The United States passed Saudi Arabia and Russia to become the world’s largest oil producer. (Also the world’s largest natural gas producer.) This is due to new technologies, such as shale extraction and fracking (which, however, has been linked to the epidemic of earthquakes in Oklahoma, something I never experienced growing up there.) [Read more…]
The BBC reports that new information about American oil and gas supplies, thanks to our vast shale deposits and the new ability to extract energy from them, will shake up the world’s economy.
A steeper-than-expected rise in US shale oil reserves is about to change the global balance of power between new and existing producers, a report says. [Read more…]
David Ignatius brings up what could be heralds of good economic prospects ahead. (Or is it just a pipe dream?)
First, the case that America is entering a new era of energy security: My expert here is Robin West, a friend who is chairman of PFC Energy, a Washington-based advisory group. He argues in a series of recent reports to clients that, because of the rapid expansion of oil and gas production from shale, America is likely to become by 2020 the world’s No. 1 producer of oil, gas and biofuels — eclipsing even the energy superpowers, Russia and Saudi Arabia.
West explains that the natural-gas boom will mean a dramatic change in energy imports and, thus, the security of U.S. energy supplies. He forecasts that combined imports of oil and natural gas will fall from about 52 percent of total demand in 2010 to 22 percent by 2020. The totals are even more impressive if supplies from Canada are included.
“This is the energy equivalent of the Berlin Wall coming down,” contends West. “Just as the trauma of the Cold War ended in Berlin, so the trauma of the 1973 oil embargo is ending now.” The geopolitical implications of this change are striking: “We will no longer rely on the Middle East, or compete with such nations as China or India for resources.”
Energy security would be one building block of a new prosperity. The other would be the revival of U.S. manufacturing and other industries. This would be driven in part by the low cost of electricity in the United States, which West forecasts will be relatively flat through the rest of this decade, and one-half to one-third that of economic competitors such as Spain, France or Germany.
The coming manufacturing recovery is the subject of several studies by the Boston Consulting Group. I’ll focus here on the most recent one, “U.S. Manufacturing Nears the Tipping Point,” which appeared in March.
What’s happening, according to BCG, is a “reshoring” back to America of manufacturing that previously migrated offshore, especially to China. The analysts estimate that by 2015, China’s cost advantage will have shrunk to the point that many manufacturers will prefer to open plants in the United States. In the vast manufacturing region surrounding Shanghai, total compensation packages will be about 25 percent of those for comparable workers in low-cost U.S. manufacturing states. But given higher American productivity, effective labor costs will be about 60 percent of those in America — not low enough to compensate U.S. manufacturers for the risks and volatility of operating in China.
In about five years, argue the BCG economists, the cost-risk balance will reach an inflection point in seven key industries where manufacturers had been moving to China: computers and electronics, appliances and electrical equipment, machinery, furniture, fabricated metals, plastics and rubber, and transportation goods. The industries together amounted to a nearly $2 trillion market in the United States in 2010, with China producing about $200 billion of that total.
As manufacturers in these “tipping point” industries move back to America, BCG estimates, the U.S. economy will add $80 billion to $120 billion in annual output, and 2 million to 3 million new jobs, in direct manufacturing and spin-off employment. To complete this rosy picture, the analysts forecast that in about five years, U.S. exports will increase by at least $65 billion annually.
If, that is, the government doesn’t do what many environmentalists are calling for, banning fracking as well as other new technologies, blocking new pipelines, and preventing drilling where new reserves have been discovered. And if the government does not stand in the way of building of new plants and factories
Does our president understand economics?
Facing heat for high gasoline prices, President Obama tried to shift the focus to Congress, Republicans and energy traders, calling for legislation that he said would “put more cops on the beat” to crack down on potential manipulation of the oil market.
Obama called on Congress to provide more money for regulators and increase penalties for market manipulators. The president, flanked by Treasury SecretaryTimothy F. Geithnerand Atty. Gen. Eric H. Holder Jr., suggested that traders and speculators are affecting the price of oil and digging into Americans’ pocketbooks.
“We can’t afford a situation where some speculators can reap millions while millions of American families get the short end of the stick,” Obama said in brief remarks in the Rose Garden on Tuesday. “That’s not the way the market should work.”
Obama’s proposal would add $52 million to the budget for the Commodity Futures Trading Commission, which oversees oil futures markets, to pay for improved technology and additional employees. The president also proposed increasing the maximum civil and criminal penalties for manipulative activity in oil futures markets and beefing up data collection.
Or he could build the pipeline for Canadian oil. Or he could open up Alaskan and coastal regions for drilling. Or he could suspend restrictions on the building of more oil refineries. Or he could lower gasoline taxes (as opposed to the Democratic strategy of raising them). Or all kinds of other things rather than increase regulation and penalize–or even criminalize–investors!
President Obama said “no” to the pipeline that would transport Canadian oil from that country’s vast reserves of oil sand to the refineries of Texas, creating jobs along the whole route. Even the liberal Washington Post editorial board thinks that decision is foolish and makes the point that stopping the pipeline won’t even help the environment:
Without the pipeline, Canada would still export its bitumen — with long-term trends in the global market, it’s far too valuable to keep in the ground — but it would go to China. And, as a State Department report found, U.S. refineries would still import low-quality crude — just from the Middle East. Stopping the pipeline, then, wouldn’t do anything to reduce global warming, but it would almost certainly require more oil to be transported across oceans in tankers.
Environmentalists and Nebraska politicians say that the route TransCanada proposed might threaten the state’s ecologically sensitive Sand Hills region. But TransCanada has been willing to tweak the route, in consultation with Nebraska officials, even though a government analysis last year concluded that the original one would have “limited adverse environmental impacts.” Surely the Obama administration didn’t have to declare the whole project contrary to the national interest — that’s the standard State was supposed to apply — and force the company to start all over again.
Environmentalists go on to argue that some of the fuel U.S. refineries produce from Canada’s bitumen might be exported elsewhere. But even if that’s true, why force those refineries to obtain their crude from farther away? Anti-Keystone activists insist that building the pipeline will raise gas prices in the Midwest. But shouldn’t environmentalists want that? Finally, pipeline skeptics dispute the estimates of the number of jobs that the project would create. But, clearly, constructing the pipeline would still result in job gains during a sluggish economic recovery.