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Full-Throttle Drill, Drill, Drill

If you buy into the energy speech President Obama delivered on Wednesday, it sure sounds like we're headed for drill, drill, drill. It would be a total reversal of policy. I guess $100-plus oil and near $4 gas at the pump -- along with a consumer economic-political revolt -- will do that to you.

After bashing oil and gas companies for a couple of years and instituting a virtual drilling moratorium, President Obama now says yes to offshore oil and makes a big pitch for natural gas. There may even be incentives for faster leasing and smaller royalty payments to the government.

Is it credible? Well, when you get to the fine print, it may not be.

#ad#In the fact sheet that accompanied the speech, there's a lot of talk about 'responsible development' for natural gas fracking chemicals, state regulators, tapping experts, the environmental community, and protecting public health and the environment. In other words, the standards for new drilling could be so high that there won't be that much new drilling.

The president doesn't discuss the role of the EPA, which is going after coal, natural gas, and oil. And while he says he'll speed up new leases and permits, he then blames oil companies for not using their old leases. That's an old saw of an argument that neglects to mention dry holes.

I believe natural gas is the answer to our energy problems over the long run. It's real cheap. And we have boodles and boodles of it. While the president says we're going to reduce oil imports by one-third in 2025 -- something that sounds suspiciously like a backdoor cap that will damage job creation and growth -- the U.S. is expected to be a natural-gas exporter in the next few years. That's how much of it we have.

So it seems to me that the trick is to figure out efficient ways to pump that natural gas into cars. Or to liquefy it and then get it into cars. Or to use the steam from the gas and get it into cars. Some mass-transit systems on the West Coast are already doing this.

#page#And here's another rub: Heavy federal subsidies for solar and wind, which come to roughly $24 per megawatt hour, still won't be able to compete with cheap natural gas. Solar and wind are already less than 1 percent of total electricity. If the market can produce it, fine. But there's no evidence of that.

And then there's the ethanol disaster.

#ad#We've already learned that ethanol has a heavy carbon footprint -- even Al Gore acknowledges this. But we've also painfully learned that farmers are planting corn for ethanol instead of for food consumption. They are foregoing wheat for the corn, and all this is helping drive food prices through the roof worldwide.

You can add Ben Bernanke's dollar-depreciation to that food inflation. And if we had King Dollar, once again convertible to gold as Lew Lehrman has proposed, then oil prices might be closer to $25 a barrel instead of $100. During the Bretton Woods period, when the dollar was linked to gold, oil was about $2.50. And today, market forces are actually reducing oil use as a share of GDP. With higher oil prices and the onset of natural gas and other alternatives, oil per unit of economic output is down about 50 percent. That's good.

All this is why I favor market forces and a drill, drill, drill policy. The U.S. has 112 billion barrels of oil, both on- and offshore. As much as two trillion barrels are locked up in shale rock. Even excluding shale, discovered oil resources could fuel 60 million cars for about 60 years. These are all Interior Department statistics.

And by the way, market forces create significant incentives for oil, gas, coal, and nuclear producers to be as safe and environmentally sound as human engineering can make possible. They don't want BP-level calamities. Nor do they want repeats of the Japanese disaster.

But here's what America wants: Less government and fewer regulatory barriers in order to unleash the great American energy industry. If we do this, not only will we get the power to fuel the economy, but millions of new high-paying jobs will be created.

Does President Obama get this?

-- Larry Kudlow, NRO's Economics Editor, is host of CNBC's The Kudlow Report and author of the daily web blog, Kudlow's Money Politic$.

Full post as published by Bench Memos - National Review Online on March 30, 2011 (boomark / email).