Most of the big winners in the recent election campaigned on expanding U.S. energy production. But the energy industry is changing rapidly, and almost everything you thought you knew about it is no longer true.
Here are some of those out-dated assumptions.
The Peak Oil theory, first proposed by geophysicist King Hubbert in 1956, claimed that aggregate oil production would peak in the U.S. between 1965 and 1971. After that production would gradually decline, as oil became harder and more costly to extract, which would make developing alternative energy sources more feasible and affordable by comparison.
And for decades most analysts believed that Hubbert was right, but no longer.
Innovative drilling techniques that allow energy companies to extract oil and natural gas from shale have relegated Peak Oil fears to the sinkhole.
According to the U.S. Energy Information Administration (EIA), in 1955 the U.S. produced 6.8 million barrels of oil per day (MBD). By 1970, about the time of Hubert's suggested peak, the U.S. produced about 9,600 MBD. After dropping to a low of about 5,000 in 2008, the shale revolution kicked in and by last August the U.S. produced 8,600 MBD-and rising quickly. Within a few years the U.S. could easily surpass its supposed 1970 Peak Oil output.
Remember when saber rattling in the Middle East would inevitability lead to higher gasoline prices?
And yet even though a major oil exporting country like Iraq is in chaos, gasoline prices have been falling. Indeed, the price of a barrel of oil got so low recently that it rattled stock markets.
What's going on?
It's mostly due to supply and demand. U.S. demand for oil has been falling for several reasons; but more importantly, supply is up-way up. And there is every reason to believe this surplus will increase, especially now that other countries such as Mexico are trying to tap into the shale revolution. Rising oil supplies are keeping prices low, and as long as U.S. policies permit and promote more drilling, gasoline prices will remain relatively low and stable.
Fuel from corn
Corn-based ethanol as a fuel has been around for more than a century. But Peak Oil concerns in the 1970s nudged Congress to encourage ethanol production and its use in gasoline, eventually passing various subsidies and tax breaks for ethanol manufactures.
Then in 2005 a Republican Congress, with the support of President Bush, passed the Energy Policy Act, which created the "renewable fuel standard" (RFS). The law mandated that refiners blend 7.5 billion gallons of renewable fuel in gasoline by 2012. In 2007, a Democratic-led Congress doubled down, raising the RFS mandate to 36 billion gallons by 2022, with a large percentage to come from non-corn sources, such as switchgrass.
Then the Great Recession hit and people started driving less, plus cars were becoming more fuel efficient, reducing gasoline consumption. But the biofuel mandate remained the same, which meant the blend would have to rise from the historic 10 percent of ethanol to perhaps 15 percent or higher. Automakers warn that change could harm some older engines.
But more importantly, it is now clear that biofuels are neither less expensive than gasoline nor more environmentally friendly. Thus the RFS's only real impact seems to be to keep corn prices artificially high and green energy companies asking for evermore taxpayer subsidies.
Alternative energy and "energy independence"
When President Obama speaks of "energy independence" he is usually referring to his conviction that the country needs to cut the oil line and rely more on renewable energy sources. But renewables can't meet the country's energy needs. While wind and solar power are growing, total renewable energy sources provide less than 9 percent of electricity generation. And that number excludes gasoline-powered vehicles and airplanes, which are almost entirely powered by fossil fuels.
Given their increased supply and lower prices, the only practical and affordable way to reach energy independence anytime soon is with fossil fuels. Congress and state legislatures should repeal mandates to use costly and inefficient energy sources, such as ethanol and renewables, and end the tax breaks and subsidies that have kept those sources viable.
Past assumptions guiding energy policy may have made sense at one time, but it's time to rethink everything we thought we knew about energy.