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Fracking's Black Gold Rush Makes America's Economic Future Bright

http://www.cblpi.org/resources/article.cfm?ID=229

While the White House pursues the fool’s gold of green energy policies, trillions of dollars of black gold sit waiting beneath America’s feet and just off her shores, offering her a bright economic future and virtual energy independence within 25 years. Try hard as he may, President Obama can neither un-invent the technology that is making America’s black gold rush possible nor un-discover the fields of natural resources available to the nation.

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“The [2012 World Energy Outlook] finds that the extraordinary growth in oil and natural gas output in the United States will mean a sea-change in global energy flows,” reported the International Energy Agency in a November press, as “the United States becomes a net exporter of natural gas by 2020 and is almost self-sufficient in energy, in net terms by 2035.”[1]

It’s the beginning of an energy revolution that holds, according to Mark P. Mills, author of a Manhattan Institute of Public Policy report, “staggering potential in economic and geopolitical benefits,”[2] including millions of new jobs in a variety of sectors, lower consumer and business energy costs, a jump start to economic recovery, a boost to government revenues, long-term energy stability and full energy independence for the nation, and a shifting of energy power away from tyrants and trouble spots in the world.

Horizontal Drilling and Hydraulic Fracturing

The black gold rush is being spearheaded by horizontal drilling and hydraulic fracturing (or fracking), a perfected sixty-year-old technology that successfully extracts oil and natural gas trapped in once inaccessible ‘tight’ rock formations a mile below the earth’s surface and thousands of feet below the water table (see YouTube video animation.[3]) Since it allows energy producers to recover oil and gas horizontally over several miles from a single oil well, the process also leaves a significantly smaller footprint on the surface.

The United States, Canada and Mexico are “awash in hydrocarbon resources,” writes Mills, “more than four times greater than all the resources extant in the Middle East.” The development of these resources could yield as much as $5 trillion of value to the U.S. economy and lift the U.S. out of its economic doldrums.

More American Jobs

Fracking and horizontal drilling has resulted in 1.8 million jobs thus far, and only a small percentage of those jobs are directly in extraction, according to a report by the research firm IHS Global Insight titled America’s New Energy Future: The Unconventional Oil and Gas Revolution and the US Economy.[4] As IHS vice chairman Daniel Yergin recently explained in the Wall Street Journal,

These jobs include people working on rigs in Pennsylvania or North Dakota, manufacturing equipment in Ohio or Illinois, and providing information-technology services in California or legal services to royalty owners nationwide. The number of jobs could rise to three million by 2020.[5]

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Energy extraction on private lands in North Dakota has sparked such a jobs explosion that unemployment in that state has fallen to 3%. Other regions in the nation could see similar economic growth, according to Mills:

By 2015, oil and gas developed from Ohio’s part of the Utica shale formation will generate 200,000 new jobs, $12 billion growth in overall wages, and increase state economic output by $22 billion. In the western states, a mere couple of dozen proposed oil and gas projects in Utah and Wyoming are expected to generate 120,000 jobs, $139 million in government revenue, and a cumulative economic benefit of nearly $400 billion to the region over the next 15 years. Unleashing 20 billion barrels of cumulative oil from Alaska’s ANWR and some currently off-limits regions of the outer continental shelf would bring over $1 trillion of net benefits to the U.S. economy.

Increased Government Revenues

Cash-strapped federal, state and local governments stand to reap a windfall in new taxes and royalty revenues. This year an estimated $62 billion will be added to federal and state revenues, according to Yergin.

Natural gas production in Texas over the past decade has generated $10 billion to local counties, cities, and school districts alone, notes Mills. He estimates that federal and local governments could see tax receipts of $1 to $2 trillion as a result of oil and gas production over the next decade.

Lower Consumer Costs

Consumers benefit as well. The fracking technology has made domestic natural gas plentiful and cheap in the U.S., in part, because the nation lacks the export facilities necessary to liquefy and ship natural gas outside the country, reports Jeff McMahon in Forbes. At about $4 per 1000 BTUs, fracking-generated natural gas represents a significant savings over nuclear power at $8 to $10 and solar at $15 to $20.[6]

“New natural gas finds in 20 states have pushed the U.S. price of natural gas to just one-fourth the average global price and about 1/16ththe price paid by our trading partners such as Japan,” reported Tim Mullaney in USA Today. These lower costs save “U.S. companies and consumers an average $566 million a day.”[7]

Lower domestic energy costs are also reversing a trend of losing manufacturing companies and jobs to other nations, according to Yergin.

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Domestically, growing natural gas supplies provide a foundation for a manufacturing renaissance, at least for industries for which energy is an important feedstock or where energy costs are significant. Chemical companies have been leaving the U.S. for years in the search for lower-cost countries in which to operate. Now they are planning to invest billions of dollars in new factories in this country because of inexpensive and relatively stable natural gas prices. The price of natural gas, which averaged $2.66 per thousand cubic feet in the first nine months of this year, is less than half of what it was five years ago.

Improved U.S. Position Geopolitically, Environmentally

“The tantalizing possibility of North America by 2030 becoming the largest supplier of fuel to the world would require about an 80 percent increase in aggregate hydrocarbon production over two decades, “ writes Mills. “From a resource perspective, this does not present a challenge, as earlier illustrated. From an engineering perspective, it is unlikely to be a stretch.”

The U.S. achieved two milestones in 2011 toward realizing that possibility. It became the world’s largest producer of natural gas, producing 651.3 billion cubic meters to Russia’s 607 billion cubic meters, according to McMahon; and it also posted the largest increase in oil production of any non-OPEC nation, producing 7,841 thousand barrels of oil per day compared to Saudi Arabia’s 11,161 thousand barrels per day.

The Energy for America website puts the North American energy boom—and the energy independence it offers—in perspective:

The amount of oil that is technically recoverable in the United States is more than 1.4 trillion barrels, with the largest deposits located offshore, in portions of Alaska, and in shale in the Rocky Mountain West. When combined with resources from Canada and Mexico, total recoverable oil in North America exceeds 1.7 trillion barrels. To put this in context, Saudi Arabia has about 260 billion barrels of oil in proved reserves. For comparative purposes, the technically recoverable oil in North America could fuel the present needs in the United States of seven billion barrels per year for around 250 years (emphasis added).[8]

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A significant benefit to American energy independence is “not having to design military and foreign policy objectives based on energy security to the degree the U.S. has over the past 30 years,” writes Michael Cembalest, chairman of market and investment strategy at JP Morgan Asset Management.[9] The surge in U.S. oil production since 2008—equal to about 80% of Iran’s pre-sanction oil export level, argues Yergin, replaced oil lost in the world market and served to enhance the effectiveness of sanctions on the Tehran regime.

The new North America energy finds “pose a dual challenge to OPEC [Organization of Petroleum Exporting Countries],” according to the Citi GPS report:

On the one hand, OPEC countries will be unlikely to increase output at the same rate as the three North American countries combined. On the other hand, unlike OPEC members, the North American trio, each a member of the OECD [Organization for Economic Cooperation and Development], are unlikely to try to protect prices by limiting output. If more non-OPEC oil is developed in the latter half of the decade, particularly in deep waters, the potential loss of influence by OPEC is significant. No wonder OPEC producers are looking so closely at what is unfolding in North America.[10]

No wonder, either, that the United Arab Emirates, an OPEC nation that derives more than 80% of its economy from petroleum and natural gas exports, chose to finance the anti-fracking, oil-corporation-vs-middle-America film, Promised Land—scripted by Matt Damon—scheduled for release in theaters in January 2013.[11]

Damon’s film follows an earlier alarmist documentary, Gasland, that seeks to turn public opinion against fracking and domestic drilling. Phelim McAleer, also a documentary film director and producer, questions Gasland film director John Fox’s manipulation of facts in the film:

Fox’ documentary Gasland, claims that fracking, a way of drilling for natural gas, has polluted water and endangered lives. One of the most alarming scenes is when he lights water that residents claim has been polluted by fracking. It is dramatic and at first glance seems like a slam dunk. I mean they can light their water - it is polluted and there is gas drilling nearby. It must be responsible.

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But then a little digging reveals a few inconvenient facts. A 1976 study by the Colorado Division of Water found that this area was plagued with gas in the water problems back then. And it was naturally occurring. As the report stated there was “troublesome amounts of methane” in the water decades before fracking began. It seems that in geographical areas gas has always been in the water.

But Josh Fox knew this and chose not to put it in Gasland.[12]

Given its role in reducing carbon emissions, environmentalists should welcome fracking. The U.S. Energy Information Administration (EIA) reported in its October 2012 Monthly Energy Review that “the USA’s 2012 emissions are falling sharply again and may drop to 1990 levels, or just slightly above that important milestone.”[13]

Quipped blogger John Hinderaker, “The shale gas revolution and Barack Obama’s lousy economy have achieved what endless global warming conferences couldn’t: sharply reduce U.S. C02 emissions.”[14]

Those in the energy industry are working with the Obama administration to alleviate environmental concerns related to horizontal drilling and hydraulic fracturing. Yergin, who served on a federal committee created last year to evaluate and report to the U.S. Secretary of Energy on environmental questions, summarized the committee’s findings:

The committee identified three major environmental considerations—wastewater, local air pollution and community impacts—that need to be carefully managed with the rapid development of this activity. The committee recommended a series of pragmatic solutions, centered around “best practices” for both operations and regulation, innovation (e.g., reduced water use) and engagement with community stakeholders. These initiatives will help to provide a safe foundation for the further development of the industry.

The rapid growth of oil and natural gas production represents a major opportunity for the U.S. Without these energy resources, the disappointing economic picture would look worse, and so would the jobs numbers. Instead, the energy revolution is helping revitalize the economy and make the U.S. more competitive in the global marketplace.

Economy and Politics

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Despite the current administration’s single-minded focus on renewable energy, renewables as a source of power generation aren’t likely to surpass coal until 2035, according to IEA’s World Energy Outlook 2012, and even reaching that potential “hinges critically on continued [government] subsidies.”

Germany’s green energy goal—20% to 35% renewable energy by 2020 and 80% renewables by 2050—has already given Germany’s residential consumers the highest cost of electricity in Europe, and its industrial consumers’ cost are among the highest. In a world already reeling from economic recession, writes Cembalest, it is unclear where Germany will find the $800 billion Euros to fund its green goal.

Renewables produce only about 12% of all power generation in the U.S., and its share of power generation declined overall in 2012, according to the Institute for Energy Research citing U.S. Energy Information Agency forecasts.[15] Nuclear power produces 19% of U.S. power, and hydrocarbons continue to produce the lion’s share at 69%.

New finds in American domestic oil and gas, notes Mullaney “are fast approaching $1 billion a day, and it may be keeping the U.S. out of another recession.” Yet these economic benefits from hydrocarbon output have come almost entirely from private land and state land. Oil and gas leases sold on federal land in the western states are declining annually.

Interior Secretary Ken Salazar claimed during the presidential campaign that, under President Obama, oil production on federal lands had increased. Michael Sandoval at The Heritage Foundation refutes the Salazar claim:

… oil production on federal lands has decreased between fiscal 2010 and fiscal 2011 by 11 percent. Natural gas production has decreased by 6 percent in the same one-year span. It is down nearly 27 percent from fiscal 2009. Meanwhile, oil and gas production have increased by 14 percent and 12 percent, respectively, on private and state-owned land.[16]

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The Obama administration’s blockade of federal lands isn’t easing. On Nov. 9, 2012, three days after the election, President Obama’s Interior Department issued its “final plan to close 1.6 million acres of federal land in Colorado, Utah and Wyoming that had been previously approved for oil shale development,” reported Zack Colman at The Hill, adding,

Interior’s Bureau of Land Management cited environmental concerns for the proposed changes. Among other things, it excised lands with “wilderness characteristics” and areas that conflicted with sage grouse habitats.[17]

In an effort to overcome roadblocks to development on federal land by this administration, lawmakers in the U.S. House of Representatives have developed a package of several bipartisan pieces of legislation, headed by The Domestic Energy and Jobs Act (H.R. 4480), “to restore regulatory certainty, spur economic growth and continue on a path towards energy independence.”[18] It remains to be seen whether or not the legislation will be allowed to move forward.

“The main obstacles to developing a North American oil surplus are political rather than geological or technological,” noted the Citi report. “Deep divisions between competing interest groups could change robust supply growth in North America, but are also unlikely to entirely block this.”

President Obama and his officials cannot stop America’s black gold rush; they can only delay it. As each new assessment shows, the many benefits of America’s resources are already in the bank, and Americans will be enjoying the economic, employment and energy returns on them long after the current administration is history.

Lil Tuttle is Education Director at the Luce Institute.

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