A widely reported projection by the International Energy Agency draws public attention to what professionals in the oil and gas industry already know: that the energy-supply outlook for the US has changed dramatically for the better. Development of hydrocarbon resources in shales and other low-permeability reservoirs, all but impossible before recent technological advances, raises the promise of production rates heretofore unthinkable. Combined with rising output of bitumen in Canada, the new supply is reshaping global oil trade. It's attracting investment for resource development and reinvigorating manufacturing industries that use natural gas, newly abundant and cheap, as feedstock and fuel. It's boosting the US economy.
Whether the US will allow itself full benefit of this good fortune, however, remains in question.
Production surge
The headline forecast of the IEA report is that US oil production will lead the world for several years after 2020, exceeding even output from Saudi Arabia. Not so long ago, US oil production was thought to be in irreversible decline. Now, the US is a major reason the IEA expects North America to attract 30% of the $15 trillion in upstream oil and gas investment due worldwide through 2035. With oil supply rising and demand held in check by growing output of biofuel and measures such as toughened fuel-efficiency standards for vehicles, oil imports will fall—"to the extent," IEA says in its World Energy Outlook 2012, "that North America becomes a net oil exporter around 2030."
Yet initiatives carried over from President Barack Obama's first term make the US seem scornful of this opportunity. The Environmental Protection Agency soon will regulate hydraulic fracturing, adding a layer of unnecessary and possibly stifling regulation to state oversight of a well-completion method central to the unconventional-resources boom. Obama almost certainly will renew his assault on tax mechanisms that support oil and gas drilling. Other impediments to oil and gas activity will emerge. Reelection will not have made the Obama team any more hospitable than it has been toward the industry that, if the US is to realize the rich potential described by IEA, must do the work.
Politics offers a reason for reluctance by the US to profit from hydrocarbon riches awaiting development. It's not a good reason. It's not a reason most Americans would accept. But it does explain why the question must be asked whether the US will seize the timely prize before it.
The administration follows the political cues of pressure groups whose public appeals for safe and sustainable oil and gas work camouflage sterner goals: curtailment of oil and gas work to the extent achievable through politics. What these groups really want is the replacement of hydrocarbon energy by uneconomic alternatives—a goal served to whatever extent the government can be persuaded to discourage oil and gas production and consumption. Because commercial supply from unconventional oil and gas resources undermines this agenda, the extremists conjure fear. Instead of addressing genuine environmental problems associated with drilling booms—surface disturbance, accidents, cultural dislocation—they raise false alarms about threats to drinking water hoping to thwart activity.
Foreswearing opportunity
Whether Obama will continue yielding to misshapen public opinion will be tested soon by his overdue decision on the Keystone XL pipeline. Pressure groups warned that the pipeline would—what else?—threaten drinking water and mustered enough public trepidation to cow a president seeking reelection into deferring action on a crucial link between the oil sands region of Alberta and Texas Gulf Coast. The groups' true aim isn't to protect water supplies, which aren't really imperiled, but to limit development of Canadian heavy oil, which they disparage as "dirty." Even that stretches truth. The real problem, from the extremist perspective, is doubt raised by burgeoning oil supply about the wisdom of spending public money on less-abundant energy forms.
IEA's outlook thus not only highlights promise but also underscores the cost of foreswearing opportunity. The US can't afford to keep making that mistake.
