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INSIDE VIEW '13: Right policies can achieve US energy independence

ICIS News : 7-Jan-13 22:12


By Charles T Drevna
President
AFPM, American Fuel & Petrochemical Manufacturers

Editorís note: US chemical industry association leaders were given the opportunity to express their views on the challenges and opportunities for 2013.

Destiny, as the saying goes, is a matter of choice rather than a matter of chance.

Forty years after the 1973 oil crisis exposed the nationís vulnerability to the impulses of foreign political powers and despite more recent erroneous concerns that we would deplete our domestic oil supply, the US is poised to become a world energy superpower.

Beyond domestic energy independence, which will bolster both economic prosperity and national security, the US has the capability of becoming a major exporter of oil and natural gas and subsequently to tilt the balance of trade and the global geopolitical environment in our favour.

All possible, but only if President Obama chooses to abandon his war on fossil fuels and to embrace the use and manufacturing of our abundant, yet untapped, supply of oil and natural gas resources, including those located on federal lands. 

During his first term, the president wrongly chose to placate his environmental activist base by putting their agenda before the needs of the country. But today the world looks quite different than when he first took office.

When he expressed support during the election for an ďall-of-the-aboveĒ energy strategy, the president may have tipped his hand to the direction he intends to pursue.

If serious, his second-term energy agenda must look to reduce the burden of complex and, in some cases, conflicting regulations on our nationís fuel and petrochemical manufacturers that impose high costs on our economy with little to no benefit. 

It should also include more robust exploration and production of oil and natural gas beyond what, to date, has been largely concentrated on private lands.

At his first major news conference following the election, President Obama said that he would not ignore jobs and growth simply to address climate change.

I am therefore cautiously optimistic that with his last election behind him, we will see a more pragmatic president, one that recognises the importance of oil and natural gas and the industryís impact on the nationís stability.

The AFPM will continue to support policies that enhance the ability of the US to develop its domestic oil and natural gas resources, and for companies to take advantage of these resources to attract new investment in US manufacturing.

The AFPM recognised that fuel and petrochemical manufacturers are capable of reversing a 20-year-plus trend of jobs outsourced to other countries, which is why we are partnering with Carnegie Mellon University to launch a Manufacturing Renaissance Series beginning in January 2013.

Together we will bring to the table a diverse group of stakeholders including academia, industry, labour, lawmakers and opinion leaders to develop a playbook on how to revitalise Americaís manufacturing sector and, with it, generate the kinds of jobs the president should care about.

Fossil fuels production creates well-paying jobs that are paving the way towards economic recovery.

In 2011, oil and natural gas extraction alone added 150,000 jobs, primarily in small-town America, part of a 25% increase since 2008, and more than any other sector.

President Obama could almost instantaneously add another 20,000 jobs just by approving the Keystone XL pipeline to transmit crude from Canadian oil sands to Texas refineries, and over the course of construction, inject more than $20bn (Ä15bn) in new spending to the benefit of all Americans.

Keystone is the first test of the presidentís ďall-of-the-aboveĒ energy strategy, and with 79% of Americans supporting construction of the pipeline, itís an easy choice.

The second test is whether the president would support repeal of the fantastical renewable fuel standards (RFS) rather than acquiesce to the unrealistic demands of the ethanol industry.

At a minimum, the RFS has to be reformed to reflect a more balanced set of regulations based on science and not politics.

That the Environmental Protection Agency (EPA) will miss, by a significant amount of time, its November deadline to set volume levels for each of four RFS mandates as required by the Energy Independence and Security Act (EISA) could be an indicator that the administration intends to move slowly. 

The RFS created many significant issues, but none more problematic than the mandate to blend cellulosic biofuels, or what many refer to as ďphantomĒ fuels.

Cellulosic biofuels didnít exist when Congress enacted the mandate in 2007, and five years later cellulosic biofuels still arenít available in commercial quantities.

But the EPA wonít allow reality to get in the way of ideology, and while it lowered the amount of cellulosic biofuel it requires, the agency still mandates the use of a significant amount of fuel that just simply doesnít exist in the marketplace.

As a result, this EPA programme increases the cost of fuel production, as refiners are forced to pay fines to the EPA for each unavailable gallon.

The EPA has the authority to fix this problem and we hope it will lower the EISA value of 1.0 bn gal (3.8bn litres) for 2013 to a level of production that is realistic. 

In two separate cases, the DC Circuit will hear the AFPMís challenges to the cellulosic and biomass-based diesel mandates under the RFS. 

In the case of cellulosic fuels, the AFPM is challenging the EPAís decision to force refiners to blend fuel that does not exist in commercial quantities or pay a fine to EPA. 

The AFPM separately challenged the EPAís discretionary decision to mandate even greater quantities of expensive biomass-based diesel than required by Congress under the RFS, despite rampant fraud in the biodiesel market. Such policy only works to disadvantage consumers.

The EPA should, in the new year, reconsider its decision to allow the sale of gasoline blended with up to 15% ethanol (E15) in light of numerous studies and a warning from the AAA that E15 has been shown to damage a significant number of vehicles currently on the road, but Iím not optimistic.

Like many EPA decisions, this one is in the courts and the DC Circuit soon will issue a decision on the AFPMís petition for a rehearing of the EPAís E15 waiver decision.

The RFS, left unchecked, will continue to cause unnecessary and costly burdens to consumers and will ultimately have a chilling effect on the economy, which is why Congress will likely begin to examine the issue in the spring.

I anticipate that the administration will continue to release rules aimed at the refining and petrochemical sectors.

In particular, new Tier 3 gasoline and ozone NAAQS requirements are expected to be released, in addition to new greenhouse gas regulations aimed specifically at refiners.

I expect that Congress will exercise its oversight authority to review the costs and benefits associated with these proposals, and to examine regulatory reform proposals. 

Assuming that the president and Congress avert the consequences of automatic spending cuts and tax increases, I think that Congress will take a fresh look at a larger comprehensive tax reform package in 2013.

The AFPM will support proposals that promote growth and keep US companies competitive globally, while opposing proposals that seek to levy punitive and discriminatory taxes on the refining and petrochemical industries.

Expanded growth is possible, but only if the administration rejects the urge to pursue an energy policy rooted in the blind belief that onerous mandates and regulations can transition our nation from fossil fuels to significantly higher cost alternatives without any impact on our economy.

A recent report by the National Intelligence Council predicts that Chinaís economy will likely surpass the US in under two decades.

Decisions made in the next four years could alter that outcome if President Obama commits the country to not only domestic energy independence, but to the longer-term, yet achievable goal of becoming an energy superpower through petroleum and natural gas exports.

Destiny is in his hands and the choice couldnít be clearer.

($1 = Ä0.76) 



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