Oil and Natural Gas: The Next Economic Boom?
Oil and Natural Gas: The Next Economic Boom?

Oil and natural gas are two of the world’s most prominent energy sources, accounting for 60 percent of the world’s energy needs (National Energy Board, 2012). The U.S. share in the production of these resources is growing. Oil production in the U.S. has been on a steep rise since 2008, growing from about four million barrels a day to six million barrels a day in August 2012 (Saefong, 2012). This growth is strengthening the U.S. economy and global economy as well.

All countries are dependent on energy to fuel growth and productivity.  Some countries have enough energy resources to take care of their own needs, while others do not. By 2020, the United States is expected to lead the world in oil production, allowing the U.S. to become energy independent, a strategic goal, and a net energy exporter, an economic goal.

This new analysis examines the U.S.’s potential new role as a world leader in oil and natural gas and addresses challenges the country currently faces while attempting to meet energy demands.

New Technologies

The technological breakthroughs to extract oil and natural gas led analysts to predict that the U.S. would become the world’s top oil producer by 2020 and a net exporter by 2030 (Mackey, 2012). This is due in part to horizontal drilling and fracking, which expose vast amounts of oil and natural gas beneath the surfaces of U.S. states. These technologies make it cost-effective to extract these sources of energy.

Although the benefits of fracking are evident due to recent economic successes, there are dangers to fracking as well. Surrounding lands and communities are often at risk. A few of the dangers include limited safety regulations and reported incidents of ground water contamination in high-fracking areas around the country. The public disclosure laws for chemicals used in fracking differ according to state.  Most states do not require oil and gas companies to disclose the chemicals that they pumped into the ground during fracking (Promised Land, 2012).  Not knowing what chemicals are used makes it difficult to ascertain the full environmental impact.

Geopolitical Concerns

Protecting the nation’s oil supply has long been a U.S. security concern. To address this concern, the U.S. helps ensure stability in major oil producing countries and in the Middle East, South America, and Africa. Many oil-producing countries in these areas are quite volatile. The U.S. views these actions as imperative to securing energy resources that cover domestic needs. Domestic energy production will reduce U.S. dependence on oil and natural gas produced from volatile regions, giving the country energy security.

The changing environment for oil production may soon shift from a focus on foreign dependence to a focus on domestic sustainability. “The United States could conceivably produce up to 65 percent of its oil consumption needs domestically, and import the remainder from North American sources and thus dramatically affect the debate around dependence on foreign oil (Leonardo Maugeri, 2012).”

Sustainability

Most economists and energy analysts forecast the future of oil and natural gas as an economic boom for the U.S. They believe it will create at least three to four million new jobs, due in part to recently discovered shale deposits. Shale deposits are seen as a viable option because of the vast amounts being discovered daily. Proponents against shale oil argue though that “tight oil or shale gas fields produce pretty rapidly early on, but then decline fairly sharply (Tong, 2012).”

Extracting shale oil requires large amounts of water, mainly from private land, and causes damage to local water lines and wells. According to the Bureau of Land Management, mining and distilling shale oil requires 2.1-5.2 barrels of water for each barrel of oil produced (Herro, 2012). In addition, 1,200 megawatts or equivalent of power is needed to produce one barrel of oil. According to the European Commission, the Energy Return on Investment is valued at two whereas the value of conventional crude oil is twenty. This means that two units of energy are produced for every unit consumed (Cleveland, 2012). Clearly the returns on investment are not yet very high.

President Bush passed the U.S. Energy Policy Act in 2005 that required the Department of Interior to promote research and development of oil shale resources and to establish a commercial leasing program (Herro, 2012). The U.S. requires companies to disclose sites and equipment used in international locations. Companies must first provide background information regarding shale oil extraction sites before they are allowed to drill. The government wants companies to uphold safety measures when using hydraulic fracturing to drill on federal lands. These requirements burden oil and gas companies, who are already burdened with protecting local water lines.

Obama’s Policies

When Obama took office, additional policies were added.  These policies require federal fuel efficiency standards for cars and light trucks, regulation of carbon dioxide emissions by the EPA, incentives for renewable energy, and support for hydraulic fracturing within the domains of federal safety standards. Other Obama policies provide incentives for oil and gas development, such as allowing shorter lease terms to encourage rapid development. Obama also has region-specific strategies for responsible oil development (Board, 2011). During his first term, the price of oil and gas increased drastically, a common trend among first term presidents, but prices leveled off in subsequent two years.

The impact of Obama’s policies was a 43 percent decrease in grants and 37 percent decrease in drilling on federal lands and offshore oil and natural gas sites (Staff, 2012). Critics argue that the reduction in federal lands and grants is largely due to offshore drilling and new shale oil sites, which drove down the cost of oil in the U.S. While the price of oil subsided over the last five to seven years, the amounts of oil and gas deposits continue to rise with a projected oil production of around ten million barrels a day by 2020. Proponents say the U.S. is on a track towards energy self-sufficiency.

The Obama administration’s major underlying goal is to achieve reduced dependence on foreign oil imports. Together new technologies and Obama’s policies may lead the U.S. to become self-sufficient.  Beyond that, the U.S. expects there to be remaining shale oil left over, which could be exported to China and India, whose rising populations will continue to increase worldwide demand for coal and natural gas.

Conclusion

If the U.S. is to become the world leader in oil production/exportation, the levels of supply and demand must be figured realistically into the equation. Experts predict that the U.S. will have a strong output of oil and natural gas that will establish the country as a net exporter. Despite this status, U.S.’s geopolitical position in the world may diminish in the Middle East, Africa, and South America because the country is importing less oil from these countries. The discovery of new sources of oil and natural gas will have a profound impact on the direction of the U.S. economy and power in the coming decades.

Works Cited

Board, U. E. (2011). Blueprint for A Secure Energy Future. Washington, D.C. : White House.

Cleveland, C. &. (2012). Oil shale is not a viable fuel source. Bristol : European Commission .

Herro, A. (2012, November 18). Plenty of Shale, Plenty of Problems. Retrieved from WorldWatch Institute: http://www.worldwatch.org/node/5167

Leonardo Maugeri. (2012, November 17). “Global Oil Production is Surging: Implications for Prices, Geopolitics, and the Environment”. Retrieved from Harvard.edu: http://belfercenter.ksg.harvard.edu/publication/22147/global_oil_production_is_surging.html

Mackey, P. (2012, November 18). U.S. to overtake Saudi as top oil producer: IEA. Retrieved from Reuters : http://www.reuters.com/article/2012/11/12/us-iea-oil-report-idUSBRE8AB0IQ20121112

National Energy Board. (2012, November 24). Canada’s Energy Future – Reference Case and Scenarios to 2030 – Energy Market Assessment. Retrieved from Canadian National Energy Board: http://www.neb-one.gc.ca/clf-nsi/rnrgynfmtn/nrgyrprt/nrgyftr/2007/nrgyftr2007chptr2-eng.html

Promised Land. (2012, November 17). Retrieved from The Wilderness Society : http://wilderness.org/blog/promised-land-starring-matt-damon-highlights-dangers-fracking?gclid=CKyso9i_27MCFYqZ4AodIUcAUA

Saefong, M. (2012, November 16). U.S. oil independence isn’t a sure thing. Retrieved from Market Watch: http://www.marketwatch.com/story/us-oil-independence-isnt-a-sure-thing-2012-11-16

Staff, C. W. (2012, October 5). Oil and natural gas production under Obama. Retrieved from CNN: http://www.cnn.com/2012/10/04/politics/fact-check-oil-gas/index.html

Tong, S. (2012, November 18). U.S. to pass Saudi Arabia as top oil producer. Retrieved from Marketplace: http://www.marketplace.org/topics/sustainability/us-pass-saudi-arabia-top-oil-producer

Tverberg, G. (2012, November 25). IEA Oil Forecast Unrealistically High; Misses Diminishing Returns. Retrieved from Our Finite World: http://ourfiniteworld.com/2012/11/13/iea-oil-forecast-unrealistically-high-misses-diminishing-returns/

Leave a Reply


3 + = eight