Sunday, June 10, 2012

North American Energy "Independence" ... A Game Changing Reality

We're capable of attaining American energy independence, or, perhaps more accurately, of reaching the state of America becoming much less energy dependent.

Either way it has a nice ring to it. And it's absolutely within our control to achieve in the reasonably near future.

I know it's hard to believe, but it really is true. North America can achieve  "energy independence" relatively soon if we have the will to do so.  The only thing standing in our way is US and our internal politics.

America's New Energy Reality is a well reasoned editorial by Daniel Yergin, a leading expert on energy in the U.S. today. Here's a sample:

"AMERICA needs a new political discourse on energy.This would recognize the emerging reality that the United States has turned around as an energy producer and is on a major upswing. And the impact will be measured not just in energy security and the balance of payments. Energy development also turns out to be an engine for job creation and economic growth — something that would hardly have been considered the last time we were electing a president.

In 2008, the rise in oil prices was accompanied — and partly fueled — by a belief that an era of permanent scarcity was at hand. This mentality had deep roots extending back to the 1970s, when the United States went from being a minor importer of oil to a major importer. In the 2008 rendition, falling oil output was considered simply inevitable. The only questions were at what rate petroleum imports would rise and whether that rate would be slowed.

The outlook was much the same for natural gas. . . . The energy burden on our trade deficit would only increase, adding to our economic distress.

But that is not at all how things are turning out. Technology made the difference. The natural gas market has been transformed by the rapid expansion of shale gas production. A dozen years ago, shale gas amounted to only about 2 percent of United States production. Today, it is 37 percent and rising.

Natural gas is in such ample supply that its price has tanked. This unanticipated abundance has ignited a new political argument about liquefied natural gas — not about how much the United States will import but rather how much it should export.

The oil story is also being rewritten. Net petroleum imports have fallen from 60 percent of total consumption in 2005 to 42 percent today. Part of the reason is on the demand side. The improving gasoline efficiency of cars will eventually reduce oil demand by at least a couple of million barrels per day.

The other part is the supply side — the turnaround in United States oil production, which has risen 25 percent since 2008. It could increase by 600,000 barrels per day this year. The biggest part of the increase is coming from what has become the “new thing” in energy — tight oil. That is the term for oil produced from tight rock formations with the same technology used to produce shale gas.

Tight oil is redrawing the map of North American oil. At the beginning of this year, North Dakota overtook California as the nation’s third largest oil-producing state. It didn’t stop there. It just overtook Alaska, to become No. 2 after Texas. Tight oil could reach more than four million barrels per day by 2020.

What really brings home the new reality is a milestone attained last year: In 2011, the United States registered the largest increase in oil production of any country outside of OPEC.

If one takes a broader North American perspective, the changes in the supply picture are even more striking. The output of Canadian oil sands has tripled since 2000 and is now greater than Libya’s output before its civil war began in February 2011.

This adds up to a very different outlook from a few years ago. Until fairly recently, energy independence was a subject to get laughs.  . . . But now “energy independence” has become a subject of serious discussion and debate.

The prospects for actual energy independence remain elusive. It takes some very heroic assumptions to see that happening. But with oil demand in the United States declining, output rising and increasing integration with Canada, the United States is certainly on the way to becoming “energy less dependent.” . . . .

This new discourse is shaped not only by the surge in oil and gas production. But it also represents a growing recognition of what this means for the overall economy. Traditionally, the major arguments in favor of domestic oil and gas production have mainly been about energy security and balance of payments. But now this surge is recognized as an engine of economic growth. Increasing domestic supply means that fewer dollars are going overseas and more of them are staying at home, going into investment and job creation.

Nothing looms larger right now than the employment part. This domestic production comes with long supply chains and creates a lot of jobs along those chains. . . .

Lower energy costs are also providing a big boost to the revival of manufacturing in the United States and the competitive position of American industries in the global economy. A few years ago, both United States and European petrochemical companies, which use natural gas to make their products, would not have contemplated new investments in the United States. Natural gas was too expensive.

Now, with abundant and cheap gas, they are migrating back, bringing billions of dollars of new investment with them — and a lot of new jobs. . . .

America’s new story for energy is still unfolding. It includes the continuing development and expansion of renewables and increased energy efficiency, both of which will be essential to our future energy mix. But what is striking is this great revival in oil and gas production in the United States, with wide impacts on jobs, economic development and the competitiveness of American industry.

This new reality requires a new way of thinking and talking about America’s improving energy position and how to facilitate this growth in an environmentally sound way . . . in an era of economic uncertainty."

Summing Up

Politically, Pogo sure hit this nail squarely on its head when he said, "We have met the enemy and he is us."

We definitely are our own worst enemy with respect to becoming materially less energy dependent --- and soon.

All we have to do is get our politicians on the right track ---- out of the way, in other words.

If we can bring some adult conversation into the energy discussion, we will create tens of thousands of new American jobs, enjoy solid economic growth, eliminate deficits and finally begin to pay off the national debt. While being more secure as a nation at the same time.

Other than energy, of course, we'll have lots of other work to do as well on the entitlements and living within our means front.  That said,  the opportunity to achieve "energy independence" is the pleasant surprise of the decade.

Now it's up to all of us "happily surprised Americans" to prove Pogo wrong on this one.

Thanks. Bob.

1 comment:

  1. In 2008, when the pundits were predicting that oil production had peaked and that oil prices (then as high as $150) would continue to rocket higher, some said that we had seen similar predictions by Malthus and others 30-40 years earlier, and that our ingenuity would lead to ever increasing production and allow us to avoid disaster. It seems like the optimists were right. That is good to see.

    And I recall the politicians who spoke of energy independence being ridiculed. The democrats suggested wind farms and solar power would replace oil, and the republicans said we should stop importing from the middle east. Both suggestions seemed, and proved to be, silly. But it is not surprising that predicting the source of future "less dependence" wasn't easy. But now that the path is being established, our "leaders" can get in front of the parade.

    So as you suggest, the (today) seemingly hopeless, entitlement driven, long term fiscal problem we face will hopefully be addressed through some combination of solutions that aren't readily visible to today's unserious politicians. I think it is logical that an eventual majority in favor of not impoverishing future generations will form. Maybe it already exists but has yet to awaken or find its voice. When it does, the "leaders" will know what to do - get in front of the parade.

    So I guess the danger of all this optimism is that believing that we will figure things out (either because we always seem to or because the penalty of not figuring things out is unbearable) leaves the possibility of being boiled like the frog or beheaded like the turkey. So staying vigilant and engaged may be the key. Maybe that is the way that we keep this time from "being different."