In recent weeks, Dan Yergin, arguably the most authoritative writer, commentator and analyst of global energy trends, has written about the impact of technology on the gas-and-oil industry. Yergin eloquently outlines how technology has identified or enabled production of new sources of oil and gas in Canada, North Dakota, Brazil and most recently French Guyana, and explains how these resources will potentially reduce our dependence on Middle East suppliers in the years ahead.
Realizing Yergin’s vision of a resurgent Western Hemisphere energy boom and associated economic growth and security dividends is not by any means a done deal. Policies critical to achieving or derailing a new era in energy production are being debated and implemented in Washington. The ultimate path we choose will be an issue in the 2012 elections.
Let’s address the market and incentives first. In the 1990s, deregulating wellhead prices and allowing power generators to consume gas created new markets that drove prices to historic high levels and supported the widespread deployment of hydraulic fracturing technology. As a result, the trend for increased liquefied natural gas (LNG) imports predicted by the Natural Petroleum Council in 2003 has been reversed. LNG imports are at 1994 levels, and companies are now seeking permits to export LNG.
As for oil, demand over the past decade has been driven by hyper growth in such emerging economies as China and India. In response, prices rose and exploration companies of all sizes pursued what had previously been declared unproven or non-economic resources. Oil fields like North Dakota’s Bakken field, long tantalizing but beyond the grasp of developers, suddenly saw high prices and lower cost technology merge to create a sustainable business model. Production at Bakken grew from virtually none a few years ago to a projected half million barrels a day this year.
Yergin’s second assumption as to whether the United States government is prepared to approve enhanced exploration of these newly tapped energy supplies is very much in play. The Obama administration’s decision to delay the Keystone XL pipeline project, which would increase Canadian oil imports, should be viewed as a warning that the government is willing to oppose new energy production either directly or indirectly. If anyone had any illusion that the State Department’s decision was about a route through Nebraska, Daniel Kammen, an Obama 2008 energy adviser, left no room for doubt: “The real issue isn’t the route. It’s what’s in the pipeline.”
This Keystone XL decision, combined with project permitting delays in Alaska, moratoriums in the Gulf of Mexico and regulatory uncertainty surrounding new shale gas production would leave an objective observer to question if there is any will to move production beyond traditional Middle East suppliers.
Today, the choice for America is stark. If we support North American energy production, the United States increases its own energy security, creates more liquidity in the global market, and creates jobs in refining, and downstream industries such as fertilizers and chemicals. Alternatively, we can continue down the path of increasing reliance on foreign energy sources that could be unstable or hostile. The onus is now on Washington to seize the moment and stop obstructing the opportunity created from advances in technology.
Maddox was a former senior official at the Department of Energy and is now an energy fellow with the American Action Forum.