With an Arab Fall if not Winter dominating the Middle East, the
U.S. is under pressure to intervene even more. Unfortunately,
reliance on imported oil continues to entangle Washington in the
Middle East’s volatile politics. Some analysts advocate more
subsidies for alternative energy in response. It would be better to
free North America’s abundant natural resources, providing the U.S.
with a brighter economic future.
Americans have endured multiple energy “crises” centered on the
Mideast over the last four decades. Arab oil producers imposed an
embargo during the Nixon administration, which had bizarrely
discouraged domestic production with price controls. President
Jimmy Carter created the Department of Energy, which paradoxically
did more to discourage than promote energy development.
President Ronald Reagan eliminated oil price controls, but had
to wait for Congress to remove natural gas restrictions. After the
Iran-Iraq war threatened to disrupt oil shipments from the Gulf,
Washington “reflagged” Kuwaiti oil tankers and provided American
military protection for petroleum shipments. Succeeding
administrations promoted subsidies for alternative energies and
promised to reduce U.S. dependence on Mideast oil, with little
practical result.
Today the Obama administration continues to back the
embarrassing Gulf kleptocracies led by Saudi Arabia because they
are major oil producers. Unhappy with this dependence, President
Obama pushed even bigger subsidies for other energy sources. This
corporate welfare wasted hundreds of millions of dollars on federal
support for private companies such as bankrupt Solyndra.
Alternative energy production is up, but remains largely
irrelevant to meeting Americans’ energy needs. “Their overall
contribution to world supply remains de minimus and stays
that way (even though it is still growing rapidly) in every
credible future scenario,” explained Mark P. Mills, an Adjunct
Fellow at the Manhattan Institute, in his recent
study, “Unleashing the North American Energy Colossus:
Hydrocarbons Can Fuel Growth and Prosperity.”
Coal, natural gas, and oil remain the least expensive and most
convenient fuels. That’s why they supply more than 85 percent of
energy today. There are technical alternatives to these energy
sources, but no economic alternatives. While politicians and
environmentalists continue to proclaim alternative fuels as a
panacea, Mills explained that “The game-changing technologies that
have emerged involve hydrocarbons: natural gas, oil, and
coal.”
Nor is enforced conservation any solution. With the rise of
China, India, and other emerging markets, the U.S. matters ever
less in determining world energy prices. While three decades ago
America accounted for roughly one-third of the world’s energy
consumption, observed Mills: “Today, however, the U.S. has dropped
to below 20 percent of world energy demand; and before three
decades pass it will fall to under 15 percent. As a result, going
forward, global markets and prices will be increasingly
disconnected from domestic U.S. energy consumption behavior,
whether virtuously voluntary or punitively policy-driven.”
Obviously, there is a technical limit to the world supply of
hydrocarbons. However, contrary to common myth, the world is not
running out of energy. Rather, advancing technologies now allow
access to supplies once beyond reach. Explained Mills:
“Technological progress in hydrocarbon exploration and development
has been transformative and is ongoing, enabling the emergence of a
new era of hydrocarbon production, which is, in turn, unleashing
the capability to efficiently tap into North America’s enormous
resources of natural gas, oil, and coal.”
Examples include improved materials and information technology,
better ability to find and map supplies and extract resources,
directional drilling, and the much discussed hydraulic fracturing.
It isn’t just natural gas and oil. Noted Mills, new technologies
have “also driven a near doubling in the coal sector’s productivity
in the past two decades.”
Energy discoveries overseas have received significant public
attention and will prove beneficial. However, there also is much
good news closer to home. Mills explained that “Technology has
unleashed staggering quantities of commercially exploitable
reserves of these fuels, especially in the United States and its
neighbors in North America.”
The U.S. once was viewed as a permanently declining energy
producer. In 1978 the U.S. Congress even approved the Fuel Use Act,
which limited consumption of natural gas, the supplies of which
were constrained by federal price controls. This mentality of
scarcity drove the Carter administration to launch its disastrous
War on Energy, highlighted by pervasive regulations and massive
subsidies. Unfortunately, this myopia continues to dominate
Washington, as Mills detailed in another Manhattan Institute
study,
“Liberating the Energy Economy: What Washington Must Do.” He
pointed out that today’s federal policies have “evolved
unintentionally to become complex, overreaching, and often
capricious.”
America no longer is energy poor. “The United States is now the
fastest-growing producer of oil and natural gas in the world,”
observed Mills in “Unleashing.” America is expected to pass Russia
as an oil producer by 2020.
Americans could produce even more energy if the U.S. government
freed up access to existing resources. The U.S. alone is estimated
to possess 30 billion barrels of oil reserves based on current
technology. Total resources are far greater and will yield even
more recoverable supplies as technology advances.
Off-shore oil deposits add even more. Mills explained: “The
technically easy-to-access — if not politically accessible — oil
in Alaska’s off-limits ANWR and the Gulf of Mexico would, in the
short term, essentially triple existing U.S. oil reserves.” New
technologies have dramatically improved the ability to find and
develop these resources.
Even more significant is shale oil. Reported Mills: “The Green
River Formation, for example, a shale region largely beneath
Colorado, Wyoming, and Utah, contains an estimated 2,000-3,000
billion barrels of oil,” of which between 30 and 60 percent is
estimated to be recoverable with existing technology. Alberta,
Canada’s oil sands are estimated to contain another 2,000 billion
barrels of oil — which could come to the American market with the
approval of the Keystone Pipeline project.
Indeed, count Canada and Mexico and the continent becomes an
energy colossus. Mills observed: “North America has total
hydrocarbon resources that are some four times greater than those
found in the Middle East. The geology of North America is
profoundly hydro-carbon rich.”
Allowing firms to develop these resources would offer several
important benefits. The first is economic. Mills pointed to
significant current gains for North Dakota from oil and Texas from
natural gas production. Estimated benefits for Utah and Wyoming
from oil and natural gas production are expected to run some $400
billion over the next 15 years. Extracting oil from ANWR and the
outer-continental shelf could generate $1 trillion in benefits.
Freeing the energy industry would mean jobs, wages, sales, and tax
revenues. All of those would be useful for a nation suffering from
anemic economic growth, persistently high unemployment, and massive
government deficits.
Moreover, America’s energy industry spreads its rewards broadly.
Noted Mills: “Economic benefits from expanding hydrocarbon
production will be felt widely given the structural and geographic
diversity of hydrocarbon resources and the associated industries.
In contrast to other parts of the world, benefits here won’t flow
to a handful of oligarchs but will involve thousands of businesses
and ripple broadly throughout the economy.”
Given America’s falling share of international energy demand,
reducing imports wouldn’t have much impact on global energy prices.
Rising demand in China, India, and other emerging markets could
easily overwhelm any downward pressure on prices.
However, there would be a political benefit from reducing
hydrocarbon imports (America is unlikely to ever entirely end oil
imports). Even though the energy marketplace is international,
presidents from Richard Nixon to Barack Obama have mistakenly
treated the Middle East as a vital security interest because of
U.S. dependence on oil. That has led to support for thuggish
monarchies and frequent wars. An expanding and diversifying
international energy marketplace would make it easier to convince
Washington to lay down the sword. If the Europeans, Chinese, or
other significant oil consumers want to take over Gulf guard
duties, let them. The U.S. should reduce the size and cost of its
military and, more importantly, the risk of conflict.
To obtain this bright future government merely need reduce
barriers to existing energy production. Mills posits an even more
abundant energy future, however. He asked: “what would happen if
policies were enacted to accelerate and encourage even greater
expansion of North American hydrocarbon production and to expand
access to the vast tracts of federal lands that sit atop
staggeringly large resources? Why not push beyond self-sufficiency
to energy influence, even dominance?”
The benefits of doing so are obvious. Allowing an already
important industry to greatly expand and turn into a significant
export market would offer significant economic rewards. Moreover,
higher energy production could moderate global energy prices and
reduce the reliance of other nations on the Middle East and other
unstable and/or undemocratic energy states.
Concluded Mills: “Economic research noted earlier finds about
$75 billion in broad economic benefits for every billion barrel of
oil produced (or oil-equivalent in hydrocarbons). This would imply
that the aggregate 100 billion barrels of additional hydrocarbons
extracted and sold over the next two decades in the accelerate
scenario would yield over $7 trillion of value to the North
American economy, with $5 trillion of that accruing to the
U.S.”
There are no obvious technological or economic barriers to this
future. Nor are any government subsidies required. Rather, the
problem is political, especially access to federal land. “Vast
tracts of hydrocarbon-rich resources are either entirely or
effectively off-limits to development,” with a steady decline in
new natural gas and oil leases on federal land since 2006,
explained Mills. In “Liberating the Energy Economy” he cited
problems of regulatory “complexity,” “creep,” and “capriciousness.”
In response he offered a deregulatory agenda, emphasizing agency
accountability, access to federal lands for exploration and
development, and rationalizing legal challenges to development.
Among his suggested policy changes were removing barriers to
exports and creating “a single federal portal for approval of all
major energy projects,” similar to that employed by Canada.
Nevertheless, opposition to an abundant energy future remains
strong. Environmental concerns rank high, but just as new
technologies make energy extraction more economical, they also make
energy extraction more ecological. The argument that development
should proceed responsibly is no reason for not letting it
proceed.
Americans can see the potential of an energy-rich future. In
“Unleashing” Mills concluded that “The world will need enormous
quantities of hydrocarbons in the future, regardless of and despite
substantial gains in energy efficiency and alternative energy
deployment. No single region of the world could make as significant
a difference to the supply dynamic as could North America.”
Uncle Sam should get out of the way and allow the rest of us to
get to work.
