Busting Big Oil Myths on the Renewable Fuel Standard: Part I

By Geoff Cooper
VP, Research & Analysis
Renewable Fuels Association

WASHINGTON, DC - May 23, 2013: Anyone with even a casual interest in energy policy knows that a full frontal assault has been launched against the Renewable Fuel Standard (RFS). Big Oil has gone on the offensive, using a variety of tactics to disparage the program and spread myths and misinformation about renewable fuels. Their champions in Congress have introduced bills to reform or repeal the RFS (the latest attempts to allow natural gas, a distinctly non-renewable fuel, to qualify for the RFS); their attorneys have filed multiple lawsuits to impede implementation; and their PR firms have launched aggressive media campaigns intended to undercut public and political support for renewables.

But let’s be clear. The RFS is under attack not because the policy is "broken" or "unworkable," as claimed by the oil industry and other self-interested opponents of the program. Rather, the RFS is being assailed because it is working exactly as intended.

Remember, the primary objectives of the RFS were to reduce U.S. petroleum imports and consumption, diversify the energy supply with cleaner fuels, and introduce real competition into a fuel market that has been monopolized by oil for the better part of a century. By any measure, the program is succeeding on all counts. Think about it—if the RFS was truly "broken," it wouldn’t be accomplishing any of these important policy goals, and thus it wouldn’t be a real threat to the interests of the entrenched fossil fuels industry. If the program was "not working" and failing to deliver on its promise of reducing petroleum use and imports, then Big Oil’s monopoly would still be intact and they wouldn’t give a second thought to the RFS.

The truth is, the RFS scares the pants off of the oil industry—and it should. Faced with the prospect of losing even more market share to renewable fuels like ethanol, the oil industry has pulled out all the stops to demonize the program and muddle the public discourse over renewable fuels. Big Oil and its surrogates are spending millions of dollars on an orchestrated public relations, legal, and legislative campaign aimed at undermining and ultimately dismantling the RFS. Would they be doing this if the RFS was truly "broken" and didn’t pose a real threat to their stranglehold on the U.S. economy? I think not.

In its conquest to tear down the RFS, the petroleum industry has employed a collection of well-worn myths and half-truths. Apparently, they subscribe to the theory that "If you repeat a lie often enough, it becomes the truth." So, in an attempt to add some balance to the debate, we’re addressing a few of Big Oil’s biggest whoppers regarding the RFS and ethanol. Each week for the next month or so, we’ll expose a myth propagated by opponents of the RFS and set the record straight with facts and data. Up first is the ridiculous notion that the domestic shale boom obviates the need for renewable fuels.

Myth #1: "We don’t need renewable fuels anymore because of the boom in domestic oil production."

Gee, where have we heard that one before? The oil industry has always wanted us to believe that we’ll never run out of oil, that alternatives to petroleum are a waste of time, and that in the words of former Vice President Dan Quayle, "The future will be better tomorrow." In 1980, we were told there is "as much oil under the North Slope of Alaska as there is in all of Saudi Arabia." Well, maybe not. Alaska field production peaked in 1988 and has plummeted ever since. Today, Alaska fields produce an amount of oil equal to just one-quarter of 1988’s peak production and half of the production level a decade ago. In 1999, British Petroleum (BP) trumpeted the Thunder Horse discovery in the Gulf of Mexico, which it said was the biggest discovery ever in the Gulf with "at least one billion barrels" of recoverable oil. Not exactly. Thunder Horse never even left the stable. According to the Oil Drum, "Thunder Horse was designed with an oil production capacity of 250,000 barrels per day. Clearly, it never hit that level, and seems to be already declining…There seems to be no production plateau, and it appears that production may be declining by as much as 25% per year." In 2006, the Wall Street journal celebrated that Montana’s Elm Coulee field in the Bakken shale region was "…the highest-producing onshore field found in the lower 48 states in the past 56 years." Well, it didn’t last long. According to energy analysts Chris Nelder, "…after about five years of drilling, it [Elm Coulee] was pretty well tapped out and the rigs moved on. It gave Montana a quick bump, then production fell off rapidly." I could go on with other examples of over-promising and under-delivering by the oil industry, but you get the point. Oil resources are finite and fickle. In other words, take each press release boasting the next big discovery with a big grain of (tar) sand.

Today, the oil industry claims the Bakken, Eagle Ford, and Marcellus shale plays make renewable fuels a relic and the RFS unnecessary. "Don’t worry," they say, "We can frack our way to energy independence!" Nonsense. History has shown us that when you’re dealing with exhaustible, non-renewable resources, what goes boom eventually goes bust. And there is increasing evidence that shale wells decline very rapidly after just a few years of production.

In any case, EIA’s most recent long-term projections show the U.S. being heavily reliant on imports of petroleum and products long into the future—even with aggressive assumptions about rising domestic unconventional oil production. According to EIA, U.S. production of conventional crude oil peaks in 2014 (that’s next yearfor those of you without a calendar handy), amidst an ongoing boom in unconventional oil production (e.g., tight oil from fracking, EOR, deepwater). Total U.S. oil production peaks in 2019, EIA says, while tight oil production peaks in 2020. Then U.S. oil production begins a steady slide. In essence, the shale boom just delayed the inevitable by a decade or so. EIA projects imports will continue to contribute roughly half of total U.S. crude oil supply (i.e., excluding other petroleum products), despite temporarily dropping slightly below 50% from 2016-2023 (47.8% is the low in 2019). That means Americans will continue to spend roughly $300 billion per year on oil imports, a large share of which comes from politically unstable and hostile regions.

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Even if we could frack our way to energy independence, what would be the cost to the environment? After all, another important objective of the RFS was to supplant fossil fuels with cleaner, lower-emitting energy sources. On a full lifecycle basis, today’s ethanol emits about half of the greenhouse gas emissions as gasoline derived from tight oil from fracking. And don’t forget about the impacts of fracking on water and air quality. There is still much we don’t know about the effects of fracking on the natural environment, but what we do know isn’t reassuring. But that hasn’t stopped the oil and gas industry from drilling wells at a frenetic pace.

It’s true that tight oil production from shale is booming, and as a result total U.S. crude oil production is at its highest level since 1995. But the development of unconventional oil sources in no way means we should abandon the RFS or reverse the fantastic progress we’ve made toward cleaner, more sustainable energy sources.