As Ian Urbina reported:

The agency estimated that there are 482 trillion cubic feet of shale gas in the United States, down from the 2011 estimate of 827 trillion cubic feet — a drop of more than 40 percent. The report also said the Marcellus region, a rock formation under parts of New York, Ohio, Pennsylvania and West Virginia, contained 141 trillion cubic feet of gas. That represents a 66 percent drop from the 410 trillion cubic feet estimate offered in the agency’s last report.

Rather  than hurling accusations about incompetence or malfeasance, Urbina began the piece with a straightforward lead emphasizing the “difficulty and uncertainty in predicting natural gas resources.”  EIA’s history on estimating oil and gas resources includes repeated attempts to get folks to understand that doing those estimates is indeed a highly uncertain exercise — we’re glad to see a reporter educating the public on that front.

The explanation for the downward revision is simple:  “Drilling in the Marcellus accelerated rapidly in 2010 and 2011, so that there is far more information available today than a year ago.” 

Urbina also gets it just right on why an understanding of the resource base matters:

The estimates are important because they underpin policy decisions on energy subsidies and exports. Market analysts look to these estimates in making investment decisions. Historically, they have varied widely based on assumptions about the future of technology, coming regulations on drilling and the long-term price of gas.

The lesson here?  Because estimates vary widely over time, policy-makers must be wary about basing decisions with major implications for fuel use — and usually long-tailed implications — over today’s snapshot of the available resource.

Nonetheless, even these new, lower estimates merely make an incredibly great US energy landscape instead simply really, really great:

The share of natural gas produced by drilling in shale formations is projected to more than double, from 23 percent in 2010 to 49 percent in 2035, the report said. The United States will also become a net exporter of liquefied natural gas by 2016, while natural gas prices are expected to remain low for more than a decade, according to the report.

And that’s still the promise of shale gas, even at the new, lower resource estimates:  low, stable prices for residential and industrial consumers with exports that help our balance of trade.  Oh what a difference a few years can make.  Instead of the clamor to build LNG-importing terminals in the face of volatile and rising domestic prices we saw around 2005, policy-makers in 2012 now have the luxury of weighing the value and extent of an export strategy against the other competing potential uses of this important resource.  That is a much better challenge to have.

The U.S. Census Bureau released its numbers today, revealing a larger trade deficit than analysts expected, stemming mainly from growth in oil imports.  Total import spending for 2011 is expected to rise to $325 billion for 2011, the highest it has reached since 2008. Oil’s contribution to the trade deficit rose to 58 percent on average for the year through November, the highest level on record.

The November increase was the first widening of the deficit in five months. BBC news reports that figures from the Commerce Department show that the overall deficit grew 10.4 percent to $47.8bn, while imports rose 1.3 percent to a record $225.6bn, boosted by demand for oil and foreign cars. Exports fell for the second month in a row, dropping 0.9 percent to $177.8bn, after lower sales of cars and capital goods such as aircraft and machinery. The average price of imported oil rose 3.7 percent from October to $102.50 a barrel.

One of the “upsides” of the financial crisis was decreased oil consumption, which led to a narrowed trade deficit in 2009 and 2010. Although the current deficit remains smaller than 2008 levels, with continued economic recovery greater petroleum imports will likely be needed.  Considering the continued volatility in Iran and Nigeria, a severe or prolonged oil price spike could dramatically worsen the situation in 2012.

We took a look at the same numbers over the past few days and came to strikingly similar conclusions.  According to SAFE calculations, spending on gasoline was approximately 8.2 percent of median household income in 2011.  It was as low as 3.9 percent as recently as 2002.

Looking back over the past decade, it’s clear that household spending on gasoline has been rising in recent years as gasoline prices have increased—the relationship reinforces the notion that spending on gasoline is highly inelastic.  As a result, the increase in gas prices—and gas spending—has acted as a kind of tax, reducing consumers’ spending power and stunting economic growth. 

Rising gas prices have also affected other public policies.  For example, consider the Bush tax cuts.  In 2008, median household spending on gasoline was approximately $2000 dollars more than it was in 2001.  The cumulative impact of changes to the tax code over the same period increased household income by $1,900.  Thus, rising fuels prices acted as a tax increase that fully offset the benefit of tax cuts.  This cycle repeated itself in 2010-2011, when gasoline price increases fully offset the benefits of the payroll tax cut enacted by Congress and the Administration.

Trade Deficit

As oil prices have increased in recent years, the amount of money the United States spends on imported oil has risen sharply as well.  Importantly, this has been true despite a decline in oil import volumes.  Projecting forward, increased domestic oil production coupled with rising vehicle efficiency should result in continued declining import volumes for the United States. But the benefits of this trend as it pertains to the trade deficit could continue to be eroded by rapidly rising oil prices.

Here are some basic data points and a useful chart:

- Net imports of crude oil and petroleum products were as high as 60 percent of total product supplied in 2005.  In 2010, this figure fell below 50 percent and is approximately 46 percent in 2011.

- Increasing exports of refined product have contributed to this change (particularly diesel to EU and Latin America), but declining overall consumption due to the recession has played a more substantial role.

- The figures are also less compelling when looking at crude only.  Net U.S. imports of crude oil (excluding refined products) were 63 percent of supplies in 2010, compared to 66 percent in 2005.

- Even as import volumes have fallen, import expenditures have risen, because oil prices are rising at a much steeper rate.

- Imports of crude oil and products amounted to $386 billion in 2008—55 percent of the total trade deficit.  This figure fell back slightly in 2009 at $205 billion when oil prices crashed after the recession.  However, it rebounded to $265 billion in 2010 and will exceed $300 billion again in 2011.

- Between Jan 2007 and Oct 2011, the U.S. deficit in crude and product totals $1.4 trillion—52 percent of the total trade deficit.  This is more than our deficit with any regional (NAFTA, EU) or bilateral (China) trade partner.

But that’s history, and the annual two-week negotiations over addressing global climate change did end on Sunday with what the WaPo called “a last-minute deal.”  The deal?  An agreement to potentially reach an agreement that would apply something called “an agreed outcome with legal force” to developing nations.  This is arguably an advance on the Kyoto Protocol, which did not require developing nations to commit to reduce their greenhouse gas emissions.   And that’s important because some “developing nations” — namely China and India — are leading the globe in aggregate emissions.  To be fair, their per capita emissions are far lower than developed nations, but that shouldn’t give them a free pass.  The key negotiating issue since the US pointed out the fundamental unworkability of the Kyoto Protocol has been  how to account for developing nations’ exploding emissions without unfairly impeding their economic growth — after all, the developed nations built their economies on cheap fossil fuels and only subsequently has the world (well, most of it) realized that there will be highly negative consequences because of it.

It remains to be seen whether this year’s climate confab really moved the ball on this point.  Host South African foreign Minister Maite Nkoana-Mashabane certainly thinks so, as the WaPo quotes him saying, “We have indeed saved tomorrow today.“  Veteran climate watcher Alden Meyer, of the Union of Concerned Scientists, had a different view, noting failure to achieve agreement on reducing the gap between expected emissions and those most scientists believe are the maximum that the climate can endure without expensive and life-threatening damage:  “There’s nothing [in the agreement] that’s going to get the world to lift its game and close that gap.”

Maybe more important news this weekend came from the Nuclear Regulatory Commission, where dysfunction apparently reigns.  Both the WaPo and the WSJ reported Saturday on four NRC Commissioners, two Democrats and two Republicans, writing to the White House accusing Chairman Greg Jaczko of  ”actions and behaviors [that] are causing serious damage to this institution.”  That quote is from the WSJ, which runs an unfortunate lead sentence (“Four of the five members . . .”) — if you didn’t already know that there are only four commissioners and a chairman, you don’t find that out until the end of the piece, so casual readers may have thought there was a hold-out.  The fact is that all four of these highly respected professionals, Democrat and Republican alike, took the trouble of airing their concerns about the NRC’s leadership to the White House.  House Oversight and Government Reform Committee Chairman Darrell Issa, not the fuming four, released the letter to the media.

The bipartisan nature of the criticism made Senator Harry Reid’s (D-NV) otherwise laudable defense of his former staffer ring a bit hollow.  As reported in the WaPo on Sunday, he called the complaints “a politically motivated witch hunt.”  We’re guessing Senator Reid meant that Chairman Issa was hunting witches, not labelling the letter such.  But since loyalty in Washington is often in short supply, we’ll give him a pass either way.  Not so the NRC as a whole, an organization too critical to our energy future to have it’s oversight confined to the weekend papers.  Oversight hearings, anyone?

Still, as recently as 2005, net energy exports would have been unthinkable, as U.S. net oil imports peaked at 900 million barrels.  The current situation underscores the transformative economic changes which have occurred since.  The Wall Street Journal reports:

“The shift is one of the clearest demonstrations of the diverging fates of the U.S. and emerging market economies. While the U.S. labors under stubbornly high unemployment and sluggish growth, emerging-market economies are growing strongly, bolstering demand for fuel.

U.S. customers have been pulling back in part because an anemic economic recovery has left millions still looking for work. In August, U.S. drivers burned 7.7% less gasoline than four years earlier, when gasoline usage peaked. Production of ethanol made from corn has also ramped up dramatically in recent years, cutting into the need for other fuels.”

Graph taken from the Wall Street Journal

Consequently, we see that the country’s net exporter status is not purely good news, but reflective of poor economic performance and surging demand overseas.  Furthermore, American drivers are not benefitting as they should from cheap gasoline, as “refineries on the Gulf Coast are shipping much of their output to places where demand is strong, keeping prices high.”

The country continues to be the world’s biggest net importer of crude oil, bringing in over nine million barrels every day.  Therefore, reaching net exports does not mean energy independence.  The majority of fuels the nation is exporting are refined petroleum products, as the chart to the left illustrates.

Finally, one of the most important aspects of energy security is stability, which the global oil market lacks.  According to the article,

“To be sure, the balance could shift back relatively quickly. If the U.S. economy were to rebound sharply, domestic need for fuels refined from crude oil could also shoot back up, which could increase crude import demand. In addition, U.S. refineries could lose customers if foreign economies falter, sending the U.S back to being a net importer.”

Let’s hope the U.S. economy does in fact rebound sharply, fueled in part by strong production and diversified energy sources, providing us with the fuel we need for sustained growth.

But an alternative weapon weighing a fraction of that (and costing quite a bit less, too) was unveiled this past week:  the fuel-efficient vehicle of tomorrow.

Several national security hawks, including the well-regarded Military Advisory Board supported by the Center for Naval Analysis, have for years promoted fuel efficiency has a tool to reduce our dependence on foreign oil and thereby enhance our foreign policy flexibility and increase our national security.  As Denning writes, fully implementing the new Obama Administration fuel economy standards — a doubling of mpg in new vehicles by 2025 — would have a nice and neat impact on our imports:

(A)ssuming new vehicles hit the effective 49.6 miles a gallon fuel-efficiency target by 2025 . . . demand for motor fuel would have dropped by 2.6 million barrels a day.

Here’s the kicker:  That just happens to be a bit more than  Iranian oil exports.

Now of course oil is a global commodity and courses through a global marketplace.  But wouldn’t it be nice to know that we could completely shut down Iranian oil exports at no cost to our economy?

People who invest in hybrid cars are significantly less likely to be injured in an accident because their heavy batteries make the vehicles safer than traditional cars.

Ashley Haley’s piece, Hybrid cars found to offer extra safety in crashes, credits the extra battery weight, meaning the benefit should also hold for fully electric vehicles as well.

The average hybrid is 10 percent heavier than a traditional car of the same size, and the extra heft reduces the odds of being hurt in a crash by 25 percent, the report says.

Save money, enhance our nation’s energy security, and be safer — drive an EV!

Which is good news in light of the fact that oil prices touched $100 yesterday.  Here’s the WSJ on why:

The sale of an oil pipeline running from Oklahoma to Texas upended U.S. energy markets Wednesday, sending the price of crude surging above $100 a barrel as America copes with the promise and pitfalls of its new energy boom.

Over the past two years, the U.S. has started producing so much oil that existing pipelines have been unable to move it to refineries. That has led to a glut of oil in the center of the country, keeping the price of American crude far below that of petroleum traded overseas.

The change in direction for the pipeline could also derail the controversial Keystone XL pipeline planned to run from Canada to the Gulf, although TransCanada Corp. said Wednesday it still expected approval of its project.

And it will contribute to already declining U.S. imports of foreign oil. Since they will get more domestic oil from the pipeline, Gulf Coast refineries will have less need to buy oil abroad.

“It’s hard to overestimate the significance” of reversing the pipeline, said Antoine Halff, lead industry economist at the U.S. Energy Information Administration, an arm of the Energy Department.

Oil goes up in price because the future holds promise of slightly reduced dependence on foreign oil?  Just proves the old adage that the markets hate good news.  And this is good news:

“A Seaway reversal will provide capacity to move secure, reliable supply to Texas Gulf Coast refineries, offsetting supplies of imported crude,” Enbridge CEO Patrick D. Daniel said.

On Friday, the release of a new round of White House documents added more details, whosing concerns among senior advisers earlier this year that Solyndra might erupt into a political scandal requiring the replacement of Chu and his agency team.

Well, they were right about that.  Even worse, the piece quotes a former Obama campaign energy adviser, Oregon professor Dan Carol, in a February 2011 email declaring that the Energy Department had suffered a ‘deployment failure’ and urging Obama to ‘make major leadership changes as soon as possible.’ 

The WaPo piled on Sunday with a long Outlook piece by the normally on-target Steven Mufson, entitled Before Solyndra, a history of failures.  This piece details the familiar record of ‘failure’ on the Clinch River Breeder Reactor.  The Synthetic Fuels Coporation.  The hydrogen car.  Clean coal.

That’s actually a pretty cheap shot.  There’s been no failure on either hydrogen cars – fuel cell technology has been developing pretty much on schedule.  Same with clean coal.  DOE’s R&D on that front has been very valuable.  And a list of successes could include the Prius battery, gas turbines, and horizontal drilling techniques.  Solyndra was surely a mistake, but DOE’s R&D record is strong.

The other big energy news is the Administration’s punt on the Keystone XL oil sands pipeline.  Mufson had an important piece in Saturday’s WaPo:  With the Keystone XL pipeline on hold, the giant companies tapping Canada’s oil sands will turn to Plan B – existing pipelines to the United States.

That’s exactly right, and the WaPo made emminent good sense in Sunday’s editorial:  Canada’s oil will come out of the ground, and someone somewhere will refine it and burn it. . . . (T)he world will continue to use oil, with all the dirty realities that entails.  Rejecting Keystone XL would not change that fact.  But it would help China lock up more of the world’s oil production, cost infrastructure jobs in the United States and offend a reliable ally.  More delay after three years of review is insult enough.

Well put, WaPo.

Mitt Romney, the former Governor of Massachusetts who was not at the forum yesterday, has expressed his support for expanded drilling and criticized the federal government for picking “winners and losers,” an opinion shared by Texas Governor Rick Perry and Minnesota Congresswoman  Michelle Bachmann at yesterday’s forum.  All candidates have linked decreasing regulations to ramping up oil production as the key to job and economic growth.  In mid-October, Michelle Bachmann criticized Governor Perry for copying her platform, saying “I want to thank Gov. Perry for endorsing my energy plan, that he’s coming out with today.”  Former Pennsylvania Senator Rick Santorum blasted all energy subsidies, including ethanol (a risky position in Iowa), a stance shared by Texas Congressman Ron Paul.

Former Speaker of the House Newt Gingrich stood alone in defending a government role in renewable energy production, stating “it’s legitimate to have biases for what you want.”  He supports extending longer term wind-energy tax credits on the basis that businesses can make better investment decisions.   Iowa is the country’s second largest producer of wind energy, according to the Iowa Office of Energy Independence.

While many of the candidates are quick to criticize tax credits for wind and solar, they are generally less forthcoming with positions on oil and gas industry subsidies.  Perry has asserted that government subsidies should also end for oil and natural gas.  Jon Huntsman, who was not at the Iowa debate, spoke yesterday about energy issues, pushing to “break oil’s monopoly” through promotion of alternative fuels.  Politico reports that the former Utah governor, although supporting increased domestic fossil fuel production, stated “we cannot simply drill our way to energy security; we also need to use the power of the marketplace.  This means breaking oil’s monopoly as a transportation fuel, and creating a truly level playing field for competing fuels.”  He supports eliminating every subsidy for energy companies, instead utilizing the resources for energy research.  “However,” he said, “we must not confuse pure research with politically driven industrial policy such as we saw with Solyndra.  We must have a level playing field, with the federal government setting fair rules, but investing only in basic research.”

The candidates have been largely silent on the issue of electric vehicles, with the exception of Mitt Romney, who has questioned Department of Energy’s Advanced Technology Vehicles Manufacturing program.  One program recipient, Tesla, reported yesterday that its new Model S sedan, to be built next year, has already sold out.  We await further statements from all candidates about their approach towards harnessing electric vehicles as a strategy for reducing the country’s dangerous dependence on foreign oil.

This is one of those. When the 2009 stimulus was put together, many questioned whether the DOE energy conservation grant program could handle a sudden influx of roughly five times typical annual funding — $2.5 billion not to a grant program “established” by the stimulus, as the WaPo incorrectly reports, but to an existing, kind of sleepy program that really sounds good on paper but didn’t have a track record of massive spending.

Unfortunately, not every state even had a robust program to receive and spend that kind of money, and of course energy efficiency construction and retrofits have to navigate the same myriad of permitting and regulatory obstacles that conventional projects do.

Nonetheless, the DOE was required to shovel the money out the door and state grant recipients were required to spend the funding within a three-year time frame. And the DOE-IG found what everyone else already knew: “a series of permit requirements established by the National Historic Preservation Act and other environmental laws” has slowed the spending. And of course “several states are ill-equipped to quickly review eligible programs.”

No kidding. The truth is it’s amazing that states have managed to spend two-thirds of the money already — yet the report laments that they haven’t been able to spend the remaining 1/3rd. The IG rightly warns that trying to rush spending to meet the deadline might “prompt recipients to spend the funds unwisely or without proper consideration for taxpayer interests.” That’s true, of course, but not the biggest criticism of the approach.

The real lesson here? Good energy investments are not and cannot be short-term stimulus spending. They should be designed to allow our children and grandchildren to live free of the tyranny of our dependence on foreign oil and to lessen the environmental damage caused by fossil fuel consumption. Anything else is missing the point.