Balancing on a tight resource rope

Conventional wisdom tells us that the U.S. oil-and-gas boom is a welcomed turn of events — especially in the Midwest’s heavily industrialized and economically struggling Rust Belt states, tight shale oil and gas appear to be new varieties of precious black gold.

In Ohio and its neighboring states, residents have suffered through decades of downturn. The region’s specialization in processing raw materials for manufacturing had faded away. Prosperity is now returning, though slowly, to the Midwest economy in the form of resources buried deeply in the disconnected fissures of the Utica, Marcellus and Devonian shale. Conventional thinking is unlikely to question the wisdom of this energy windfall.

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Unconventional thinking, however, raises red flags in the conventional wisdom. Will the U.S. oil-and-gas boom bolster energy and economic security? Maybe. But there are risks.

Emerging petroleum sources have an imposing relationship on their surroundings. Producing and processing new oils and gases requires technological forcing — through horizontal drilling, hydraulic fracturing and chemical injection — with uncertain long-term impacts. Managing water quality, waste and seismic, climate and other impacts are difficult in the face of rapid, under-regulated resource development.

This situation breeds an information and power imbalance. Industry has more knowledge than citizens and can hold financial sway over policymakers. Proceeding more cautiously, while prudent, too often pits profits and jobs against health and safety.

The speed at which tight reserves are being extracted merits reconsideration beyond these important issues of unintended societal consequences. There are also economic and energy trade-offs associated with this energy boom. First, with natural gas selling at low prices, accelerated production of tight gas could be unwise. Today it might be worth more in the ground than in the pipeline. A slower development path would buy time to figure out how to safeguard residents and the environment, offering full disclosure and better mitigation before problems arise.

Tight oil, on the other hand, raises a different set of energy and economic concerns. With oil topping $100 a barrel, the pressure to pump these continuous crude resources is palpable. But there are flaws in this thinking. Claims that U.S. tight light oil is a benefit for American motorists could be too good to be true. Midwest oil will do nothing to relieve prices at the gas pump, which are driven by international events in global oil markets. Gas prices will rise and fall despite an all-out effort to drill at home.

Moreover, there just isn’t that much oil in the Midwest — the faster it is removed, the sooner it will run out. There is evidence of resource depletion within the first year. Other estimates show tight oil finds ramping up quickly and then plateauing and declining well before the end of this decade.

Nevertheless, current drilling activity in Ohio stands at dozens of wells per square mile. This level of development is one of the most concentrated in America, where an estimated 4.3 million new wells have been completed. In fact, nearly the entire state of Ohio is contained within the largest shale resource play in the continental United States, spanning some seven states. Containing premature enthusiasm, especially in the face of the recent recession, will be a challenge.

But what’s the rush? These hydrocarbons are not going anywhere. While a boon to steel and petrochemical production, long-term economic security of the region and the nation extends well beyond the current oil-and-gas boom. A slow, structured approach — one that balances energy supplies and energy demands — is more likely to lock in robust results.

In the face of burgeoning new energy supplies, there is now mounting resistance to reduce overall energy demands through increased energy efficiency. America’s oil-and-gas revival could invite wastefulness that could threaten its competitiveness in the growing global economy. The United States, and the Midwest in particular, needs to take care that its assets aren’t mismanaged. It is well documented that big hydrocarbon discoveries tend to make non-oil sectors, such as agriculture and manufacturing, less competitive on world markets, thus leaving oil to dominate the economy.

We must learn how to navigate the promises and pitfalls of 21st century petroleum supplies. Transparency is essential. This starts with cautious development that protects local residents. It entails establishing information databanks so that regulators fully understand the hydrocarbon value chain, from extraction through use. And it means developing new rules for new fuels to effectively manage the transformation of oil and gas.

This is a critical moment to determine the future energy balance between fossil fuels, low-carbon alternative fuels and energy efficiency. There is no historical precedent for a coherent, enduring global petroleum policy. Now is the time to structure the role oil-and-gas supplies will play in our collective energy future.

Gordon is a senior associate at the Carnegie Endowment for International Peace.

This article appeared in a special advertising section for The Hill.