Could the sun be rising on a dawn of energy independence for the U.S.?
An abundance of usable energy, especially when converted into electricity, is the key to the economic advancement of society. The lack of cohesion in the energy policy of the U.S., if you care to call it a policy at all, has a few major factors at its root. One of them is the concern for protecting the environment. This is a noble cause but it is plagued by a great deal of science fiction and a large dose of incorrect scientific information. Some refer to it as the Al Gore brand of science.
The environmentalists stress the risk of damage to the physical environment, the land, water, and air and its accompanying health hazards. This is a good thing to do – in the right measure. However, little concern seems to be shown for the risks resulting from an anemic rate of economic growth and its excessively high unemployment rate from a lingering recession-like economic behavior; a loss of real income due an excessively high priced energy, an excessively unequal income distribution, and an exacerbated political risk facing our military and state department officials around the world from terrorists financed by huge profits on the crude oil production of unfriendly, and some self-professed friendly, OPEC nations.
Do not forget the high costs of added security domestically to prevent other 9/11s from occurring. As we have noted, over the past few years, one of the major causes for the collapse of housing prices, was the loss of real income due to the several years of high gasoline prices and food prices as a large amount of land was diverted to the production of dent corn for conversion into ethanol.
In 2006, we warned against the impending housing collapse and the danger of rising oil prices…
“To satisfy the subsidized use of ethanol, hundreds of thousands of acres of crop land are being diverted to corn production for making ethanol. I just heard from an Iowa resident that farmers are taking lots of acreage out of the land bank and producing corn for ethanol. While inclement weather is also a cause of skyrocketing food prices, acreage diversion from soy beans, etc as well as diverting corn from its market derivative products including food and other uses, is also a major cause of such rising prices. The weather will improve, the diversion of acreage will not.”
Yes indeed, environmental concerns, while necessary if properly understood, do have very high costs. What is needed is a new metric for establishing a balance between the risks of more scientifically measured environmental damage with the risk of economic damage from environmentally induced legislation resulting in vastly overpriced energy for a nation that is more than suited and able to be energy independent.
Another cause of our lack of a more rational energy policy is simply put, old fashioned greed in the private sector. Through the exercise of market power (more commonly referred to as monopoly power), competition is stifled in order that energy firms, especially crude oil firms, can charge excessively high prices and excessive profits leading to returns on equity that would make organized crime happy. By restricting supply, prices are increased well above their market clearing levels that would occur if firms lacked the market power to control significant portions of supply.
We’ve seen this most recently in the case of natural gas, where falling prices has paved the way for an industry-wide curtailment in production.
A major player in the natural gas market, Chesapeake Energy, has announced its intention to significantly cut back its production because of low natural gas prices. The significant uptick in the supply of natural gas has been the one bright spot in all this news.
On August 8, this headline ran in The Oklahoman newspaper…
The country’s surge in natural gas production may soon be over.
“Chesapeake Energy Corp. — which has billed itself as “America’s Champion of Natural Gas” and is the country’s second largest natural gas producer — said Tuesday that it has turned off the spigot and will see a 7 percent decline in its natural gas production in 2013.”
But hope is on the horizon…
Currently under way is a kind of black gold rush in shale or as some call it tight oil and shale gas. It may prove more valuable than the Klondike and similar gold rushes. Bakken, Eagle Ford, and Marcellus are beginning to bring forth oil and gas that challenge the control of such energy sources by the oil cartels. Other such shale regions are sitting there waiting for development and production efforts.
Don’t forget the federal lands, some brimming full of pools of oil ready for the proverbial picking, such as ANWR in Alaska and offshore areas such as those near California, in the Gulf of Mexico and the Atlantic seaboard.
The slow rise of energy from non-fossil sources is also showing the possibility of a breakout, especially for solar energy. Third generation solar panels that convert solar energy directly into electricity are now beginning to edge toward commercial applications.
We have seen the price of natural gas collapse to the point that many electric utilities have been considering shifting from coal to gas fired generators. The choke point is that of the availability of pipelines to ship the gas to the refineries and end users.
Now we are beginning to see an increase in domestic production (in the U.S.) of oil from newly exploited shale fields.
For example, North Dakota’s oil production averaged 660 thousand barrels per day (bbl/d) in June 2012, up 3% from the previous month and 71% over June 2011 volumes. Driving production gains is output from the Bakken formationin the Williston Basin, which averaged 594 thousand bbl/d in June 2012, an increase of 85% over the June 2011 average. The Bakken now accounts for 90% of North Dakota’s total oil production.
Production gains in the Bakken formation are the result of accelerated development activity, primarily horizontal drilling combined with hydraulic fracturing. According to the North Dakota Department of Mineral Resources, there were a total of 4,141 producing wells in the North Dakota Bakken in June 2012, up 4% from May 2012 and up 68% from the number of producing wells in June 2011.
Meanwhile, in the Lone Star State, it is said that oil production in the Eagle Ford shale formation of southern Texas topped 310,000 barrels a day in July. The nine fields that make up the majority of the 400-mile- long (644- kilometer) play pumped out 310,370 barrels a day, preliminary data on the Texas Railroad Commission’s website showed. That’s up from a revised count of 309,979 barrels a day in June, and 120,532 a day in July 2011. Given this, analysts have noted that growing production out of Eagle Ford is helping fuel a renaissance in Texas crude. According to the U.S. Department of Energy, the state produced 1.9 million barrels a day in June, the highest monthly level since April 1991.
The real success story in the U.S. is the fact that we are virtually energy independent in terms of natural gas production. So long as we can keep the playing field competitive, we are pretty much assured to maintain cheap and plentiful natural gas in the years ahead.
In returning to our original question,
Could the sun be rising on a dawn of energy independence for the U.S.?
Maybe, just maybe.
The full article may be found at: EconNewsLetter