The New Oil and Gas Boom
The U.S. will soon be a net exporter of energy. That could change everything
In their second debate, Barack Obama and Mitt Romney began with a spirited discussion on energy, during which they both agreed on the goal of making America more energy independent. This has been part of presidential rhetoric since Richard Nixon declared energy independence his Administration’s aim. As it happens, regardless of who is elected President, a tidal shift is taking place in energy that will matter far more to America’s energy future than anything either candidate plans or imagines.
Over the past decade, America has experienced a technological revolution—not, as expected, in renewable energy but rather in the extraction of oil and gas. As a result, domestic supplies of new sources of energy—shale gas, oil from shale, tight sands and the deepwater, natural-gas liquids—are booming. The impact is larger than anyone expected.
In 2011, for the first time since 1949, the U.S. became a net exporter of refined petroleum products. Several studies this year have projected that by the end of this decade, the U.S. will surpass both Russia and Saudi Arabia and become the world’s largest producer of oil and liquid natural gas.
Much of this opportunity comes from America’s newfound ability to draw oil and gas from geological formations that just a few years ago geologists deemed impenetrable. The consequences of this breakthrough, both economic and geopolitical, are difficult to assess, but they range from a manufacturing renaissance in the U.S. to a decline of the geopolitical clout of Russia and the Middle East. Both would obviously be welcome news.
Romney has accused the Obama Administration of throwing obstacles in the way of this boom. But so far they do not seem to have had much effect in slowing things down.
Of course, there are many on the left who believe that the Obama Administration has gone soft on the oil and gas boom and wish he had instituted more regulations. Fracking—the procedure by which shale oil and gas are extracted from deep rock formations stretching from the Appalachians nearly to the Rockies—remains controversial and arouses great passion. The Oscar-nominated documentary GasLand suggests that unlocked gas could burst out of people’s taps, allegedly because of fracking. These charges are important, but they need more thorough investigation. Gas could end up in water pipes for a variety of reasons unrelated to fracking.
The Environmental Protection Agency is doing a comprehensive study of fracking, in part because we need to better understand the ramifications of this promising new extraction method. At this point it seems the greatest harm has come from small fracking operations that don’t worry that an environmental problem could damage their brand name or profit margin. This makes it an industry tailor-made for intelligent regulation, because the big companies could well support clear rules that everyone, in a growing number of states, would follow.
The environmental impact of the natural-gas boom is already clear—and positive. The U.S.’s greenhouse-gas emissions in 2011 were 9% lower than in 2007. That’s a larger drop than in the European Union, with all its focus on renewables. Why? A slow recovery and lagging demand is one answer. But the main reason is that natural gas is replacing coal everywhere as an energy source, and gas emits half as much carbon dioxide as coal. This point is crucial. The conversation about natural gas cannot be had in isolation from the alternative. If we shut down all fracking and stop using shale gas, we will get all that energy by burning coal, which is the world’s dirtiest fossil fuel—and is associated with mining deaths and respiratory illnesses as well.
As the oil and gas boom progresses, however, we should not forget that there is ultimately a better future for energy—namely wind, solar and other renewables—that provides unending supply, low price and almost no environmental damage. Most of these approaches continue to be plagued by the problems of cost and energy storage. (Bill Gates has calculated that if you took all the world’s batteries, they together would have enough capacity to store 10 minutes of the world’s demand for energy.) But they are gradually becoming competitive with fossil fuels.
The best bet for the U.S. is not only to expand oil and gas production but also to increase funding for research and development of new sources of energy. We need more breakthrough technologies and new designs and processes. But the government should also aid these nascent technologies by helping them achieve scale—which comes only from large deployment of these technologies. The U.S. government—the Department of Defense and then NASA—bought almost half of all the computer chips produced by Silicon Valley in the 1950s until the industry could sufficiently lower its costs to be commercially viable.
We need to expect, even welcome, some investment failures. In venture capital, if you have eight failures and two big successes, that’s a ratio to be proud of. But in government, one Solyndra means the whole program can die. Wind and solar are relatively small investments and needlessly controversial. The much larger question is nuclear energy. Should the government continue to provide subsidies for nuclear power? The emotional opposition to nuclear power has little to do with the data—many more people die in coal mines every year than have ever died in nuclear plants—but it does shape the political reality. Nuclear-power-plant construction remains stalled. But if Americans want a constant supply of large amounts of energy with zero carbon emissions, nuclear is the only game in town right now.
The final piece of the energy puzzle should be the least controversial. Energy efficiency—drastically reducing the vast waste of energy in homes, offices, factories and vehicles—is good for greens and CEOs, for America and the world. Scientist turned activist Amory Lovins argues that the U.S. could grow its economy to 2.6 times its size, get completely off oil, coal and nuclear and use one-third less natural gas—all by 2050.
Efficiency means a hundred different things, like lighter (and yet sturdier) cars made from carbon fiber or similarly light and strong materials. It also means rethinking how we build things: if considered as a separate nation, America’s buildings alone are the world’s third largest users of energy, after the rest of America and China and ahead of every other country! And it means simple modifications like this one in every hotel room in Europe: when you leave the room, taking the key out of the slot turns out the lights. It doesn’t require any sacrifice in lifestyle to have the lights off when you’re not in the room. McKinsey estimates that the U.S. could save more than $130 billion annually—or $1.2 trillion by 2020—just by maximizing efficiency.
Conservation reminds us that we should think about energy not as a problem but as an opportunity. As we search for new sources of economic growth, it’s worth recalling how the information revolution of the 1990s restarted America by transforming so many aspects of life and work. Energy could have a similar transcendent effect. New technologies that provide cheaper and unconstrained supplies of energy could revolutionize the world. And the country that pioneers them will be on top.