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The One All-Encompassing Truth Behind Energy Policy

by | published February 6th, 2014

Most people think the “big” energy decisions are driven by what it costs at the pump or how much it takes to heat their homes (a lot, as it turns out this winter).

But as the controversial decision over the Keystone XL pipeline shows, there’s another element in play… and it’s a big one.

In fact, it’s the most important factor you need to understand if you want to know where the energy market is headed.

It’s the “policy factor.”

Of course, we talk about what policy makers are likely to do or not do all the time. Often it’s not long before it morphs into a diatribe about politics. That is not what I am talking about here.

That’s because there is a very important missing ingredient in these discussions, and it leads to a fundamental misunderstanding about how policy really works.

But if you strip away all of the partisan bickering… ideological posturing… and nationalistic rhetoric…

One all-encompassing truth emerges…

It’s About More Than the Cost of a Fill-Up

You see, energy policy is fundamentally about one thing: Merging domestic needs with international products and finance flows – not the price of a gallon of gasoline.

Yet, it is not unusual to hear the price of gas used as an argument for keeping our shale largess here at home, discounting exports in favor of keeping local stockpiles, and a range of other “America first” solutions that only seem to look toward the next election.

And we’re not the only ones who sometimes think this way.

For generations, this type of thinking resulted in Mexico’s national oil corporation PEMEX being off limits to outside investment, and Moscow’s legislators to limit control of larger fields to only Russian companies.

It has also caused the rejection of Chinese interests owning American oil companies, and the refusal of Saudis (and others) to provide reserve figures on the grounds of national security. And there are many other examples.

Of course, by now everybody knows energy is a global matter. Nonetheless, energy is usually only addressed as if it were relevant only to the location of the end user. This not only distorts the process, it also fundamentally prevents genuine policy making.

Now I am not suggesting some sort of altruism that sacrifices the national interest on the altar of international convenience.

Policy making will always remain self-centered. No national policymaker in his or her own right mind would give up a national advantage for some other country’s benefit.

As I have frequently noted, the exchange among nations is essentially self-serving in motivation, survivalist in intent, and takes place within a global system lacking any centralized power to restrain the action of individual states.

Prevention is largely one nation pressuring another. Actions, therefore, are offset only by the contrary motives of other nations.

In other words, the individual state still remains the central actor. When that action has an international economic impact, the essential motive is to achieve some cross-border advantage for a domestic economic or market reason.

This is not to say that nations are always callous, only that they are always inward looking.

The term “state-centered realism” was coined years ago by Robert Gilpin to explain this. I think it fits nicely in this case.

Even when common ground can be found among separate countries, this realism still pervades in the negotiations. I once suggested during an international meeting that treaties are agreements objectively arrived at but only subjectively followed.

The best “win-win” situation will only survive if the participants have a national reason for adhering to it.

That’s why I decided to become the Executive Chair of the Global Energy Symposium. I have mentioned this association before, and you will hear much more about it as we approach the first GES international conference later this year.

Yes, it is true. The primary focus of energy policy makers is national. Worldwide implications arising from energy issues are viewed through nationalistic prisms. That is simply the way it is, especially when officials are dependent upon a local electorate to continue in office.

Energy Policy Has Now Gone Global

But the playing field is global. The effects of policy hardly end at the border or the shoreline. The international energy market is a very integrated.

A decision made in one place will have consequences somewhere else. Even in a “Fortress America,” where the results are not considered beyond those of a domestic variety.

But as the U.S. approaches what is effectively energy self-sufficiency, events elsewhere will still have an impact on domestic pricing even if we are no longer importing oil from nations other than Canada.

As we import less crude oil, we are exporting more processed finished oil products. In addition, the U.S. will also begin exporting crude as the pressure of large unconventional tight oil (shale being a part) begins to throw the national pricing system off-balance.

No nation is immune to these forces -from heavy net oil and gas exporters like Saudi Arabia (oil) and Qatar (natural gas), soon to be joined by the U.S. in both categories once the liquefied natural gas (LNG) boom kicks in, to heavy net importers such as Japan or India.

And that means the global component of energy policy implications is fast becoming the primary overarching consideration in where the markets are headed.

This also means both working capital commitments and individual retail investors will find balance sheets are now influenced – and in some cases determined – by what is happening someplace else.

Of course, it used to be such matters were reserved for geopolitical conversations. What would happen to oil prices if Iran closed the St rait of Hormuz, for example, or what does the latest spat between Russia and Ukraine mean for natural gas prices in Europe? The international component was always seen as some interruption or exception to what was a largely a domestic investment calculation.

Not anymore.

From the price to fill the family SUV to the return on a factory just down the street, global energy policy will increasingly determine the cost or profit of virtually every local energy-related transaction.

That means all of us are in for one fascinating ride as this continues to develop.

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  1. Kate
    February 6th, 2014 at 18:15 | #1

    To me the one encompassing truth behind energy policy is the power of the UN via the EPA to cripple America’s economy.

    I watched the “climate science” fall apart when emails were released that showed the highest levels of government in the UK and US were connected with the purpose of altering climate data to fit a political agenda.

    It took me months to follow the money. But Phil Jones at UK CRU and James Hansen at NASA were caught out using Michael E Mann’s hockey stick to drive international policy giving over sovereign rights of nations to the UN, in the full expectation that the UN will enforce the use and redistribution of world energy supplies.

    The UN made the proposal that mankind is destroying the planet. They then hired scientists to write computer models to prove this. The models did prove it.

    My frustration lies in the knowledge that this deadly guilt is truly frightening to uncounted millions of people. It is embedded in American education, starting in Kindergarten. It is extenuating the suffering of the poor around the world. It is transferring power over to the UN which has shown itself to be corrupt and power-hungry, doing nothing to ease the problems it was intended for in the first place. I believe environmentalism is the fastest growing religion in the world, based on grant-seeking science.

    Why is any agency not standing up to the EPA? Why are they continuing relentlessly to close down coal plants, wood-burning furnaces, affordable cars and driving up the cost of food and utilites to everyone?

    When someone can begin to explain how this agency continues its unbridled tyranny I will begin to believe there are policy-makers who have some wisdom. Until then, I continue to watch my fellow citizens suffer out-of-control prices that make getting by nearly impossible.

  2. Robert in Vancouver
    February 6th, 2014 at 19:03 | #2

    Kate is right, and obviously has studied this issue.

    Al Gore and his partners at Goldman Sachs and David Suzuki are making millions from carbon trading schemes where they guilt companies (and countries) into buying carbon credits to get a certificate saying they bought the credits. But usually nothing is done by Gore et al regarding creating carbon off-sets such as planting trees.

    Some of the carbon credit money goes to Indian band leaders, certain media people, and enviro-groups as a pay-off to keep spreading the climate change propaganda, often the payments are cash or thru 3rd parties. The rest goes into bank accounts of the scammers.

    The whole thing is a scam. The scammers stopped using the term “Global Warming” and switched to using the term “Climate Change” when too much evidence piled up proving there is no man-made global warming.

    The same scammers tried a similar scam in the 1970’s but were calling it “Global Cooling”. They failed only because they didn’t have the incredible power of the internet to spread their propaganda.

  3. February 7th, 2014 at 18:19 | #3

    Kate has picked one particular time to justify all her comments, the so called proof came down to one small email totally out of context, the world continues to warm faster, with huge amounts of heat being absorbed by the oceans, she should have been researching that, not the oil company propaganda.
    Reality check Oil companies make huge profits, Coal companies like wise, how can you compare Al Gore or David Suzuki making, (unlikely, but even if it was true) millions against the Mega Billions of the vested interests, it is not even likely that carbon credits are earning the sort of money that coal and oil companies spend on their Christmas parties.
    Why would anyone believe it, then decide that it is tyranny and a scam and such?
    It is interesting that Robert thinks people started to use the words ‘Climate Change’ instead of ‘Global Warming’, because the story had changed, the actual reason is that a lot more conservative folk realised the figures were looking bad for the human race but wanted a less alarmist description, but I personally believe in calling a spade a spade, so call it Global Warming, – because.. That’s what it is.

  4. Kate
    February 8th, 2014 at 09:20 | #4

    “The World Bank has invested heavily in carbon and green energy schemes for Third World Countries, but is having trouble finding a trading partner now that the carbon markets of Europe are worthless.” via Hockeyschtick dot blogspot.com

    Thus they are now turning up the heat, their tentacles reaching far and wide, spreading fear more widely than ever.

    IMF Chief: “Unless we take action on climate change, future generations will be roasted, toasted, fried and grilled”

    There is no limit to these people’s greed and power-hunger.

  5. February 18th, 2014 at 15:54 | #5

    Sorry Kate you are totally off your rocker.

    Who makes the money on fossil fuels you said? Al Gore and WB and the UN?
    The realities are these:

    The fossil fuel market is global. The big oil companies are partners. Chinese, Iranian, American, Saudi arabian, OPEC, all cooperate.

    Every day we consume more than 90 million barrels of oil and a similar amount of coal and gas. This in turn annually pumps more than 35 billion tons of fossil carbon dioxide going into our common atmosphere and our oceans – year after year. Calculated In oil equivalents this corresponds to 300 000 liters of oil – an olympic sized swimming pool of oil – per second year after year that we just burn. To actually believe this has no environmental impact is so incredibly naive it beats the imagination.

    Try any source you like – these are the basic facts.
    Who makes the money you say? The scientists? Come again! It’s those selling the oil. Who are the biggest oil exporters in the world? Go to any source you like again. You will find president Putin of Russia making one billion dollars every day from just selling crude. His regime would fall without this money. Your friend Mr Putin competes with your other darlings, the Saudi Arabian royal family of being the world’s biggest oil exporter. The Ibn Saud family – the richest family in the world – also exports around 10 million barrels of oil per day. The Ibn Sauds are wahhabists – the most extreme and brutal form of islam in existence. It is the wahabbists that run Al Queda and finance most of the terrorist acts everywhere. It is the american carbon barons like George Bush, who forces the US to partner up with the Saudis. The Bush family owns many of the oil wells in Kuwait.

    How much do you pay for a barrel of oil? Go to any source: between USD 95 and USD 110. Find a calculator and figure who makes the Money. It’s not the researchers, the scientists, the UN. Just follow the money. They do not lead to the IPCC or environmentalist groups.

    Who controls the biggest oil companies in the world? Besides Putin controlling Gazprom and Ibn Saud family controlling Aramco, it is the Chinese communist party controlling the giants Sinopec, CNOOC and Petrochina. Just look up the companies with the biggest capitalisation in the world.You will get the same answers no matter if you go to leftist or rightist sources.

    In addition you have all the petro tyrants in OPEC. Partnering up with these people are the American carbon barons, like the Koch bros, the CEOs of ExxonMobil, Chevron, BP, Shell etc Just go to the Arabian American oil company’s (Aramco’s) homepage and check the partner list. This is no secret. These interests cooperate in financing the biggest propaganda industry ever, spreading disinformation all over the world.

    Infinite and unscrupulous greed – absolutely. But the UN? LOL.

  6. February 18th, 2014 at 16:07 | #6

    This ts much ado about money making of certain political parties primarily progressivs [ communists there true name]. This is almost as good as controlling health care . The fools would have us all driving with horse drawn carrages or peddle cars [much more healthy].But no fresh foods unless carried on your back from elsewhere. The intellectual elete have decided this for me and I should accept it..They can ride in gulfstream jets or 747s while I and my kids pay thousands of dollars for their privledged way of life {Heil Adolph Obama czar of USA]

  7. Don Guier
    February 20th, 2014 at 17:40 | #7

    True to fraudster form, Geoff and svenaake write
    anything that they think will stir up dissension, envy, false science &
    economics, but not a word or fact of evidence that human activity is significantly affecting atmospheric warming. Sulfur and other combustion products pollute the air and toxic substances poison soil, streams, and near-shore seas; but carbon dioxide is a natural and necessary component of the atmosphere. If they think it’s harmful, they should stop exhaling.

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