large in the extended session, with Senate Republicans and a bipartisan group of House members at odds over limiting Big Oil tax credits.  (Click for link)

Today, one of our out-of-state readers reports: “I am still owed money …that was linked to the State paying its ACES rebates.  … not come through nearly 1.5 years after money was spent on exploration … and the behaviour of the relevant Department in processing what should be a simple claim has been shoddy to say the least….

The mere fact that Alaska lawmakers are again seeking higher taxes on investor success is a sign that the 49th state: cannot be trusted, yet, to responsibly manage a volatile, petroleum dependent budget; proudly repels investment; does not hesitate to make continuous investor tax changes; would rather keep a bloated bureaucracy and entitlement system whole than maintain a stable, fiscally responsible investment climate; and, is still an adolescent government where, sadly, “a deal is still not a deal.”  -dh

Our Commentary: The Donald’s Energy Ideas

By Dave Harbour.  Last week we offered readers a report on Donald Trump’s view of the energy landscape.  We concluded that he had the right idea but needed a few ‘corrections for windage’.

Today, we provide two other similar perspectives: first from our Mid Atlantic Energy Analyst friend (anonymous) and, second, from Politico’s .

  1.  From our Mid Atlantic Energy Analyst friend: On this Memorial Day, we venture for a moment into the morass of political dialogue. Donald Trump has uttered the ultimate phrase that indicates ignorance of the energy markets: “Energy Independence”. This is not to pick on Trump; many more competent politicians than Donald have shouted the phrase in stump speeches. In the case of the current election, neither candidate has shown a degree of intelligence beyond that of a high school graduate on the subject of energy.  However, since Trump brought the subject up, we thought it worthwhile to dust off an editorial we wrote touching on the subject five years ago (See full frame below). It still applies in its entirety today. We did not highlight it, since we wrote it and found it difficult to favor some thoughts over others.  We hope you are having a wonderful Memorial Day.
  2. From Politico’s Andrew Restuccia: Donald Trump outlined an “America first” energy agenda Thursday that includes eliminating a slew of environmental regulations, expanding fossil fuel development, killing the Paris climate deal and ending U.S. reliance on OPEC — with the aim of creating what he called “complete American energy independence.”  /  “This plan will make America wealthy again,” Trump told an audience in North Dakota, an epicenter of the U.S. oil boom, which has been suffering in the past two years from a global plunge in petroleum prices. He said: “It’s a choice between sharing in this great energy wealth or sharing in the poverty promised by Hillary Clinton.”  (Read more)Read more: http://www.politico.com/story/2016/05/donald-trump-energy-drilling-fossil-fuels-223628#ixzz4A9JE5esF
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Today's International Observation From Our Aussie Energy Analyst Friend

Your blogster was traveling in Western China last week and can report that Xinjiang's oil patch is as impressive as the effectiveness of the Great Firewall of China (which managed to block access to pretty much all of the news-sites which this blog relies on).

Some interesting observations from the oil and gas sector in Karamay and Urumqui:

  • A ten pump-truck frac job on a 4 deviated well pad of CBM wells showed how tight the coal formations are here compared to Queensland – and the positive economics of gas in China.
  • No "lock-the-gate" types were to be seen.  The locals would literally not have understood where any such protestors were coming from – the industry generates wealth, jobs, energy, gas is replacing dirty coal, etc – why would you block it??
  • Safety briefings before entering well-sites were handily omitted – rather visitors were treated as common-sensical adults.  (We have long held that 'safety minutes' at every meeting attended by oil companies is neither effective in keeping people safe nor in respecting individual responsibility.  Rather, it is an enormous waste of time and productivity and a legal CYA effort by corporations to protect themselves from lawsuits  -dh )

EIA.  The EIA's weekly report was somewhat mixed, with crude handily down 4.2 mmbbls – but gasoline was up 2 mmbbls (while distillate was down 2 mmbbls).  This weekend (including today's Memorial Day) public holiday is the semi-official start of the US driving season, which should add Clark Griswold style demand pressure to the supply side pressures (from e.g. Canada's wild-fire hit areas) on US inventories.  (Read more)

Much ado about nothing in France?  Intensive French strike action (which appears to be about whether workers have to work 35 hours or 35.1 hours a week and can retire at the age of 50 or one week later) will also be affecting European gasoline inventories.  (Although perhaps it could be said that whilst the US has a traditional driving season, the French have a traditional rioting season, so markets will take this interruption in their stride).  (Read more)

Cost of fracking opposition.  Hundreds of wells will have been fracked in Xinjiang for the same amount of time and effort put into the opposition to the UK's onshore petroleum industry.  (Read more)

From our Mid Atlantic Energy Analyst friend:

ENERGY POLICY: THE UNICORN OF AMERICAN POLITICAL

THOUGHT

This is the classic dilemma of democracy: Too many people benefit from the

status quo, but the status quo is not sustainable. – Robert Samuelson,

Washington Post (2005)

Energy policy is a myth. A coherent, rational long-term approach to balancing our

energy supply/demand has no more chance of appearing before the American

public than a unicorn. The reasons are tied to partisan politics only by degree; they

have much, much more to do with the structure of our society.

American economic growth since World War II has been predicated on abundant

cheap energy, and the lion’s share has come from crude oil, natural gas, and coal.

Periodic threats to the cheap and abundant formula have prompted the political

class to formulate spectacularly expensive programs in the name of “doing

something”. These failures have included price controls (1971), the Synfuels

projects (1948 and 1979), nuclear fusion (numerous dates), ethanol (ongoing),

high-speed rail (the money pit of the future) and a host of other boondoggles. Some

of these have been invoked with mantras of “Manhattan Project” and “man on the

moon”, neglecting the fact that neither of those projects had any notion of

economic practicalities.

Occasionally, Washington has cobbled together an omnibus set of programs, such

as the Energy Policy Act of 2005, mostly dependent on subsidies, meant to make

enough people feel good to put the subject of energy policy to rest for a few years.

Lately, the effort has moved to wind and solar power, without disclosure of the

true costs or the environmental and economic offsets to the supposed benefits.

There are consistent themes to political involvement in energy matters. The

programs waste significant funds, often accomplish the opposite of the intended

effect, and/or crowd out market-based efforts that might have been successful.

Politicians hope that, by appearing committed to cheap energy, it will magically

appear from some manufactured source, providing lasting “energy independence”

several decades in the future. There is always an almost total absence of serious

economic analysis of these projects, and by choosing subsidy “winners”,

government policy stands squarely in the path of efficient, market-accepted

solutions.

There is a clear difference between energy policy and energy programs. Policy is a

set of principles to guide decision-making, in the furtherance of long-term societal

goals. Americans desire seven qualities in their energy sources: 1) Affordability

(cheap); 2) abundance; 3) reliability; 4) purity; 5) universal access; 6)

environmental friendliness; 7) non-disruptive production and supply. With the

“want-it- all-now” attitude of the average American, is it any wonder that we have

never even had a good national discussion on energy policy?

Leaving politics aside, there are numerous structural issues with the size, breadth

and complexity of our American society that prevent a cohesive energy policy

from being anything more than an empty campaign slogan. A separate treatise

could be written on each of the points below (and the list is hardly all-inclusive), in

no particular order:

 Energy policy is a highly complex issue, needing long-range solutions. But

political reality is inconsistent with anything that is either long-range in

scope or involves “solutions” that that require sacrifices by the voting public.

 The crafting of any energy policy immediately comes into conflict with

other governmental priorities, e.g. environment, revenue sources, foreign

policy, entitlements, and ________(fill in your choice).

 Any policy would have to deal with regional priorities, as well as the

entrenched interests of major groups (autos, tourism, labor, etc.). A resulting

compromise would accomplish little, and may work to opposite effect.

 Related to this, allocating the cost of any energy policy among various

groups in our hyper-pluralistic society would defeat the process.

 Energy as a resource has so many inputs and uses that any overall policy

might quickly rival the Internal Revenue Code in complexity and loopholes.

We are already seeing this with programs aimed at automobile CAFÉ

standards and light bulbs. The oil and gas price controls of the 1970s also

bring back ugly memories of centralized policy monitoring in a complex

society.

 Energy is a global issue, on which the US cannot operate in a vacuum. But

trying to operate on a larger scale just expands the number of inputs from the

points above.

 The Federal government has a built-in conflict of interest, since it sees

energy as a source of revenue for its own needs rather than as an input to

production and general well-being.

 We have a complex government system with multiple agencies providing

oversight, many of which would protect their “turf” in any serious (if it ever

happened) discussion of energy policy. Some government units, especially

the Environmental Protection Agency, serve as absolute barriers to the

formulation of a cohesive policy.

The best outcome would be for market forces to find energy solutions and for

government to stay out of it. Of course there would be many bumps in the road,

because the problems are immense, complex and dependent on multiple

successes (and failures) along the way. But at least the emphasis should be on

streamlining the development process, rewarding success, and encouraging

cooperation among various groups.

If only.

Instead, (using the gasoline market as Exhibit A), the political class mandates

the public to have access to cheap gasoline, even as it seeks to cut dependence

on foreign oil sources while simultaneously serving as roadblock to developing

oil resources in own backyard. Adding to the lack of direction, our leadership

curries public approval through glorifying unproven technologies that we are

assured will make our lives much easier (several years after they have left

office).

It is a sad fact that our political leaders have gotten where they are because

they understand the political process, but they know nothing about energy

economics. They apparently believe they can find votes for re-election by

offering “quick fixes”, deflecting blame for high prices to energy providers, and

spending gobs of (borrowed) money on decades-hence solutions for which the

track record of predecessor projects is abysmal. But it costs nothing to

periodically hurl a rallying cry for a national energy policy, because the hurler

knows it will never happen. There is more political capital gained in calling for

change and promoting random programs than in setting energy policy in

motion.

Discerning American voters should reject politicians who use the anti-free

market phrases “energy policy” and “energy independence” (another myth for

another column) in his/her stump speech. This is likely to eliminate ALL your

choices. Maybe that’s a good start.