The US oil and gas industry has an opportunity in this political year to knit important energy issues into a single theme highlighted by events this year. That theme is ensuring that the industry can deliver everything Americans demand of it.
In a presidential election year, political rhetoric will boom with high-minded promises about environmental preservation, sustainable development, and creating a new economic order out of it all.
In the real world, however, people mostly want increasing amounts of energy at the lowest possible cost, delivered and used with minimum effect on the environment. In that world, people make trade-offs between environmental and economic values. They properly do not tolerate environmental carelessness. But few of them want to pay steep premiums for so-called green energy of doubtful convenience and unproven environmental performance.
Continuation of trends
Take away the wishful thinking and self-righteous absolutism of politics, and the energy future looks like a benign continuation of present trends: overall growth in demand for energy, sustained dominance by liquid hydrocarbons of the market for transportation fuel, and rapid gains in use of natural gas in new generators of electric power. Renewable fuels and energy now considered exotic will make impressive progress. Without costly and unlikely subsidization by taxpayers, however, they will grow in use but not significantly in market share.
Only chronic hydrocarbon haters can regret this scenario. It accommodates the energy needs of an expanding economy at the lowest possible cost. With the growing role for natural gas and further improvements in production and consumption technology, its environmental detriments are acceptable in relation to the benefits and demonstrably manageable. And its expansion of the gas market emphasizes the importance of domestic production, which helps the national and local economies.
There is just one problem: The industry might have trouble delivering as much oil and gas as consumers will need (see related stories, pp. 20-21). The reason for this worry is not scarcity in nature of either crude oil or natural gas. It is rather a tangle of statutory and regulatory limits on the industry's ability to work.
This year's leap in oil prices shows that US systems for refining crude and distributing oil products have choke points in need of attention. Pipeline-averse regions of the Northeast rely on water transport for delivery of heating oil and are therefore vulnerable to delivery interruptions when rivers freeze. And complex reformulation requirements for gasoline have fragmented markets and diminished the product's fungibility.
Meanwhile, seasonality of the growing natural gas market has changed. There are now two peak seasons-summertime cooling and wintertime heating. Slow inventory additions this summer have raised concern about supply next winter. But the resulting boost to the commodity price has stimulated gas drilling, which in turn has evoked recent assurances about supply from the American Gas Association and Natural Gas Supply Association.
Indeed, the market will take care of fuel supply this winter. Policy should address the industry's ability to meet demand growth further in the future. The current inventory slump, by forcing the US oil and gas industry to rely on domestic operations to meet demand, highlights strain points that government policy should attempt to ease.
Refining, gas strains
The refining system's regulatory siege is one of them. The government needs to assess the effects of aggressive environmental regulation on an essential industry and ease the pressure where possible. It can do so without compromising environmental values.
And for the sake of future supply of natural gas-and oil, too-the government also should make more land available for lease. Gas supply needs to expand by an estimated 40% in the next 15 years. Most of it will have to come from US production, which can't occur on the vast areas the government has made off-limits to drilling.
There are other policy improvements that can and should be made for the sake of US energy supply, of course. Those concerning refining capacity and land access simply need priority attention. They also show how a common theme might unify policy initiatives from disparate sectors of what political tradition treats as a single industry. That industry must perform a large and growing job on behalf of US prosperity and security. It should not have to fight Washington, DC, at every turn.
