Revisiting Palin

On Sarah Palin as McCain’s choice for VP, I came out immediately and said that it was a mistake. I wrote in part:

Count me among those stunned by McCain’s pick for his VP candidate. It neutralizes the strongest argument he had against Obama: Not enough experience. Never again can he utter these words. Further, I can’t comprehend her as president (and with McCain’s age, I think we would have a fair chance of seeing that happen). I think the job is over her head, and I have witnessed the carnage several times when people step into a job over their heads. Imagine letting a first year medical school student do your heart transplant, and you start to get the picture.

After watching a couple of interviews with her, I think she has validated my claims that the job is over her head, and in my opinion the pick has turned into the disaster I anticipated. The spectacle has become a national joke, and I know people who turned away from McCain as a result. (I also know people who initially embraced the move as brilliant). There are even conservative commentators suggesting Palin step down for the good of the party. I certainly questioned his judgement after the pick, and I questioned it again after his bizarre campaign suspension to deal with a crisis that he had downplayed just a couple of weeks earlier.

Our political process makes me nearly ill. I want a candidate who doesn’t pander (like Obama does with his energy policy) or make decisions that are purely political, but not in the best interest of the country (Palin as VP). Both major parties represent parts of who I am, but they also represent parts that are 180 degrees from who I am. That’s why I often find myself ripping into both parties. That’s also why the Democrats often accuse me of being a Republican and the Republicans often accuse me of being a Democrat. Each side tries to define me on the basis of what I oppose. If I am against Obama’s energy pandering, I am a right-wing conservative. If I criticize McCain’s bizarre behavior of late, I am to the left of Ted Kennedy. (I am in fact very centrist in my politics, but I have areas in which I swing right and areas in which I swing left).

The truth is, I think our current political system is broken. It rewards lobbyists and special interests. The candidate who can most convincingly tell the biggest majority what they want to hear is the one who wins. It shouldn’t be like that.

So, do the Republicans here stand by Palin? Do the Democrats think Obama has given sufficient details on how we would accomplish his objectives? (As regular readers here know, I have some big problems with the energy policies of both candidates, but I think McCain’s takes a more realistic view of our energy situation).

My ASPO Slides are Available

I just learned today that the two presentations I made at this year’s ASPO conference are now available. The slides are pretty self-explanatory, but they only served as background for the talk so people could read through them as I made my points. I intend to write up my notes and post them as time allows.

First up, the slides I presented on the energy information agencies:

The Energy Information Providers

Here is a sample slide from that presentation:

Second was my presentation on biofuels:

Biofuels: Facts and Fallacies

A couple of sample slides from that presentation:

If they make the video available, I will post that link as well.

My ASPO Slides are Available

I just learned today that the two presentations I made at this year’s ASPO conference are now available. The slides are pretty self-explanatory, but they only served as background for the talk so people could read through them as I made my points. I intend to write up my notes and post them as time allows.

First up, the slides I presented on the energy information agencies:

The Energy Information Providers

Here is a sample slide from that presentation:

Second was my presentation on biofuels:

Biofuels: Facts and Fallacies

A couple of sample slides from that presentation:

If they make the video available, I will post that link as well.

Rationing by Running Out

This looks ominous:

Gasoline Inventories at Lowest Levels Since 1967. Source: This Week in Petroleum

Of course we used a lot less gasoline in 1967, so on a ‘days of supply’ basis, this is probably the lowest level ever.

I just got back to Dallas from the ASPO conference, and we are having shortages here as well. My cab driver said he had been to several stations that had no gas, and my wife told me that the Texaco near our house is out of premium.

Someone asked during a panel discussion at ASPO whether we were going to have rationing by price. I answered that we are having that now. But prices aren’t going up nearly as much as you would expect during these sorts of severe shortages. Why? I think it’s a fear that dealers have of being prosecuted for gouging. So, they keep prices where they are, and they simply run out of fuel when the deliveries don’t arrive on time. If they were allowed to raise prices sharply, people would cut back on their driving and supplies would be stretched further. This article explains it nicely, and is well-worth a read:

Instead of raising prices, in an attempt to reduce demand for gasoline, thereby allocating gasoline that was in short supply by means of price, station managers simply let people fill up their tanks until the pumps were empty. Anyone who wanted gasoline after that was out of luck.

This is rationing by lining up. It is the alternative to rationing by price. Rationing by lining up creates no financial incentive for suppliers of the item in short supply to allocate new supplies to the region of the country which is experiencing a shortage. Instead, delivery schedules remain the same as they did prior to the shortage. This continues the shortage.

Whenever there are complaints about price gouging during a period of a shortage, sellers get the message. The next time there is a shortage, they hesitate to raise prices. They shift to the other allocation system: first come, first served. This subsidizes people who have a low value on their time. People who place a high value on their time prefer to pay extra money in order to attain their goals. But this is made illegal by the state. So, the shortage lasts longer than it would otherwise have lasted.

The official goal of the government is to make certain that everyone has access to the item in short supply. The government says that raising prices during a shortage is unfair. So, the result is the opposite of what the government’s official justification was for holding prices down. There is an even greater shortage, because people buy more of the item than they need immediately. They have no incentive to reduce their consumption, thereby making available applies to those who were at the end of the line. There is no incentive for anyone at the front of the line to refrain from filling his gasoline tank. So, gasoline runs out before the line runs out.

Such are the unintended consequences of government intervention. Personally, I would rather at least have the option of paying twice as much for gas than to either wait in line for a long period of time, or have to drive all over town to find some.

I also said last night that I don’t believe we are entering an era of gasoline shortages. I predict that inventories a month from now are higher than they are today. But the recovery will take longer than if prices had risen sharply.

What is the status of the refineries that are down? This story has the details:

EXXON MOBIL

• Baytown refinery, the largest in the U.S., is restarting.

• Beaumont refinery remains offline.

VALERO

• Houston and Texas City refineries should be back to normal in several days.

• Port Arthur refinery remains shut in but should begin the restart process in several days.

SHELL

• Deer Park refinery, third- largest in the Houston- Galveston area, is restarting. Normal operating rates are expected by the weekend.

• The Shell-Motiva joint venture refinery in Port Arthur is still shut in. Power has been restored, and production of gasoline is expected to begin this week.

BP

• Texas City refinery, second- largest in the Houston- Galveston region, has not restarted.

SOURCES: Department of Energy, the companies

I don’t believe any of ConocoPhillips’ refineries are still down, so their branded stations are likely to have supplies. In fact, CNN reports:

A ConocoPhillips (COP) spokesman said the company “is not short crude and our system is generally balanced.”

Finally, I have just returned home after 3 weeks on the road. I have a massive backlog of e-mails to wade through, and if you have sent me an e-mail and I haven’t answered it, please be patient for a couple of days. I am going to limit my time on the computer for a few days.

Rationing by Running Out

This looks ominous:

Gasoline Inventories at Lowest Levels Since 1967. Source: This Week in Petroleum

Of course we used a lot less gasoline in 1967, so on a ‘days of supply’ basis, this is probably the lowest level ever.

I just got back to Dallas from the ASPO conference, and we are having shortages here as well. My cab driver said he had been to several stations that had no gas, and my wife told me that the Texaco near our house is out of premium.

Someone asked during a panel discussion at ASPO whether we were going to have rationing by price. I answered that we are having that now. But prices aren’t going up nearly as much as you would expect during these sorts of severe shortages. Why? I think it’s a fear that dealers have of being prosecuted for gouging. So, they keep prices where they are, and they simply run out of fuel when the deliveries don’t arrive on time. If they were allowed to raise prices sharply, people would cut back on their driving and supplies would be stretched further. This article explains it nicely, and is well-worth a read:

Instead of raising prices, in an attempt to reduce demand for gasoline, thereby allocating gasoline that was in short supply by means of price, station managers simply let people fill up their tanks until the pumps were empty. Anyone who wanted gasoline after that was out of luck.

This is rationing by lining up. It is the alternative to rationing by price. Rationing by lining up creates no financial incentive for suppliers of the item in short supply to allocate new supplies to the region of the country which is experiencing a shortage. Instead, delivery schedules remain the same as they did prior to the shortage. This continues the shortage.

Whenever there are complaints about price gouging during a period of a shortage, sellers get the message. The next time there is a shortage, they hesitate to raise prices. They shift to the other allocation system: first come, first served. This subsidizes people who have a low value on their time. People who place a high value on their time prefer to pay extra money in order to attain their goals. But this is made illegal by the state. So, the shortage lasts longer than it would otherwise have lasted.

The official goal of the government is to make certain that everyone has access to the item in short supply. The government says that raising prices during a shortage is unfair. So, the result is the opposite of what the government’s official justification was for holding prices down. There is an even greater shortage, because people buy more of the item than they need immediately. They have no incentive to reduce their consumption, thereby making available applies to those who were at the end of the line. There is no incentive for anyone at the front of the line to refrain from filling his gasoline tank. So, gasoline runs out before the line runs out.

Such are the unintended consequences of government intervention. Personally, I would rather at least have the option of paying twice as much for gas than to either wait in line for a long period of time, or have to drive all over town to find some.

I also said last night that I don’t believe we are entering an era of gasoline shortages. I predict that inventories a month from now are higher than they are today. But the recovery will take longer than if prices had risen sharply.

What is the status of the refineries that are down? This story has the details:

EXXON MOBIL

• Baytown refinery, the largest in the U.S., is restarting.

• Beaumont refinery remains offline.

VALERO

• Houston and Texas City refineries should be back to normal in several days.

• Port Arthur refinery remains shut in but should begin the restart process in several days.

SHELL

• Deer Park refinery, third- largest in the Houston- Galveston area, is restarting. Normal operating rates are expected by the weekend.

• The Shell-Motiva joint venture refinery in Port Arthur is still shut in. Power has been restored, and production of gasoline is expected to begin this week.

BP

• Texas City refinery, second- largest in the Houston- Galveston region, has not restarted.

SOURCES: Department of Energy, the companies

I don’t believe any of ConocoPhillips’ refineries are still down, so their branded stations are likely to have supplies. In fact, CNN reports:

A ConocoPhillips (COP) spokesman said the company “is not short crude and our system is generally balanced.”

Finally, I have just returned home after 3 weeks on the road. I have a massive backlog of e-mails to wade through, and if you have sent me an e-mail and I haven’t answered it, please be patient for a couple of days. I am going to limit my time on the computer for a few days.

Games Politicians Play

In a bid to keep 1st generation biodiesel technology competitive with the more desirable 2nd generation variety, politicians have voted to keep a $1/gal tax credit for biodiesel made from food, but deny the credit for green diesel made from waste fats:

US Senate Bill Kills Tax Credit For Clean-Diesel Project

WASHINGTON -(Dow Jones)- A U.S. Senate vote Tuesday on tax legislation could be the death knell for a partnership between ConocoPhillips (COP) and Tyson Foods Inc. (TSN) that promised to generate as much as $175 million in tax credits annually through the production of cleaner-burning diesel fuel.

Soap makers and producers of biodiesel, a diesel additive made from vegetable oil, joined lobbying forces to help kill the $1 per gallon tax credit for the Tyson-ConocoPhillips venture.

The Senate legislation would renew for one year the $1 per gallon federal tax credit for biodiesel production, but would end it for the kind of renewable diesel made in the ConocoPhillips-Tyson deal. That partnership takes beef tallow, or fat, from Tyson’s food-processing operations and blends it with diesel fuel, using ConocoPhillips existing refinery facilities.

“Without the $1 per gallon credit, it is highly unlikely that this venture could continue,” said Jeff Webster, senior vice president and general manager of Tyson’s renewable-products division.

In addition, unlike other biofuels such as biodiesel or ethanol, the renewable diesel doesn’t use a food-based feedstock. Biofuels have drawn criticism for driving up food prices and contributing to a worldwide food shortage, though economists debate how much of an impact biofuel subsidies have had.

“This is a second-generation technology that uses animal fats instead of food. Why would you want to create an economic situation that shuts that down?” Webster said.

I spoke today during my ASPO presentation about politicians failing us by attempting to choose technology winners. In this case, they are selectively subsidizing one technology over another, and doing so for 1). Special interest reasons; 2). General animosity toward oil companies. I find it especially frustrating that Congress thinks it is a good idea to create disincentives for oil companies to produce alternative energy.

This is another reason I favor higher carbon taxes. You level the playing field for these alternative technologies to compete with each other, instead of trying to skew technology in a specific direction.

For additional background information, I have written several essays in the past on this deal:

The Biodiesel Lobby Cries Foul

Are Subsidies to Oil Companies Ever Justified?

Biodiesel’s Green Diesel Nightmare

Full Disclosure: I do own ConocoPhillips stock.

Goretex in Fuel Cells?

In the category of “You aren’t going to believe this” is a story that was just sent to me by a reader. In a breakthrough being hailed as one of the biggest in 20 years of fuel cell technology, researchers at Monash University have replaced platinum in fuel cells with Goretex:

Monash fuels the next generation of hybrid cars

Monash University scientists have revolutionised the design of fuel cells used in the latest generation of hybrid cars which could make the vehicles more reliable and cheaper to build. The breakthrough, published today in the journal Science, revolves around the design of a fuel cell in which a specially-coated form of popular hi tech outdoor and sporting clothing material Goretex® is the key component.

The team of Monash scientists have designed and tested an air-electrode, where a fine layer – just 0.4 of a micron thick, or about 100 times thinner than a human hair – of highly conductive plastic is deposited on the breathable fabric. The conductive plastic acts as both the fuel cell electrode and catalyst.

Monash University’s Dr Bjorn Winther-Jensen said just as Goretex® had revolutionised the outdoor clothing industry, it could hold similar promise for motorists.

“The same way as waste vapour is drawn out of this material to make hikers more comfortable to less prone to hypothermia, so it is able to ‘breathe’ oxygen into our fuel cell and into contact with the conductive plastic,” Dr Winter-Jensen said.

Monash University’s Professor Doug MacFarlane from the Australian Centre for Electromaterials Science (ACES) said the discovery was probably the most important development in fuel cell technology in the last 20 years.

“The benefits for the motoring industry and for motorists are that the new design removes the need for platinum, which acts as the catalyst and is currently central to the manufacturing process,” Professor MacFarlane said.

“Our reliance on platinum is making the likelihood of using fuel cells in everyday passenger cars, increasingly improbable.

“The cost of the platinum component alone of current fuel cells for a small car with a 100kW electric engine is more than the total cost of an 100kW gasoline engine. Also current annual world production of platinum is only sufficient for about 3 million 100kW vehicles, less than one-twentieth of the current annual global production of vehicles.”

The new design fuel cell has been tested for periods of up to 1500 hours continuously using hydrogen as the fuel source.

Professor Maria Forsyth, Director of ACES at Monash said testing has shown no sign of material degradation or deterioration in performance. The tests also confirmed that oxygen conversion rates are comparable with platinum–catalysed electrodes of the same geometry and found electrodes are not poisoned by carbon monoxide the way platinum is.

“The small amounts of carbon monoxide that are always present in exhausts from petrol engines are a real problem for fuel cells because the platinum catalyst is slowly poisoned, eventually destroying the cell, “Professor Forsyth said.

“The important point to stress is that the team has come up with an alternative fuel cell design that is more economical, more easily sourced, outlasts platinum cells and is just as effective.”

Unbelievable.

Live from ASPO

Me With Jim Kunstler at ASPO 2008

Live from the 2008 ASPO Conference, where I am still running on European time (waking up at 3 a.m. and dead tired by 8 p.m.). The talk of the conference so far is on the proposed $700 billion bailout of the financial services sector, and whether this may be just the tip of the iceberg. This is the same sort of bailout that I think is eventually destined to happen to some of the biofuels sectors that have had mandated expansions. When it becomes clear that they aren’t doing much about our dependence on foreign oil or fossil fuels, support will likely dwindle. But it would be devastating for the Midwest to just let these companies fail en masse, hence there will be a lot of pressure to bail them out.

Yesterday was a light day at the conference, with several sessions running in parallel. I gave a talk on the energy information agencies, which I will write up as an essay as soon as time allows. I have had a chance to meet a lot of people that up to now I only knew by name. I got to have lunch yesterday with Jim Kunstler, author of The Long Emergency, and during the Q&A following my talk someone pointed out that Matt Simmons, author of Twilight in the Desert, was standing at the back of the room. Both of those books really had an impact on me (for several reasons, and not because I accepted all of their conclusions) and it was a pleasure to see them in person.

In energy news, gas prices are beginning to ease off, but there are also a number of reports of gasoline shortages in the south. I expect this situation to improve – not get worse as I have heard a number of people suggest – in the coming week. However, if we have another hurricane in the gulf a week from now, I expect that we will see shortages that haven’t been seen since the early 70’s.

Comments from me will continue to be sporadic until late in the week. At that point, things should start to get back to normal. My talk on biofuels takes place tomorrow. I will try to cover the world of biofuels in 20 minutes. Here is the outline of the talk as I will present it:

Stacking up the contenders

• Ethanol
- Crop-based (corn, sugarcane)
- Cellulosic and Lignocellulosic (gasification)
• Renewable Diesel
- Biodiesel
- Green diesel (hydrocracked, Fischer-Tropsch)
• Miscellaneous
- ‘Renewable petroleum’
- Di-methyl ether
- Butanol
• Contenders with Promise

Can the U.S. emulate Brazil?

• The truth about Brazil
• The truth about the U.S.

Fact or fiction?

• Anything Into Oil
• Algae to biodiesel
• Ethanol for $1/gal

Where Politicians Fail

Solutions

As with the other talk, I will write this one up and present as an essay.

Live from ASPO

Me With Jim Kunstler at ASPO 2008

Live from the 2008 ASPO Conference, where I am still running on European time (waking up at 3 a.m. and dead tired by 8 p.m.). The talk of the conference so far is on the proposed $700 billion bailout of the financial services sector, and whether this may be just the tip of the iceberg. This is the same sort of bailout that I think is eventually destined to happen to some of the biofuels sectors that have had mandated expansions. When it becomes clear that they aren’t doing much about our dependence on foreign oil or fossil fuels, support will likely dwindle. But it would be devastating for the Midwest to just let these companies fail en masse, hence there will be a lot of pressure to bail them out.

Yesterday was a light day at the conference, with several sessions running in parallel. I gave a talk on the energy information agencies, which I will write up as an essay as soon as time allows. I have had a chance to meet a lot of people that up to now I only knew by name. I got to have lunch yesterday with Jim Kunstler, author of The Long Emergency, and during the Q&A following my talk someone pointed out that Matt Simmons, author of Twilight in the Desert, was standing at the back of the room. Both of those books really had an impact on me (for several reasons, and not because I accepted all of their conclusions) and it was a pleasure to see them in person.

In energy news, gas prices are beginning to ease off, but there are also a number of reports of gasoline shortages in the south. I expect this situation to improve – not get worse as I have heard a number of people suggest – in the coming week. However, if we have another hurricane in the gulf a week from now, I expect that we will see shortages that haven’t been seen since the early 70’s.

Comments from me will continue to be sporadic until late in the week. At that point, things should start to get back to normal. My talk on biofuels takes place tomorrow. I will try to cover the world of biofuels in 20 minutes. Here is the outline of the talk as I will present it:

Stacking up the contenders

• Ethanol
- Crop-based (corn, sugarcane)
- Cellulosic and Lignocellulosic (gasification)
• Renewable Diesel
- Biodiesel
- Green diesel (hydrocracked, Fischer-Tropsch)
• Miscellaneous
- ‘Renewable petroleum’
- Di-methyl ether
- Butanol
• Contenders with Promise

Can the U.S. emulate Brazil?

• The truth about Brazil
• The truth about the U.S.

Fact or fiction?

• Anything Into Oil
• Algae to biodiesel
• Ethanol for $1/gal

Where Politicians Fail

Solutions

As with the other talk, I will write this one up and present as an essay.

David O’Reilly Speech on Energy Policy

Still traveling until middle of next week (in London right now, back to Amsterdam tonight, California tomorrow), so limited communications from me until then. Lots going on in the world of energy. Oil has cracked $100 again (and again), which is a major correction in just a couple of months. The House passed a drilling bill, but as Geoff Styles accurately points out (and his detailed look is definitely worth a read), there are some ‘poison pill’ measures that will severely limit the chances that the bill will become law.

In the interim, I was just e-mailed a copy of a speech that Chevron CEO David O’Reilly delivered a couple of days ago on the topic of energy policy. Since I have only skimmed it, I neither endorse nor denounce it. I just thought I would put it out there and let readers have a crack at it.

———————–
“The New Consensus”

David J. O’Reilly

Metropolitan Club, Washington, D.C.

September 17, 2008

Good afternoon.

Thank you Wayne, for your kind introduction.

Before I get started, I want to take a moment to express my concerns for the many people of the Gulf Coast who were affected by hurricanes Gustav and Ike. I’m sure I speak for everyone in the room when I say that our thoughts are with those individuals and communities affected by these devastating storms.

As we meet here today, let me assure you the men and women of Chevron and indeed the entire industry are working hard to restore energy to the impacted areas.

This club has been an important meeting place since it was founded during the Civil War … and Abraham Lincoln was leading the struggle to keep this great country intact.

The club has had many distinguished members.

One can only imagine the conversations that have occurred here … about the reconstruction of our country … about the pathway out of the Great Depression … and about the role America should play in the world …

Ideas that have shaped this country have been tested here. They have solidified into important decisions made just steps away in the White House. Teddy Roosevelt, who was a club member, captured the spirit of this place when he said, “In a moment of decision…. the worst thing you can do is nothing.”

I appreciate your willingness to hear from an out-of-towner in the midst of a Presidential election – an important moment of decision for our entire country.

For me, it’s a bit like speaking to a gathering of play-by-play analysts on the eve of the Super Bowl. What can I tell a room full of political pros about this election that you don’t already know?
I’ll give it a try.

Energy will be an important … vote-determining issue in this election.

Polls show that voters consistently rank gasoline prices as their number two concern, second only to the economy. The two are inextricably linked. High energy prices drive inflation and squeeze family budgets. And the availability of affordable energy is a cornerstone of our prosperity.

Americans are now linking the country’s energy challenges with national security and foreign policy concerns. A poll earlier this year noted that reducing dependence on foreign sources of energy was seen as the top strategy for enhancing national security . . . ahead of improving our intelligence operations!

Public concern over prices hasn’t been this high since the oil shocks of the 1970s.

And with good reason.

The global energy market has been reshaped in ways that are deeply affecting our economy – and those effects are intensifying.

This renewed public concern presents an opportunity.

W. Edwards Deming – one of America’s respected business thinkers – once said: “It is not enough to do your best; you must know what to do, and then do your best.”

The good news is, we know what to do. For over five years, informed observers have seen this situation coming, and offered solutions.

The bad news is … public policy has not kept pace.

Our political system doesn’t deal easily with complex problems requiring long-term solutions.

Our political system moves – and was designed to move – when people demand movement.

And therein lies the opportunity.

Right now, Americans want answers. They want action. They are seeking reliable, affordable and abundant energy – they are seeking energy security.

The worst thing we can do is nothing. We have already lost time. The urgency is clear.

There have been steady, inexorable changes occurring in the global energy system. It is being stressed by growing global demand … and all of us are being affected.

We have reached a moment of decision when it comes to energy policy.

In his new book, Hot, Flat and Crowded, Tom Friedman framed the need for change saying “it will be the biggest single peacetime project humankind will have ever undertaken. Rare is the political leader anywhere in the world who will talk straight about the true size of this challenge.”

This election is an opportunity to make comprehensive and realistic changes to our approach to energy. The time is now for the Presidential candidates to put forward real energy plans … not just campaign slogans.

And, it’s time for a real debate.

The questions I get asked more than any other usually start with the word, “Why?”

“Why are we paying so much to fill up our tanks?

“Why have energy prices risen so far, so fast?

“Why don’t you think oil prices will return to $20 per barrel anytime soon?”

For 20 years, oil traded in a relatively narrow band, fluctuating between $15 and $25 a barrel. Sometimes the price dipped, sometimes it rose. But the effects weren’t overly negative . . . and they had no detrimental effects on the economy.

Quite the opposite, in fact: consistently low energy prices were a major factor in the economic expansions of the 1980s and 1990s.

In the 21st Century, that’s changed. Oil prices have climbed steadily. And the magnitude of the rise has been stunning. Instead of prices in the $20 per barrel range, recently we’ve seen oil prices in the $100 per barrel range.

The answer to the question “why” is a concept I called the “New Energy Equation.” I raised this idea over four years ago here in Washington, and today its implications are more acute than I expected.

There are four reasons that explain why prices have gone up, and why they are likely to remain relatively high.

First is the emergence of a growing middle class around the world which is driving energy demand. There are more than 6 billion people on earth. Everyone in this room is among the so called “Golden Billion,” enjoying a standard of living that many can only dream of.

At the other end of the scale are 2 billion people who have essentially nothing – no electricity, no safe water, living on less than $2/day. In the middle are billions who aspire to our standard of living. The good news is that each year many are beginning to achieve it. But the consequences of this trend are increasing demands for food, goods, services and commodities of all kinds.

Second, geopolitical dynamics continue to put upward pressure on prices. I don’t just mean conflict in the Middle East, although that certainly plays a role.

The situation is far more complicated.

We are seeing a resurgence of “resource nationalism” – the impulse by governments to tightly control domestic resources and exclude foreign investment. As prices increase, these geopolitical dynamics intensify.

Third, new supplies of oil resources are challenging to find and extract. Since we started using oil, most of the easy-to-reach, inexpensive supplies have been used. What’s left is harder to find … more difficult to drill … and more expensive to produce.

And fourth, we have deliberately constrained our own supply by placing limitations on domestic exploration and drilling. In the past 20 years, America’s production has fallen by nearly 4 million barrels of oil a day – this is the equivalent of taking a major oil producing country’s supply off the world market.

And over the same period, U.S. demand grew by more than 4 million barrels per day. Less supply, in a time of rising demand, means higher prices.

Last year global production barely exceeded demand. Spare capacity stood at just over 2 million barrels per day. World oil production barely increased.

Last year, 7 of the top 15 oil producing countries experienced flat to declining production compared to 2006. Among them were Mexico, Venezuela, Norway, and Nigeria.

Although in recent months the supply and demand balance has improved, there are accumulating risks to the supply of reliable, affordable energy in the future.

The fundamentals underlying the global energy market have changed. And they aren’t going to change back.

But there are solutions.

And the necessary actions we must take become apparent when people understand the realities of energy.

Let me provide you with some information about our energy system.

Americans are the largest consumers of energy in the world. And we have benefitted greatly from it. We generate about a quarter of the world’s gross domestic product and consume a quarter of the world’s energy.

We are becoming more efficient in our use of energy. Today, we use half of the energy per unit of GDP compared to 40 years ago.

So where does this energy come from?

Almost 40 percent is oil … about 23 percent each from natural gas and coal … 8 percent is generated from nuclear.

Renewables make up 7 percent … of that hydro power contributes about half.

Less than one half of one percent comes from wind; solar is even smaller than that.

We import about two-thirds of our oil, and 15 percent of our natural gas. All of the rest of our energy – coal, nuclear, renewables – is produced here at home.

Let me dispel one myth. The U.S. is not an energy weakling. Our country is an energy powerhouse.

America is the number 1 producer of nuclear power and ethanol….

We’re the number 2 producer of coal, natural gas and wind power …

And we’re the number 3 producer of oil.

When looking at the energy system from a global perspective … the picture is very similar. Like America, 85 percent of the global economy is powered by oil, natural gas and coal. And by 2030, experts predict we will need 50 percent more.

Now, I want to make one important point … and that point is “scale.” The scale of the global energy system is simply enormous … and destined to get much larger. Today the world consumes, from all energy sources, the equivalent of 10 million barrels of oil each and every hour. That’s about 120,000 gallons per second.

These are key facts about energy. And facts are the antidote to all the myths, half-truths and impossible contradictions, which too often pass for energy “thinking.”

For instance:

We want to decrease our reliance on foreign oil. But we restrict domestic production and call on OPEC to increase its production.

We want less carbon, but are fearful of nuclear power, one of the few scalable sources of energy that generates no carbon.

We want energy companies to invest their profits to provide new supplies, but we threaten to take away those profits through “windfall profit” taxes.

Time and time again, someone tells us that he or she has found the solution to all our problems. Some are purely phony … some are real … but not realistic.

Renewable energy is very real. We need it. It will be an essential part of the future I envision. But it’s not realistic to suppose that it can replace conventional energy in a timeframe that some suggest.

Our energy system has required massive investment over many decades. To supply the daily needs of 300 million people here in the U.S. with new energy sources requires time and money – lots of both! And it’s unrealistic to think major parts of it can be replaced in just a decade.

Now, I believe we will develop and implement new technologies that will move our economy toward a greater reliance on renewables and alternatives. But the development and application of new technology always takes time.

Look at the computer industry. It took about fifty years from the development of the silicon chip before computers were a widespread part of everyday life.

Will energy alternatives take that long? I hope not. But we need to be realistic.

Even with the rapid growth of renewables, experts estimate that over 80 percent of global energy consumed in 2030 will still come from oil, natural gas and coal.

These conventional energy sources will remain indispensible to meeting demand for decades to come, even as we pursue greater contributions from renewable energy.

The flipside to misplaced hope in alternatives is the notion that we can simply drill our way out of the problem.

We can’t. There aren’t enough domestic reserves … and what there are will take time to develop. But more access will help!

We need to get beyond simplistic solutions – slogans, really – and focus on our primary objective – energy security. The reality is that there are no silver bullets, no quick and easy answers.

Massive scale…. long lead times… tight spare capacity … growing demand … these are the realities we face.

There are solutions. And those solutions are not “either/ or,” …

It’s not a choice between “more drilling or more efficiency.”

It’s not a choice between coal or wind.

It’s not a choice between nuclear or solar.

We need it all!

We need greater efficiency and more renewables… we need nuclear and clean coal … we need wind and oil and natural gas.

Our path to energy security cannot rely on just one option – it must pursue many options.

Last year, the National Petroleum Council published a study titled “Facing the Hard Truths about Energy”.

It laid out five essential and urgent steps to achieve energy security Let me go through them:

First, moderate demand by increasing energy efficiency in all sectors of our economy.

Second, expand and diversify all U.S. domestic energy supplies.

Third, strengthen global and U.S. energy security through a renewed commitment to energy trade and investment.

Fourth, enhance science and engineering capabilities to meet these new challenges.

And fifth, address greenhouse gases through a transparent, predictable carbon policy.

Let me say a little bit more about this last point, because I know how much it is discussed today.

One of the largest contributors to greenhouse gas concentrations in the atmosphere is fossil fuels.

There is no doubt that carbon dioxide concentrations in the atmosphere have increased. And although there is uncertainty about the future impacts on climate, most people agree that it’s not a good idea to continue unrestricted hydrocarbon combustion. And I agree.

But how should we reduce emissions in a realistic timeframe given the scale of the energy system and the growing demand?

Once again, many proposals are being discussed.

Some talk about reducing emissions by 20 percent by 2020. It sounds good! 20 by 20! Others talk about reducing emissions by 50, 60 or even 70 percent by 2050.

Even with the best of intentions, it will be challenging. If we were to shutdown the entire global transportation system today – all cars, trucks, buses, trains, planes and ships, we would reduce greenhouse gas emissions by about 15 percent! That’s one-five percent.

And meaningful reductions will be expensive to achieve.

The International Energy Agency predicts that the real costs to meet greenhouse gas reduction targets will be $45 trillion dollars. That’s above and beyond the investments necessary to meet future energy demand. It’s a cost every one of us in this room needs to understand. Not just a cost on business, it is a cost on society. One that you and I will pay.

We are facing a moment of decision when it comes to our energy future.

And the time to act … is now.

I am confident we can take the right steps forward to achieve energy security. And I am not alone in my views.

The American public is now engaged on energy.

We’re embracing energy efficiency. We’re endorsing the need to develop more of our own supplies – renewables and conventional energy. And … we’re striving to use energy in a more environmentally responsible manner.

When you look at this momentum, it’s easy to see the new consensus building in America about energy.

That’s important because we need collaboration to achieve real progress.

Businesses and consumers need affordable energy. Young and old want renewable energy; Republicans and Democrats seek reduced emissions.

But we need leadership to achieve results.

This election – this moment of decision – is a time for the Presidential candidates to explain how they will lead.

Next week, when they meet at the University of Mississippi, the candidates must clarify their positions.

They need to reconcile campaign promises with tangible actions:

What are their plans for making our economy more energy efficient?
Do they have concrete actions to grow all forms of domestic energy – nuclear … natural gas … renewables … oil … and coal?

How will they de-carbonize the world’s largest economy without undermining energy security or threatening our prosperity?
What’s the cost … and who will pay … for their proposed plans?

We need to hear the debate. And we all need to judge the integrity of their proposals.

On the eve of the Civil War, Abraham Lincoln observed: “Public sentiment is everything. With public sentiment, nothing can fail; without it, nothing can succeed.”

Today, public sentiment supports action on energy policy.

That action should lead to a future of greater energy efficiency … enhanced supplies of all forms of energy … and reduced emissions.

While I am concerned about the urgency of the situation today, I’m also optimistic.

I believe that, by the time my grandchildren are my age, our energy system will look much different. But we must get started now.

Our standard of living and our nation’s security will be shaped by the energy policy of our next President.

Our new consensus on energy has a common goal – for America to be secure. We need to work together to achieve it.

Thank you.