THE BLOG

Energy Secretary Chu Resigns Leaving Oil Markets in Turmoil

02/04/2013 07:55 am ET | Updated Apr 06, 2013
  • Raymond J. Learsy Author, 'Ruminations on the Distortion of Oil Prices and Crony Capitalism'

In his letter of resignation from the post of Energy Secretary, Chu characterized his Department as a "Department of Science, a Department of Innovation, and a Department of Nuclear Security." He then goes on to point out the myriad achievements and initiatives during his tenure ranging from BioEnergy Research Centers, Wind and Solar Energy initiatives, nuclear safety, appliance efficiency standards and on. Not an unimpressive list of scientific and clean energy programs. Embedded deeply in his letter is his conviction that rising temperatures present a present and growing danger to the planet and need be addressed. His tenure at Energy addressed this issue relentlessly, and even with the $500 million Solyndra debacle, built a foundation for research, creativity, and with funding guarantees to a plethora of clean energy projects supporting manufacturing plants throughout the country.

Were this his exclusive mandate his four year tenure might well be termed a success. But the Department also has other fish to fry. They relate not only to the environment, but profoundly to the economy and to our national security. Energy, be it oil, natural gas, coal are core commodities to the functioning of our economic viability, and here the Department of Energy under Chu's tutelage has approached disaster.

As example, within a month of Chu's ascendency the price of crude oil hovered around $35/barrel (and gasoline prices well under $2.00/gallon). Today's price is over $95/bbl even though our oil consumption is down some 2.4% from what it was four years ago and production from the Bakken and EagleFord Formations in North Dakota and Texas has increased our domestic production dramatically keeping our domestic oil market amply supplied (oil inventories are at or near all time highs). In a situation such as this it is the Department of Energy's obligation to ask some hard questions just as Energy Secretary Bill Richardson did during his tenure during the Clinton Administration when he personally lobbied OPEC members only to be chastised, to his great credit, by the OPEC spokesman, "In the forty year history of OPEC there has never been the case of the Secretary of Energy calling OPEC in the middle of an OPEC meeting... We are upset and disappointed at external pressure. We don't like it."

This in stark contrast to Chu's predilection, by intoning at the outset of his ascendancy, "OPEC is going to do what they are going to do based on their own interests. I frankly don't focus on what OPEC should do, I focus on what we should do." And he hasn't, and the price of oil four years into his oversight speaks volumes. Not fully to blame, but there has not been an iota of push back by his Energy Department to corral this vast increase in price. Rounding out the numbers in play, we consume some 20 million barrels of oil a day. A differential of $60bbl ($95bbl-$35bbl) results in a transfer of $1.2 BILLION A DAY from American consumers to oil interests here and around the world!

There are many other issues and tools that the next Energy Secretary can enlist that have remained dormant under Chu,
-be it engaging the Strategic Petroleum Reserve and its 700 million plus oil barrels in storage, bought and paid for by the American taxpayer, to counter economically crushing and irrational oil prices,
-be it propagandizing and shaming the Commodity Futures Trading Commission and the Federal Trade Commission to initiate meaningful oversight of the distorted trading of oil contracts on the Commodity Exchanges, contract prices that according Rex Tillerson, the CEO of the nation's largest oil giant, ExxonMobil, has cited as being $30 to $40 higher than they should be (my saying so is one thing, the CEO of ExxonMobil saying it is fundamentally another) if it were not for the very trading of these oil futures contracts on the exchanges (please see "Are Our Leaders Hearing ExxonMobil CEO Rex Tillerson?" 05.17.11)
-given our vast newly accessed resources of natural gas, its attractive price and significantly lesser carbon footprint to undertake organizing programs and policies to convert a major portion of our transportation fleet of cars and trucks to be powered by Compressed Natural Gas (CNG) from gasoline in the years ahead (please see "Aspen Ideas, Natural Gas, Armenia Unheralded" 07.09.12)

The Secretary of Energy needs understand that the nation's economy, its national security and the well being of the American consumer are an important part of his mandate, not exclusively of course, but without the Energy Department's active and hands-on engagement the 'oilogopoly' has the field to themselves, and the market discipline of supply and demand will fall by the wayside.