News for Credit Professionals

Energy Speculation Ahead of State of the Union Address

When President Barack Obama makes his fourth State of the Union address tonight, the domestic economy will clearly be the speech’s centerpiece. In an election year when little else but the nation’s 8.5% unemployment rate seems to matter, talking about anything else would only seem like a diversion.

Specifically, however, the address may focus directly on the future of the nation’s energy sector. Following last week’s rejection of the Keystone XL Pipeline, energy independence is a newly hot topic, and the White House is keen on using the president’s annual address as a way to both deflect criticism of the rejection and change the conversation on energy altogether.

Opposition to the Keystone XL project, which would’ve constructed a pipeline from Alberta, Canada all the way to the Gulf of Mexico, wasn’t limited to the nation’s most environmentally-minded. Local economies opposed the plan on the basis that it would cost jobs in the natural gas sector, which is only just now becoming economically viable. “The shipment of Canadian oil into the U.S. is hardly conducive to the further development of gas as an energy alternative,” said NACM Economist Chris Kuehl, PhD. "Right now, natural gas is on the edge of an economic breakthrough, and issues like access to cheap oil will matter. The price of natural gas has tumbled, which is a good thing for the utilities that use it to produce power, but the price has not fallen low enough to convince power plants to abandon coal-fired operations.”

“If natural gas reaches a level that makes it competitive with gasoline as a source of energy for mass vehicle use, the sector begins to make sense economically and it now seems more apparent than ever that the White House has this in mind,” he added.

While the development of natural gas could appeal to both heartland economies and environmentalists, a comprehensive energy plan by the Administration will, in all likelihood, seek to exhaust all possibilities in the pursuit of energy independence, meaning oil production would increase along with natural gas production. “There is a very aggressive plan when it comes to natural gas development. It may even go so far as to set a goal for natural gas production that is more aggressive than anything seen thus far,” said Kuehl. “The speech will also emphasize the development of offshore oil reserves and various oil shale deposits in the U.S.”

“These are not the kind of remarks that will gladden the hearts of the environmental community, and they put the rejection of the Keystone project in a different light,” he added.

Right now, however, all of this is speculative. “The ultimate plan from the White House may not look at all like this,” Kuehl cautioned. “And the U.S. will have missed an opportunity to reduce reliance on the volatile nations of the Middle East, but if the rumors are true, this evening’s speech may do a lot for the confidence of domestic oil producers and leave the environmental community with a pyrrhic victory in Nebraska.”

Jacob Barron, CICP, NACM staff writer