This is a follow-up to the previous blog offering a little more detail on the energy boom underway in the United States.
Growing demand from developing economies caused global oil prices to rise 265% in the last 10 years. A decade of rising fuel prices often made life more difficult for many consumers and businesses, and put an unwelcome strain on our national economy.
High prices and profits, however, made it feasible for oil and gas companies to invest in exploration and research. This resulted in new technologies that have allowed the industry to access game-changing deposits of crude oil and natural gas in the United States and Canada.
A North American fossil fuel boom is also leading to apparently long term changes in electricity production, manufacturing, transportation, and other domestic industries that could have a positive effect on economic growth both in the immediate future as well as long term. Here is a closer look at the discoveries and trends behind the shale energy boom, and what the shift could possibly mean for consumers, businesses, and the nation.
Domestic Oil Supplies
By now almost everyone knows that using new drilling methods to tap into the Bakken Formation in North Dakota and Montana could possibly provide as much as 10 billion barrels of recoverable oil, some of which is already being delivered to the global market. As a result, the U.S. Department of Energy’s Energy Information (EIA) reports that the United States imported only 42% of the oil it used in the first four months of 2012, the lowest level in twenty years.
To the disappointment of many American consumers, increased oil production has generally not resulted in lower gasoline or heating oil prices. Growing foreign demand has provided the foundation for persistent high domestic retail prices and has also resulted in a surge in U.S. exports of refined fuels, according to the EIA.
Natural Gas Abundance
Vast reserves of shale natural gas are now accessible through an old but significantly enhanced process called hydraulic fracturing, or “fracking.” Fracking is a pressurized mixture of water, sand, and chemicals that is used to extract the gas from shale rock layers as deep as a mile or more below the Earth’s surface.
In the last four years, the oil and gas industry has gained access to enough natural gas to supply current U.S. consumption for more than 100 years. Before the development of enhanced fracking technology, it was generally assumed that the nation was running out of recoverable natural gas and oil, but we are now producing more gas than ever before.
In the United States, a short-term glut and other market forces have caused natural gas prices to fall about 86% from highs hit during the middle of the last decade. Natural gas currently sells here for about one-fourth of what it does in Europe and Asia.
If fossil fuel costs stay lower and more stable, it is likely to slow the growth of renewable energy sources such as solar and wind. Green products such as home solar panels and hybrid and plug-in electric vehicles would also face price pressures in order to remain competitive.
Burning natural gas emits less carbon than burning oil or coal, but the enhanced fracking methods have raised some environmental and safety concerns. The Environmental Protection Agency and nongovernmental scientific groups are currently studying how the new drilling and extraction may affect air and water quality. Some states and municipalities have banned hydraulic fracturing due to pressure from the environmental lobby, which somehow says it favors energy independence while opposing the most cost-effective and reliable ways to achieve that goal.
An Energy-Driven Recovery?
To help reduce emissions, many electric utilities will use natural gas to generate power in new projects. Cheaper natural gas also acts as an incentive to convert existing coal-fired plants. As of now, 80% of future electricity generation is expected to come from natural gas. This trend carries its own risks as natural gas has a well established track record of unstable prices and inadequate delivery capacity in response to increased demand.
Looking ahead, global market forces will continue to affect our fuel prices, but becoming more energy independent would help strengthen the U.S. economy, could revive our manufacturing capacity, and limit our national security concerns with the many unstable and unsavory regimes where much of the world’s oil currently is produced.