December Surprise

A month ago an old friend--in fact a former boss and mentor--hinted that the recent collapse of oil prices might lead to revisions of the oil & gas reserves that companies carry on their books. I recalled his suggestion a week ago, when the Wall Street Journal published an article on the subject of potential reserve revisions, indicating that "big chunks" of reserves might have be to declared "uneconomic", harming company valuations and potentially their ability to raise capital. This came into even sharper focus last Friday, when the January 2009 crude oil futures contract on the New York Mercantile Exchange (NYMEX) plunged sharply on its last day of trading, ending at $33.87 per barrel--the lowest oil price since February 10, 2004. I can only imagine how intently the reserves accounting groups of oil and gas companies must be scrutinizing the performance of the February contract, wondering how badly it might swoon by December 31, when the price for determining year-end "proved reserves" is established. The comparable price from which the 2007 year-end reserves were calculated was $95.98 per barrel, the highest ever. The subsequent slide puts reserves booked as long ago as 2004 at risk.

My friend knows more about oil & gas reserves and their reporting, from personal experience, than I ever will. It's an arcane subject. Despite the general designation of "reserves accounting", this task is normally carried out not by accountants, but by engineers under the supervision of a very senior and highly-experienced petroleum engineer or geoscientist. Tallying up how much oil and gas a company's leases are likely to produce involves consideration of a large array of technical and economic factors, including the market value of the future production these fields could yield. I'm sure there are other differences between the current SEC regulations, under which these figures are disclosed as part of a company's annual financial statements, and the standard industry approach set by the Society of Petroleum Engineers. The most important for the purposes of this posting is that under the SPE guidelines, the economic viability of the potential production from an oil deposit is assessed against the prevailing prices over the last 12 months, while also taking the firm's forecast of future prices into account. The SEC requires reserves to meet its standards for "proved" status at the price in effect as of the assessment, in this case at year-end.

When the price of oil was relatively stable, there wasn't much difference between these two perspectives, and thus between reserves determined under SEC or SPE guidelines. Even in the last several years, as prices rose dramatically from their roughly $20-25 per barrel range of the previous two decades, the 12-month averages were typically not drastically different from year-end prices, as for example the $66.25/bbl average for 2006, compared to $61.05/bbl on 12/29/06. However, if prices remain where they are today, we could see a $60/bbl difference between these two metrics for 2008, and a year-on-year decline of over $50/bbl. That would require any reserves that were booked at a price above $40 or so--not just this year, but going back as much as four years--to be reevaluated. (Natural gas has fallen, too, though by much less than crude oil.)

This situation is complicated by a bigger underlying question: what is the value of oil likely to be in the future, rather than at a moment in time or over some past interval? Reserves are future production, after all--in some cases extending over 20 or 30 years, or even longer. The market for prompt delivery might be glutted, and the outlook for the next year might appear pretty bleak, but without reading too much into the present steep "contango" in oil prices, there is every reason to believe that when global economic growth resumes, the fundamental conditions that pushed oil prices beyond $100/bbl will reassert themselves.

Before investors panic at the prospect of publicly-traded oil companies writing down hundreds of millions or billions of barrels of "proved reserves" for accounting disclosure purposes next year, they need to consider where the volumes in question will have gone. Were they merely shifted from the "proved" to "probable" category--thus not affecting the amount of oil that would ultimately be produced--by a temporary oil glut arising from a global recession, or did their existence depend on an oil-price bubble that is unlikely to reflate? And even if these conditions do prove to be temporary, there's a good chance that a number of oil and gas projects, including some fairly large ones, will have been deferred in the meantime, if not canceled entirely. That affects reserves in the most fundamental way possible, as well as altering the future global production profile. Since my own portfolio includes oil & gas equities, I face the same uncertainties in this regard as anyone else, as both an investor and a consumer. At the very least, this situation highlights the urgent need for a major revision of the SEC regulations covering the reporting of reserves, along the lines the Commission has already proposed, to put reserve estimates on a more meaningful and less volatile basis.

Energy Outlook will be on holiday break until next week. Merry Christmas, Happy Hanukkah, and Seasons Greetings, as appropriate!

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Open Fuel Standard

One of the energy-related email lists to which I'm subscribed recently alerted me to an interesting piece of pending legislation in the US Congress, the "Open Fuel Standard Act of 2008", S.3303. The bill would require automakers to increase the proportion of their cars that are able to run on non-petroleum fuels to 50% by 2012 and 80% by 2015. Its title might be intended to conjure up analogies to high tech software standards, and its supporters may cite national security considerations, but its main purpose is to plug a gaping hole left by previous Congressional energy legislation. And while it mentions other fuels such as methanol and biodiesel, it is first and foremost about ensuring the future market share of ethanol.

The main focus of the "OFS Act" is Flexible Fuel Vehicles, cars that are factory-equipped to consume fuel containing high proportions of alcohol, which might otherwise damage their fuel systems and other components. Most of the 240 million cars in the US are only certified for alcohol blends of up to 10%. The few million FFVs already on the road were produced under a provision of the Corporate Average Fuel Economy regulations that allowed carmakers to offset them against low-mpg conventional cars, such as large SUVs. Considering that most FFVs burn gasoline most of the time, instead of the alternative fuels they were credited with enabling, this actually reduced the real-world fuel economy of the US new car fleet and increased US petroleum imports, a fact that was recognized and rectified when Congress passed the Energy Independence and Security Act of 2007. That bill established the new, higher national Renewable Fuel Standard (RFS), while progressively phasing out the CAFE benefit from FFVs by 2020. In the process, it set carmakers and fuel suppliers on a collision course, with the wreck now likely to happen several years sooner than it otherwise would have, because gasoline demand is falling.

Until this year, US gasoline demand was growing by about 1% per year. Starting from its 2006 volume of 141.8 billion gallons per year (GPY), the gasoline pool could have been expected to accommodate the quantities of ethanol required under the new RFS until at least 2014 without exceeding the maximum 10% blending rate (E10) for standard cars or requiring significant sales of E85, the 85% ethanol/15% gasoline blend that is the closest thing to pure ethanol that seems to be compatible with our fuels distribution system. But instead of growing by 2% since 2006, US gasoline demand in 2008 has dropped by around 3.5%. A similar decline next year would shrink gasoline sales to about 132 billion GPY and cause the RFS to bump into the E10 ceiling in 2012. That would require either selling E85 to large numbers of FFVs, or delaying the ethanol ramp-up until the fleet's flex-fuel capabilities caught up. Even bumping up the E10 limit to 11 or 12%, which is currently under consideration, would only buy us another year or two.

The Flexible Fuel Vehicle Club of America--who knew?--claims there are 7 million FFVs today. If every last one of them used nothing but E85, they would consume about 5 billion gallons per year. But that would require something like 7,000 retail locations selling at least 60,000 gallons per month of the fuel, instead of the current 1,600 stations selling a few thousand gallons per month each, totaling perhaps 150 million gallons per year. It would also probably require a much bigger discount for E85 vs. regular gasoline than the $0.17/gal reported by AAA currently. (Their calculation suggests E85 costs motorists $0.30/gal more than gasoline at today's prices, after adjusting for mileage effects.)

My long-time readers know that it wouldn't break my heart if the ethanol build-up came to a screeching halt. Ethanol is an inferior fuel in many respects, with an energy density a third lower than gasoline, translating into reduced vehicle range and fuel economy. This is confirmed by the government's own fuel economy ratings. Its environmental attributes are a distinctly mixed bag, and that extends to lifecycle greenhouse gas emissions that may be no better than gasoline's, when global land-use changes are included. Nor does it seem likely that ethanol from non-food sources, including cellulosic plant matter and waste, will be available in large quantities for some time, embedding fuel-vs-food competition into the economy for years to come. Its main selling point is that it is mostly home-grown--never mind the greater efficiency and environmental benefits of sugar-based ethanol from Brazil and the Caribbean. Because of its importance to US agriculture, it is highly unlikely that any US government, Democratic or Republican, would choose to back away from it without compelling evidence of harm--or unless it started to pile up at ethanol plants because there weren't enough FFVs to consume it.

So if Congress remains committed to increasing ethanol use and to denying carmakers the CAFE credits they formerly earned for selling cars that could burn E85, they must pass the Open Fuel Standard act or something like it, far enough in advance of the impending train wreck in 2012 or 2013, to get sufficient FFVs on the road to absorb the surplus ethanol beyond E10. Given the Big Three's other problems, it's hard to imagine the $100 or so in extra expense per car becoming the straw that breaks Detroit's back, but I wouldn't be surprised if they asked for a tax credit to cover the cost.

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Oil Shock II

As OPEC's members and friends meet in Algeria to agree on deeper cuts in oil output, the effectiveness of their actions will depend greatly on the nature of the demand slump to which they are responding. If it proves to be merely a dip in the long-term growth trend, similar to the one associated with the Asian Financial Crisis of the late 1990s, then their current decline in revenue will likely be short-lived. If, on the other hand, the response in consuming countries is similar to that following the energy crisis of the 1970s and early 1980s, then OPEC and indeed all oil producers face protracted problems. In that case, they might have to hope that the chief economist of the International Energy Agency is correct in his new assessment that the credit crisis will hasten an expected peak in global oil production, perhaps sending oil prices beyond their summer 2008 highs within a few years.

Although the narrative concerning the present financial crisis and global recession is bound up in the collapse of the US housing market and the vast global debt bubble that fueled it--a bubble that had to burst sooner or later--it seems remarkably coincidental that it would begin to deflate just as oil prices raced past their previous inflation-adjusted peak of around $90 per barrel. Because that price rise took place over several years and was driven as much by demand as by supply constraints, the resulting oil shock wasn't as sharp or obvious as the one triggered by the Arab Oil Embargo of 1973 or the Iranian Revolution of 1979. But between 2003 and 2007, the US net oil import bill rose from around $100 billion per year to $300 billion, based on refiner acquisition costs. It crested at an annualized rate of $500 B per year in July. This added significantly to the US trade deficit, and the resulting sustained double-digit inflation in consumer energy costs helped push the annualized consumer-price inflation rate past 5% this summer. With the energy spike having folded, the November 2008 annualized CPI rate has fallen to 1.1%.

If in retrospect these indicators describe a true oil price shock, then what might OPEC and other oil producers expect in the years ahead? Well, in the aftermath of the last oil crisis, from 1979-83 global oil demand fell by 10%, the current equivalent of over 8 million barrels per day (MBD), based on last year's global consumption of 85.8 MBD. It didn't reach its 1979 level again until 1989. The effect on OPEC was devastating. With demand lower and non-OPEC output expanding steadily, OPEC's oil was squeezed out, losing a third of its former market share. Oil prices remained low for another fifteen years, contributing to the growth of the exurbs and the SUV fad.

History rarely repeats exactly, and it would be simplistic to think that we're likely to replicate the oil price environment of the mid-to-late 1980s. There's no tidal wave of non-OPEC conventional oil coming from places like the North Slope and North Sea, which looked technically challenging at the time but seem relatively easy, compared to today's opportunities. Biofuels have added the equivalent of around 0.5 MBD in the last several years, and Canadian oilsands a similar amount, but production in most non-OPEC countries is peaking or in decline, notably in Mexico and Russia. And as the IEA's Dr. Birol notes, tight credit and low prices will slow additions to supply from all sources, while natural decline erodes today's base production. That makes demand the crucial factor, particularly the behavioral elements of demand. Although rarely discussed in these terms, vehicle fuel economy faces diminishing returns. Boosting US fleet average miles per gallon from 13 to 25 under the original CAFE standard in the 1970s and '80s saved three times more fuel per mile than the mandated increase to 35 mpg will--in fact more than moving the entire fleet to 100 mpg plug-in hybrids would. Vehicle miles traveled have recently declined in the US. Along with the appetite of Asian consumers for their first cars, this will have as much impact as fuel economy on total oil consumption, and thus on prices.

Although the oil price shock of the last several years can't be blamed for the full extent of the mess we're in, it is at least a plausible candidate for the trigger that caused the debt bubble to pop now, rather than a few years from now. That has important implications, because current conditions may be setting the stage for another, possibly sharper oil shock shortly after the economy begins to recover. Although we face a drastically altered set of energy concerns going into 2009, energy policies that promote both conservation and increased supply look just as essential as they did a year ago.

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Steel on the Ground

2009 is shaping up as the Year of the Stimulus. The consensus for a massive fiscal stimulus of the US economy, in the form of direct government spending and targeted tax breaks, grows daily. The biggest remaining questions focus on how much and how quickly. Estimates of the magnitude under consideration range from $400 billion to over a trillion, spread out over two years. Some would even like to see a stimulus bill ready for President Obama's signature on Inauguration Day. As urgent as the need to kick-start the economy appears, however, there are good reasons to spend at least as much time considering what to stimulate and how to go about it. That's particularly true of the energy economy, where the results of a stimulus will be felt for the next forty years.

An essay in Sunday's Washington Post highlighted some of the pitfalls of past government spending on infrastructure. Despite the best of intentions, our elected and appointed officials don't appear to have any keener insights into the future than corporate executives. It's inevitable that some of the stimulus will end up funding inefficient and ineffective projects, and in the interest of avoiding an economic implosion and a deflationary spiral of job cuts, demand reduction, price cuts, output reduction, and more job cuts, that might not be the worst outcome. But we need to ensure that the lion's share of the stimulus is focused on things that really need doing and that the private sector, even in the best of times, has difficulties undertaking. My top candidate for this is a major upgrade of our electricity infrastructure.

It's going to be very tempting for the federal government to invest directly in energy technology deployment--not just R&D--and even in private firms. The $350 million loan sought by Tesla Motors, the Silicon Valley electric car start-up that has just sold its 100th $100,000 electric sports car, comes to mind. We need clear guidelines that avoid putting tax dollars into companies that operate in markets that are already distorted by federal mandates and subsidies, such as those supporting biofuels production. But while I would not wish the government to invest in wind and solar power developers or their projects, the infrastructure necessary to make those projects more effective and competitive is a different story.

The case for increased federal investment in our power grids is similar to that for the Interstate Highway system in the 1950s, as another great enabler of economic transformation. Ever since the northeast blackout of 2003, we've known that the grid must become more resilient and reliable, and utilities and the grid operators have been working hard on that. But it also needs to be able to accommodate a much larger number of generators, ranging from rooftop solar arrays to widely dispersed utility-scale solar power installations and wind farms. Moreover, we need more long-distance transmission, particularly from the ten or so states that are home to roughly 80% of US wind power potential. Our best solar resources are similarly concentrated. If we're serious about reducing greenhouse gases from the electricity sector, which contributes a third of US emissions, this will require a better-integrated, higher-capacity, faster-reacting electrical grid to ensure that we make the most of distributed and intermittent renewable energy sources. It is also the sine qua non of the eventual mass electrification of our transportation systems, which account for another 28% of our GHGs and two-thirds of our petroleum consumption.

Unfortunately, we must also be realistic about how much can actually be accomplished, or in stimulus terms, spent on this task within the next two years. Although we might like to imagine a massive, Works Progress Administration-like marshaling of the nation's unemployed to undertake great tasks, those Depression-era efforts faced nothing like the modern regulatory requirements for permits and environmental impact reports. I've been associated with a fair number of large projects in my day, and the practical obstacles for quickly revamping the power grid boggle my mind. For starters, it would require setting aside all of the existing regional, state and local permitting processes and handing someone--a "grid czar"?--sweeping powers even greater than the power to designate "National Interest Electricity Corridors" that was given to the Federal Energy Regulatory Commission under the Energy Policy Act of 2005. Even if permits were no problem and plans already in place, I wonder how much actual "steel on the ground" we'd see by the end of 2010, beyond "last-mile" investments, such as smart electricity meters. Perhaps the best we can hope for in this timeframe would be to fund the planning and design process and get all of the environmental impact studies done. That might stimulate a lot of engineering and consulting firms, but it wouldn't necessarily put many construction folks to work. I can't help wondering how many other aspects of a federal stimulus beyond energy will be subject to similar constraints.

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2009 Fisker Karma

Fisker Automotive, Inc., an American car company specializing in environmentally friendly, premium sports car company, unveiled its first production car, the Fisker Karma, at the North American International Auto Show (NAIAS) in Detroit.

The Fisker Karma is a four-door plug-in hybrid premium sports sedan that will be priced starting at $80,000. The first deliveries will commence in the 4th quarter of 2009 with annual production projected to reach 15,000 cars.

The car was named Karma because the car allows consumers to practice good Karma, driving a car that is environmentally friendly without sacrificing the extreme comfort and style of the luxury automobile category.

The Q DRIVE plug-in hybrid technology that was developed by Quantum Technologies exclusively for Fisker Automotive consists of a small gasoline engine that turns the generator, which charges the lithium ion battery pack, powering the electric motor and turning the rear wheels.

The hybrid technology allows the car to be driven emission free for up to 50 miles a day provided the car is charged every evening. If consumers follow this daily routine, they will only need to fuel the car only once a year.

The Karma was designed in such a way the battery pack is located at the center of the vehicle between the two axles, providing optimal vehicle driving dynamics, maximum safety, and proportionate design.

From the press release, the Karma’s luxurious interior features four individual first class seats, a modern and sophisticated interior design and a spacious luggage capacity that can fit two golf bags and luggage in the trunk. Other features include:

Electronic Aides: Navigation system, DVD system incorporated into seat backs and state-of-the art push button controls
Seating Comfort: Four individual “first class” seats
Driving Modes: The driver will be able to select between two modes of driving. The first mode is “Stealth Drive”, which is the quiet economy mode for optimal relaxed and efficient driving. By flipping the second paddle behind the steering wheel, the car will switch to “Sport Drive”, which will access the full power of the vehicle.
At the exterior, the Fisker Karma features structure and body panels that will be made of aluminum to keep the overall vehicle weight as low as possible, a new drive train configuration that will provide optimal weight distribution, low and wide stance, self-contained climate control, an option to purchase a set of solar panels for their roofs or garages where they can generate electricity during the day to charge the car overnight. Other features of the exterior from the press release include:

Exterior Panels: Extensive use of lightweight materials used for optimal weight and driving dynamics
Solar Panel Roof: The Karma will offer self-contained climate control, as consumers will have the option to purchase a full length solar roof that will help charge the car and provide cooling for the interior cabin while the car is parked
Plug-In Configuration: Small bonnet “doors” for easy charging and engine fluids refill
22-inch lightweight alloy wheels
LED tail-lamps
Driver visibility: Front fenders visible with a view of the long hood

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Hire the Best

The apparent selection of Steven Chu, the Director of the Lawrence Berkeley National Laboratory to be the new Secretary of Energy looks like a good choice. Since he is already employed by the Department of Energy, he understands the organization he would lead. The lab he currently heads does important work on renewable energy and efficiency, which President-Elect Obama emphasized throughout his campaign. Bringing in a Nobel Prize winner in Physics to run DOE exemplifies the principle of hiring outstanding individuals with deep, relevant experience to manage complex problems. Let us hope that the outgoing and incoming administrations can agree on someone equally qualified to oversee the restructuring of the US auto industry, should Congress ultimately pass a version of the emergency assistance legislation on which the US Senate could not agree last night.

Dr. Chu, who is also a professor at UC Berkeley and the former chair of the Physics Department at Cal's cross-bay rival, Stanford, seems well-qualified to manage an organization that must balance the application of chemistry, physics and biology to a wide variety of existing and emerging energy sources with the legacy of the Big Physics project of a previous generation: the nation's aging nuclear weapons complex. A quick review of the Lawrence Berkeley website turned up some fascinating work, including the Helios Project, which aims to produce new carbon-neutral fuels through accelerated artificial photosynthesis. Although there were some other fine people in the running, and only time will tell how well this pick will turn out, Dr. Chu certainly brings an appropriate mix of technical knowledge and administrative experience to running this large and complex agency. Overseeing a federal bailout and restructuring of the "Big Three" US carmakers--an eventuality that looks less likely today than it did yesterday--would require an equally apt selection.

If a Detroit bailout does come to pass, one of the most critical decisions will be the choice of a federal trustee to guide the restructuring of the industry. Rumors that the former head of the 9/11 Victim Compensation Fund was the front-runner have given way to a more familiar name, that of former Federal Reserve Chairman Paul Volcker. His experience, including with the Chrysler bailout in the 1970s, certainly qualifies him for the post of federal "car czar." But as much as I admire him for his role in extinguishing the US price inflation of the 1970s and early 1980s, and for his handling of the investigation into the UN Iraq "Oil for Food" scandal, I wonder if an even more experienced car hand might be called for. The person I have in mind would be a long-shot, not least for being a Frenchman and a current competitor of the Big Three. Yet I can't think of anyone who better epitomizes the global auto industry with which Detroit has failed to keep pace than Carlos Ghosn, with his proven track record of turning around two car companies, Renault and Nissan, both of which he now heads. If we really want to make Detroit competitive again, I see no one better qualified to direct that initiative.

The drawbacks are obvious: cultural, political, and practical. All of those could be turned into advantages, particularly since Mr. Ghosn has become a keen advocate of electric cars, which would play well in the new DC atmosphere. In any case, I doubt that he would find the presumably-obligatory compensation limit of $1 a year an impediment, weighed against the historic challenge of restoring GM, Ford and Chrysler to global leadership, or at least global parity. I admit it's highly unlikely to happen, but perhaps we could just get him on loan, as a favor from President Sarkozy, with whom both President Bush and President-Elect Obama seem to have an excellent relationship.

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The Contango Warning

President-Elect Obama is expected to name his energy and environmental team shortly. Whoever is nominated as the next Secretary of Energy will be swamped with an array of competing priorities, including modernizing the nation's electrical grid, managing the nuclear weapons infrastructure, and above all guiding the shift to a greener energy diet that will reduce our greenhouse gas emissions, and perhaps also our dependence on imported energy. With regard to the latter outcome, however, the incoming Secretary should pay careful heed to the signal that the oil market is sending about the importance of boosting declining US petroleum production. While the media focuses on a front-month futures contract price for West Texas Intermediate crude oil in the low $40s per barrel, traders have been paying north of $60 per barrel for delivery in 2010 and $80 for oil in 2016. That suggests that the relief we are seeing at the pump today is only temporary, while the global economy is gripped by a recession and credit crunch. Our oil worries will return soon enough, once the economy recovers.

Aside from the remarkably rapid drop in the price of crude oil for prompt delivery, the current market conditions are unusual because of the steep rise, or "contango", of the prices in successive futures contract months. At yesterday's settlement on the New York Mercantile Exchange, oil for delivery in February carried a $2.59/bbl premium over January, and March was another $2.20/bbl higher. Oil for delivery in December 2009 was a whopping $13.81/bbl higher than the January '09 futures. The fact that sufficient oil is not being bought today and put into storage for future delivery to close the arbitrage opportunity this situation creates is a clear indication of just how tight commercial credit has become, recently. As it is, US oil inventories have climbed by 26 million barrels since the end of September, rising from close to the bottom of their seasonally-adjusted range to near the top.

Although the oil market isn't any more prescient about future oil prices than the stock market is about future corporate earnings, it still reflects the current consensus on the future--and not just of those with an opinion, like me, but of those willing to bet serious money on it. In that light, the extreme contango of the current market reflects many factors, chief among them the extraordinary weakness of current demand that has caused prompt prices to collapse, combined with the seemingly-inevitable collision between limited global supplies and the long-term demand from the large developing economies of Asia. Even if US oil demand never returns to its high-water mark of 20.8 million barrels per day in 2005--a level 6% above our monthly average for 2008, to date--the potential demand from China and India is more than sufficient to drive prices back to OPEC's desired floor price of $75 or more. Throw in a bit of political risk from our old friends Iran, Venezuela and Russia, and it's the current price that looks like the outlier, not today's long-dated futures prices between $60-$80/bbl.

That certainly supports the case for the next Secretary of Energy to push hard for the fuel-saving technology and alternative fuels that can reduce our dependence on expensive sources of foreign oil, but it might be less clear why maintaining domestic oil production and increasing it to the maximum extent possible matters just as much. We can't escape the mathematical certainty that imports must cover the difference between demand and domestic production. Those domestic supplies, which still represent 13 times as much gross energy content as our current 10 billion gallons per year of ethanol production, and contribute more than 30 times as much net energy to our economy, remain essential. Even a modest further drop in US oil production could negate the energy security gains from efficiency and additional biofuels.

There's also a lot of money at stake for the country, not just for oil companies. A new study from ICF International, commissioned by the American Petroleum Institute, confirmed the findings of the 2007 National Petroleum Council study in which I participated, to the effect that allowing drilling on the off-limits portions of the Outer Continental Shelf, onshore federal lands, and the Arctic National Wildlife Refuge could increase US oil production by 2 million barrels per day in 2030, above the expected baseline. That would displace tens of billions of dollars per year of imported oil--even at today's low prices--while cumulatively generating hundreds of billions in state and federal royalties and corporate income tax revenue that would be very helpful in covering the enormous debts being run up combating the financial crisis and recession.

As I noted frequently during the summer's debate over offshore drilling, there's no question of drilling our way to energy independence. We urgently need to expand and diversify our energy supplies and become much more efficient in how we use energy, but that doesn't mean we can turn our backs on oil, just yet. The new Energy Secretary will have to work hard to ensure that the oil replaced by the aggressive adoption of renewable energy and efficiency technology doesn't end up being our own.

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