Skip to comments.Energy Revolution 2: A Post Post-American Post (Important!)
Posted on 07/16/2012 6:02:36 PM PDT by 2ndDivisionVet
Forget peak oil; forget the Middle East. The energy revolution of the 21st century isnt about solar energy or wind power and the scramble for oil isnt going to drive global politics. The energy abundance that helped propel the United States to global leadership in the 19th and 2oth centuries is back; if the energy revolution now taking shape lives up to its full potential, we are headed into a new century in which the location of the worlds energy resources and the structure of the worlds energy trade support American affluence at home and power abroad.
By some estimates, the United States has more oil than Saudi Arabia, Iraq and Iran combined, and Canada may have even more than the United States. A GAO report released last May (pdf link can be found here) estimates that up to the equivalent of 3 trillion barrels of shale oil may lie in just one of the major potential US energy production sites. If half of this oil is recoverable, US reserves in this one deposit are roughly equal to the known reserves of the rest of the world combined.
Edward Luce, an FT writer usually more given to tracing Americas decline than to promoting its prospects, cites estimates that as early as 2020 the US may be producing more oil than Saudi Arabia.
So dramatic are Americas finds, analysts talk of the US turning into the worlds new Saudi Arabia by 2020, with up to 15m barrels a day of liquid energy production (against the desert kingdoms 11m b/d this year). Most of the credit goes to private sector innovators, who took their cue from the high oil prices in the last decade to devise ways of tapping previously uneconomic underground reserves of tight oil and shale gas. And some of it is down to plain luck. Far from reaching its final frontier, America has discovered new ones under the ground.
Additionally, our natural gas reserves are so large that the US is likely to become a major exporter, and US domestic supplies for hydrocarbon fuels of all types appear to be safe and secure for the foreseeable future. North America as a whole has the potential to be a major exporter of fossil fuels for decades and even generations to come.
Since the 1970s, pessimism about Americas energy future has been one of the cornerstones on which the decline theorists erected their castles of doom; we are now entering a time when energy abundance will be an argument for continued American dynamism.
The energy revolution isnt a magic wand that can make all Americas wishes come true, but it is a powerful wind in the sails of both Americas domestic economy and of its international goals. The United States isnt the only big winner of the energy revolution Canada, Israel and China among others will also make gains but the likely consequences of the energy revolution for Americas global agenda are so large, that the chief effect of the revolution is likely to be its role in shoring up the foundations of the American-led world order.
I will look at the global consequences for geopolitics and the environment in some upcoming posts, but first things come first and Id like to look at the domestic consequences of the boom before moving on to its impact on the world.
Domestically, the energy bonanza changes the American outlook far more dramatically than most people yet realize. This is a Big One, a game changer, and it will likely be a major factor in propelling the United States to the next (and still unknown) stage of development towards the next incarnation of the American Dream.
The energy revolution is first and foremost a revolution that affects jobs. We are in the very early stages, but since the financial crisis of 2008, fracking alone has created something like 600,000 new jobs in the United States, says the FT. Throw in more jobs in both extracting and refining the new energy wealth, and add the manufacturing and processing industries that will return to US shores to benefit from cheap, secure and abundant energy and feedstock, and it is clear that the energy revolution will be a jobs revolution.
These jobs pay well; for the first time in a generation we are looking at substantial growth of high-income jobs for skilled blue collar workers. Some of these jobs, especially with overtime, will pay in the six figures; most offer wages well above the national blue collar average.
The boom has the potential to change the debate over immigration. The best blue collar jobs in the new oil and gas patches will demand workers with good English language skills and some technical background good junior colleges and strong vocational high schools will prepare workers for these new jobs. Low skilled, non-English speaking workers will have a hard time competing for these jobs but will work instead in less well paid jobs servicing the energy sector and its workers. They will build houses for the oil workers to live in and staff the restaurants where they eat. As more blue collar native-born Americans see their living standards rise, it is likely that (legal) immigration will lose some of its political salience.
Towards A New Geography of Power?
Theres another advantage: these jobs will mostly be located away from the coasts. The hollowing out of Middle America has been one of the tragedies of the last generation. Looking at the depopulation of the northern Great Plains, planners began to speculate about returning large chunks of whole states to the wild: the Buffalo Commons idea that would have taken up to 20 million acres out of private hands. The buffalo will have to move over now for the oil rigs and the people who work them; North Dakota will not be reverting to the wild anytime soon.
But there are large oil and/or gas reserves in other downtrodden areas. Western New York State and much of Pennsylvania and Ohio appear to have commercial quantities of fossil fuel. The revival of the Rustbelt may be getting under way. And Dixie will not lose out: the US share of the Gulf of Mexico is now believed to have the potential to produce 2 to 3 million more barrels per day than the 1.2 million that it currently pumps.
Overall, the new energy geography points toward a revival of the Mississippi-Ohio-Missouri river system as the axis of American growth. Thats likely among other things to be good for Americas political climate; the Midwest has traditionally been something of a swing region less liberal than the coastal northeast and less aggressively conservative than Dixie. Middle Westerners have tended to be pragmatic optimists over time, and it would be interesting to see how a revival of this political tendency would work out in our politics today. In any case, we may be looking at a decline in the power of the northeast and (unless California embraces its inner tycoon and begins to exploit its own energy riches) the Pacific, while Dixie continues current rates of growth and the Middle West booms.
Energy frontiers tend to be individualistic places. Canada, where the oil boom is a few years ahead of the US, has shifted to the right as power and money flow from blue Ontario and Quebec to Alberta. Prosperous blue collar workers and aspiring oil tycoons are not generally the strongest supporters of expensive welfare states, and American greens are already feeling the political consequences of a newly energized hydrocarbon sector. They are also not very interested in subsidizing the fiscal problems of other states; should Californias woes worsen and the state come to Washington for more help, the energy rich states and their representatives are likely to take a hard, skeptical look at its requests.
Even so, the Middle Wests traditional moderation is going to soften the rough edges a bit; much of the oil is coming to places where people historically have valued community ties and concerned themselves about the well being of the less fortunate. This wont be the second coming of Ayn Rand.
There are significant economic benefits in having all this prosperity in the heartland. North Dakota and Wyoming are states where shipping costs from China and Japan are high but Chicago and St. Louis are much better placed to serve them. Put cheap and secure energy in the Middle West, and build large new cities and centers of economic demand in the neighborhood, and the energy revival in a few states will support general economic growth in many more.
The long term outlook for the dollar and even for the federal governments accounts will also improve. Even quite recently people assessing the long term health of the United States pointed toward inexorably rising energy imports as an important drain on the balance of trade and on the health of the dollar. But oil imports are going to decline, and exports especially of natural gas will help offset them. The federal government is also going to be collecting taxes on the new energy production and on all the incomes of the individuals and companies involved, directly or indirectly, in the new energy boom.
The United States will be a more attractive place for foreign investment. Building the infrastructure required to get the new energy industry up and running and to transport its products to the market offers some very profitable and secure investment opportunities. And with the US much less dependent on foreign oil (and with the foreign oil it does need coming largely from Canada), the US economy will be much less exposed to the risks associated with turmoil in the Middle East. That is the kind of thing investors look for: high growth in safe places.
Few places are going to look more secure in the 21st century than America between the Rockies and the Appalachians, between the Gulf of Mexico and the Canadian frontier. Some of the worlds largest energy reserves will be sited next to the worlds most fertile crop land. Geopolitically, few places on earth are as secure from war; politically few can match its record of stable governance; legally, few offer as much protection for property rights and few have as long a record of offering foreign investors the equal protection of the law.
Avoiding the Pitfalls
Every silver lining has a cloud, and the energy bonanza isnt all good. We will have to watch out, for example, that the hydrocarbon boost to the dollar doesnt price American manufacturing goods out of world markets. Here we will need to look at Europe, and see how some countries like Germany responded in a more disciplined way through the years when the euro was high to reduce costs and improve quality so that German goods remained internationally competitive.
We will also have to work to keep the political classes from distributing the oil wealth to the rent-seekers. We dont want to be either the Nigeria or the Russia of the new century, in which corrupt rent-seeking elites hijacked the political process and appropriated the lions share of the hydrocarbon wealth to themselves. Cheap, attractive subsidies for the masses, while the real wealth goes into the Swiss bank accounts of the well connected and the unscrupulous: that could very well happen here and there are plenty of people in leading positions in American life in both parties who stand willing and ready to sequester the loot.
But the first great wave of oil discoveries did not turn America into a corrupt petrostate when the oil discoveries of the late 19th and early 20th centuries made the US the worlds greatest producer of fossil fuels. One important reason that still holds true today is that the US economy was so diversified and so high tech (by the standards of the day) that the oil tsunami was only one part of a much larger story of innovation and development.
Innovation remains a big part of the American energy picture. The United States has very large reserves of these new fuels, but we are not alone on the planet in having this wealth. But America is getting to the energy revolution early because our oil companies and drillers were ahead of other people in developing the technologies that can bring the new resources on line. We dont just happen like the Saudis and others to be sitting on incredibly large pools of oil which the skills of other people discover and pump out of the ground. We havent exactly made our own luck, but weve made the discoveries that enabled us to take advantage of it.
That spirit of innovation and the culture that supports it are the true sources of American wealth. That is how we found oil in the first place and built our first energy economy; it is what enables us to benefit from these additional reserves and it is what will get us on to the next thing when the new energy sources begin to run dry.
Thankfully, the United States is not a Russia or a Nigeria. Our economy and our political system are strong enough and diverse enough to benefit from an energy boom without being overwhelmed by it. The energy boom will stimulate the development of new technologies and new products in the non-energy sectors and will likely to usher in an era of broad prosperity and social advance across many industries and regions rather than just in a few.
Nature or perhaps Natures God seems to love mocking pundits. Just when the entire punditocracy, it sometimes seemed, had bought into the American decline meme, Europe collapsed and huge energy reserves were discovered underneath the United States. The special providence that observers have from time to time discerned in Americas progress through history doesnt seem to be quite finished with us yet.
Getting the new oil and gas raises complicated technical and environmental issues, and it may take some time before the dust settles and we understand exactly what we are looking at here. And drilling is a notoriously uncertain business. The energy revolution may fall short of the full hopes it stirs up. Yet the rapid progress of extraction technology is making these unconventional reserves look more real and more gettable all the time. Rather than coping gracefully with the consequences of inevitable decline, Americas job in the 21st century looks like handling its new set of opportunities wisely and well.
Bookmark for later.
Way too valuable an asset to leave the fate of such in the hands of the socialist/communist Rat party.
As I understand it, a good little bill passed in the Michigan state senate today. It removes the requirement for a DOE permit to generate power on existing dams as long as its under 1 megawatt.
It would be better without the maximum wattage restriction but its a start.
Why do they keep trotting out this BS with the wildly optimistic recovery rates on oil that is locked in shale and has to be heated for years to extract? Pure rubbish.
Conservatives have a bad habit of getting so focused on one thing that they can’t see anything else.
If been trying to get people to support lifting the great lakes directional drilling ban for a year or so but nobody cares because it isn’t fracking, the Keystone pipeline, or Marcellus shale, so who cares.
There has never been an energy shortage. Just a propaganda abundance.
Fresh water is the real shortage that too many ignore. Maybe our US drought will highlight this shortage.
Sorry, didn’t see you’ve already posted this. When I did the search, your post hasn’t come up.
Thackney, you have any thoughts on this? It is a very optimistic article, which is nice to read for a change, but is it realistic?
Also, the enviroweenies and liberals are going to be a huge stumbling block to our being able to exploit these resources.
Of course, if things get so bad and we slide down the tubes into a full blown depression the likes of which we have never seen, then people will clamor to use ANY method to get money into their pockets, and the objections of liberals will be washed away in a public sentiment of people who want food on the table.
Your misinformed. Thanks to improved seismic assessments and better horizontal drilling technologies the country can drill ~100% productive new wells in from 2 weeks in Central Texas to 4 weeks in North Dakota Bakken Area.
See the EIA Monthly Data, http://www.eia.gov/totalenergy/data/monthly/pdf/sec3_3.pdf. Total hydrocarbon imports are down from ~13.7 on average in 2005/6 to 10.7 mmB/d and net imports on average are down from ~12.5 in 2005 to 7.8 mmB/d today. And, this is without shale production in the Blue states or Alaska where production persists in declining.
None of this production is from tar sands where commercial production is limited to Alberta/BC only. The bottom line is that tremendous economic recovery could occur under Romney if he is elected and is bright enough to capture the opportunity to facilitate and not obstruct further development.
The hell it didn't. It was just more subtle, hidden neath the guise of "charity" in pursuit of a "clean environment."
You are confusing oil already released from the shale like that found in the Bakken and Eagle Ford, with the massive amount of petroleum still locked into the shale that requires retorting (heating) to release. They are not the same.
mark for later
Oldest story in the book if you're an investor. To take a single example: sometime in 1982, Business Week had a cover story entitled "The Death Of Equities." To this day, there are still people kicking themselves for not buying equities when that issue hit the stands.
Anyone here remember the Great Depression of the '90s that was supposed to be ushered in by the Crash of '87? That was another in a long line of plausible fake-outs.
The same phenomenon applies to declinism as a whole. The reason why so many goldbugs went down with U.S.S. Aurum in 1982 was because they insisted that Volcker was not serious about taking a bite out of inflation, or that his arm would be twisted by Congress to get the inflation machine rolling again.
And that goldbug ditty applies to the declinism with some politico-economic sense behind it!
Because of those fake-outs, investing - particularly value investing - is kind of a lonely world. You become inured to the best games being played when the stands are half-empty, disappointed scalpers are unloading good seats at half price, and almost no-one cares to talk about the plays.
To get back to the subject: once the energy boom really kicks in, the viros and the entire pro-government claque are going to have one of the legs of their stool knocked out. Alll those bannings and regulations done in the name of "energy independence" will no longer be credible. They'll be as stubborn as ever, but they'll be more and more vulnerable to a Republican with the guts to say it's morning in America again (and stick with it.)
If Romney wins, and gets Republican majorities that aren't afraid to hold his feet to the fire when he "goes Mittens," the shrewdest way he and they could roll with the boom is to "invest in austerity." It'd be a great way to expose the popular Keynesians too: to a man, they howl when budget cuts are unveiled, even if the economy's booming - i.e., during the time when Keynes himself recommended that the government scale back.
The 2 trillion barrels of oil talked about in this article aren’t in shale rock like that in the Bakken, it is in kerogen form and has to be cooked for a considerable length of time for it to flow. The recovery rates on wells drilled in the Bakken are around 10% and the recovery rates in the shale rock mentioned in the article would be less, not the 50% suggested. The article is utter bull tripe.
It read to me as a lot of language was used to hide a lack of knowledge.
I see it as widely optimistic.
Sigh. I am in a mood for anything optimistic these days, as long as it isn't packaged in "Hope"...
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