The huge increase in oil and natural gas production in the United States in recent years has fueled what could be an “energy boom” with the potential of reinvigorating the American economy. But some are skeptical. In The New York Times, Steve A. Yetiv wonders whether the energy boom isn’t a “mirage.”
American oil production has increased some by 1.6 million barrels per day since 2008 to six million. “That’s a significant increase,” admits Yetiv, “in a world that consumes around eight-nine million barrels per day.” Net petroleum imports, moreover, “have fallen from 60 percent of total consumption in 2005 to 42 percent today.”
This is partly because of new discoveries and the reclamation of “tight oil” using hydraulic fracturing technology that shoots pressurized liquids into compact, underground rock formations — the same technology driving the natural gas boom.
By some estimates, the United States possess more oil than Iraq, Iran and Saudi Arabia combined. The Government Accountability Office reported in May that up to three trillion barrels of oil are recoverable from shale between the states of Colorado, Wyoming and Utah — the equivalent of the entire world’s proven oil reserves!
Within less than a decade, the United States could surpass Russia and Saudi Arabia as the world’s largest oil producer. So why writes Yetiv, a professor of political science at Old Dominion University in Norfolk, Virginia, that we “should not be overly optimistic”?
First, he argues, oil is a global commodity. “No matter where the oil comes from, buyers will pay roughly the same price for it.” But increased American production raises the supply and will therefore logically depress the price worldwide.
Yetiv also overlooks the element of energy security. Unlike is the case in most petroleum exporting countries, American oil and gas production, once approved, is not particularly susceptible to political interference, the Obama Administration’s moratorium on deepwater drilling in the Gulf of Mexico two years ago notwithstanding. Increased certainty of supply should also drive down the price at the pump.
Speaking of other oil exporters, Yetiv argues, “the Organization of the Petroleum Exporting Countries won’t sit by idly if America’s boom begins to hurt oil prices seriously.” Arab nations, Iran and Venezuela could decrease production to keep prices higher. Which is true. But the very fact that prices are high is what makes fracking and deepwater drilling profitable. American oil companies cannot afford too low a price either.
Yetiv further raises the possibility that “a supply disruption or development anywhere in the world affects oil prices for all consumers.” Even if domestic production increases, “Americans would still be vulnerable to global events that raise the price of oil.” Which, as Yetiv points out, is just as true today, so what’s new?
An American energy boom “probably won’t stop oil speculation,” writes Yetiv but he makes the mistake of assuming that “speculation” always puts upward pressure on prices. What he denounces as “speculation” is actually a form of insurance that stabilizes global oil prices. As the libertarian Cato Institute’s Indur Goklany explains, “Blaming speculators for high oil prices is like blaming a death on headaches rather than the underlying brain tumor.”
Speculation is a symptom, not the disease. It’s the tight supply-demand equation that creates opportunities for speculators to profit although it’s less clear whether that necessarily increases prices.
Yetiv admits that “extra American oil on the market might temper speculation under some conditions but then again, it might not.” Not very convincing.
Finally, Yetiv predicts “a backlash against hydraulic fracturing which,” he believes, “can pollute water” — a claim that has been rebuked by the Environmental Protection Agency, Colorado’s Oil and Gas Conservation Commission (PDF) and Pennsylvania’s Department of Environmental Protection’s Bureau of Oil and Gas Management, among others.
What Yetiv doesn’t mention is that since 2008, fracking alone has created up to 600,000 new jobs. Indeed, the words “employment” and “jobs” don’t appear in his op-ed altogether even if the American energy boom could put millions to work.
It’s only in the final paragraphs of Yetiv’s article that we learn the real reason for his skepticism about oil and gas. He writes, “a boom in fossil fuels is hardly something to celebrate, given the urgency of climate change.”
A green revolution would protect future generations from climate havoc and wean us from our dependence on the vagaries of oil prices. We shouldn’t let the fossil fuel boom divert our attention from that goal.
Clearly, Yetiv doesn’t want an oil and natural gas boom because it would “divert” Americans’ attention from unprofitable renewable energy alternatives like solar and wind. “Clean” energy is the real mirage, not oil and gas and the jobs they will create.