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August 9, 2012

US Debates: What Should We Do with All This Energy?

America’s energy revolution is underway. Proven oil reserves have been steadily rising for years, and increased production of shale gas is projected to create tens of thousands of new manufacturing jobs in the years ahead. But that doesn’t mean we know precisely where it’s all going, or when it will end.

One of the bigger questions, for example, is: what should we do with all this gas? The answer is not as simple as it sounds. Debate in Washington is already heating up on the issue of exporting liquified natural gas (LNG). The Wall Street Journal reports that a number of congressmen from energy-producing states are currently lobbying the Obama Administration for authorization to export LNG to countries with whom America lacks specific trade agreements. Others, however, oppose such agreements, preferring to keep cheap energy supplies at home to give American companies a leg up over foreign competitors:

In a letter to Energy Secretary Steven Chu on Tuesday, the lawmakers said a review of various export proposals didn’t appear to have “a sense of urgency” despite the lawmakers’ belief that exports will spur more natural-gas production and create jobs.

[...]

The Energy Department is reviewing about 10 proposals to export liquefied natural gas to countries lacking a free-trade agreement with the U.S. The department says it won’t approve those projects until it analyzes the effect of exports on domestic prices, employment and economic growth, among other factors.

Our politics clearly haven’t kept pace with the changing domestic energy situation of the past five years. The debate over exports is extremely common in energy-exporting states but relatively new to the U.S. We can expect such debates to get much louder and more frequent as the energy revolution picks up steam.

In general, Via Meadia thinks we should let markets rip when it comes to exporting gas. Creating a large base of steady customers will help ensure that we make the investments needed to develop our gas resources, and in any case the US will still enjoy significant cost advantages with domestic gas supplies.

But however the policy makers work this one out, we’d rather see arguments about how to handle our wealth than arguments about how to ration and allocate scarce and expensive resources. These are luxury problems, and we hope we get plenty more like them.

Posted in Energy & Environment, Politics, Quick Takes
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  • thibaud

    A good bet that Pres. Jimmy Carter’s Dem Convention speech will give significant time to a discussion of how his Department of Energy, through its farsighted policies and billions in federal funding, made the shale gas revolution possible.

    When he’s not reminding the nation, that is, of the fact that the Republicans are too ashamed of their own former president to even mention his name at their convention.

  • Mark in Texas

    What we could do about all this natural gas is remove the insane EPA regulations that effectively ban conversion of gasoline vehicles to dual fuel gasoline/natural gas vehicles by raising the compliance cost by tens of thousands of dollars. How about just requiring a natural gas conversion car or truck to go to a smog station and get tested for both modes of operation? That would make the cost of inspection and compliance something like $20 to $50 instead of $25,000 per vehicle.

  • Jbird

    Not selling Nat Gas on the International market will only serve to create a glut in the domestic market and drive American prices so low that it will become unprofitable to drill for the stuff, at which point some will stop drilling (after losing their shirts) and prices will go back up. So in the medium term, prices will find their level whether we export it or not, but if we do export it there will be more jobs and more wealth while if we don’t we’ll put people out of work and reduce wealth.

    Thibaud: Looking at the Dems’ refusal to green-light the keystone pipeline, and considering Green’s are an important liberal constituency and they harbor a general antipathy to shale gas exploration, I’m guessing no one at the Dem Convention is going to be claiming to be responsible for flammable drinking water and Ohio earthquakes whether those claims be spurious or not.

  • Kevin

    I think the issue they are missing is the currency effect. Natural resource producing states see their currency appreciate which tends to depress manufacturing in tradable goods as their cost of production relative to foreign producers rise. While this might be tough for manufacturing (especially of non-energy related goods) it will boost the standard of living in the US which is why most if us work anyway.

    I also suspect that rising energy exports will not cure the US trade decifit. The trade deficit is driven by foreigners desire to invest in the US (either in US gov’t debt or productive assets) and concurrent low US savings rate. US energy exports wil simply displace other US exports, not reduce the level of net imports.

    Still increases in energy production and energy exports will lead to a rise in total US output and main present a relatively painless way to deal with the federal debt. If foreigners are willing to pay more for our gas gran domestic producers, we should export it. Given the high costs of exporting gas overseas the US will still retain lower energy costs than the importers of the gas.

  • thibaud

    Jbird – those Sierra Club checks have already cleared. Obama will continue his pivot and will pocket OH and PA in due course.

  • http://logotech.org Gerald Owens

    The 30 year gap between Carter’s “Investment” in the energy department’s fracking “research” and its subsequent deployment in recent years speaks more toward the possibility that it was not ready for prime-time, and needed much more input from the private sector, else it would have been deployed in response to the “energy crisis”.

    Perhaps, in Carter’s address, he’ll have to explain why there are attempts by the feds to shut down fracking for environmental reasons. Is it good? Is it bad? Will the government “own” the bad along with the good?

    Seems to me success has many fathers, each of which wants to claim 80% of all future income earned by their tykes…

  • Brian

    #1 thibaud:

    “A good bet that Pres. Jimmy Carter’s Dem Convention speech will give significant time to a discussion of how his Department of Energy, through its farsighted policies and billions in federal funding, made the shale gas revolution possible.”

    Are you kidding me?

    Are you one of these revisionists that now insist it was the government that did the research to enable exploitation of shale gas? This is a contemptible assertion, but I’ll try to restrain my contempt.

    Anyone who has worked in the natgas production field, as I have for multiple decades, is well aware of government efforts to advance research into production. They are also well aware these efforts are footnotes, at best, to the work done by private companies.

    To be sure, gov efforts have been helpful in a few areas. GRI did some good work in data accumulation. Sandia’s efforts in microseiesmic imaging actually were incorporated into a number of programs still in current use. And the Eastern Gas Shales Project added a bit of money to work that was otherwise going on – and also provided numerous lessons on how *not* to frac shales, although that wasn’t really their intent.

    But most of the key technologies predated gov efforts by decades or even centuries. Horizontal drilling was privately developed – gov research was limited to minor improvements after the technique had been practiced for decades. Fracturing was first practiced in the 1860′s. Hydraulic fracs were completed in the 1940′s, although not in shale formations. MHF’s in shale were completed long before the EGSP and were profitable, although payouts were not competitive with conventional production. The slickwater technique had absolutely nothing to do with government whatsoever.

    When all the technologies came together for George Mitchell in the Barnett in the 90′s, the government was nowhere around. At best, you can make the case that gov research funding advanced development of the Barnett and thus commercialization of the gas shales by a few years (if I’m being very generous, I’ll give you two years)and improved economics by a few tenths of a percent. In my opinion, it is a much better estimate that the impact was utterly negligible. Shale gas commercialization was brought to you entirely by private efforts – if no government funding had been apportioned in the EGSP and various other research efforts, we would be exactly where we are today.

    And yes, before you mention it, I am well aware of the effusive thanks George Mitchell himself has given to the fed gov research efforts. Duh. Of course he has. He spent decades building Mitchell / Devon Energy (or maybe you believe “he didn’t build that…”). The government could destroy his legacy in days – not to metnion his fortune, and the jobs of thousands. And gov officials *will* punish you with enthusiasm if you do not kowtow properly. He’ll say whatever he has to in order to stay in government good graces and dodge the club of retribution that is always hanging overhead, particularly for those with some prominence.

    I’ve worked in the field for years. I know where the shale gas innovations came from, and other than a couple of afterthoughts, it wasn’t government. Now a bunch of johnny-come-latelys are zooming up to claim government credit. Fine. I find it a bit annoying, but in the greater scheme of things I don’t really care. Just stay out of the way and let me get on with business.