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Abundant Oil Again?
by Bruce Fisher
A Harvard study reports how the fracking bonanza is changing everything
Anti-frackers have reason to despair. The New York Times recently editorialized that hydraulic fracturing of deep strata to release their hydrocarbons is “safe.” President Barack Obama looks upon the massive exploitation of shale-trapped fossil fuels as a major national opportunity. And now a new report from a Harvard-based researcher finds that hydraulic fracturing is a key reason why everything that “peak oil” theorists have been saying about the planet running low on oil is absolutely, stupendously wrong.
The new report by Leonardo Maugeri, an Italian former oil executive now at Harvard’s Kennedy School of Government, says that the amount of petroleum that is available is vastly greater than ever previously understood. Soon, there will be so much more oil produced in the US that we will become the world’s second-largest producer of oil, after Saudi Arabia. The notion that global oil production will peak is not only wrong, the new research says, but actually works to enrich oil companies and oil-producing nations by keeping world oil prices too high. Prices, Maugeri says, might actually drop significantly by 2015. We won’t ever get back to the days of $20-a-barrel crude oil, but today’s $100-a-barrel price, which is $20-$25 a barrel higher than economic fundamentals should put it, will relent.
Leonardo Maugeri’s 75-page report, Oil: The Next Revolution, might be the most important document in public policy today. If its analysis holds up, the economic and political implications are profound. Maugeri concludes that the Western hemisphere is “the fastest-growing oil-producing region in the world,” because in the US alone, there are at least 20 geological formations where there are significant extraction investments either underway or planned. These production sites will be profitable even if the price of a barrel of oil drops to $70.
The “truly important impact” of all this new oil, he says, will be economic. One oil-industry consulting firm has been saying something along these lines for about two years, but word from the Wood Mackenzie firm doesn’t quite feel like disinterested, arm’s-length analysis. Doubtless there are many private reports around, but the only major, publicly available analysis of the broader effects of this huge expansion in US fossil-fuel production was done during the same period Maugeri was compiling his data. The Citigroup study found that the impact of new production, combined with reduced consumption (due to conservation and alternatives, and also to economic slowdown) will be to drive strong economic growth in the near term in the US, increasing Gross Domestic Product by two percent per year to as much as 3.3 percent per year, creating as many as 3.6 million jobs a year by 2020. Domestic production of so much fuel will also reduce the federal deficit.
“The shale/tight oil boom in the United States is not a temporary bubble, but the most important revolution in the oil sector in decades,” writes Maugeri.
A profound sequence
If you’re President Obama and you’re concerned about fighting off a re-election challenger who is blaming you rather than the Wall Street meltdown of 2008 for a slow economy, then this report is political gold. Not only has unprecedented oil exploration and “unconventional” development occurred on Obama’s watch, but now, the industry is poised for more product at lower prices. Gasoline prices have already tumbled. Republicans who were bashing Obama for high pump prices a couple of months ago are now quiet about that, just as they’re quiet about Obama having allowed the Environmental Protection Agency to do its job and complete the impact study on the proposed Keystone Pipeline. Why so mum? Because the thing is getting built already.
Short-term politics matters if one believes that our choice of president matters. Under Obama, there is a secretary of energy named David Chu who is a champion of alternative fuels, famously including solar energy, and who is imperturbable when attacked by pro-oil, anti-alternative Republicans. But to the despair of many environmentalists, there is, on Obama’s watch, an enormous amount of activity already underway in North Dakota, where the Bakken shale is yielding oil. There is a vast potential for oil production from the Utica Shale that underlies Ohio, Pennsylvania, and New York. Much closer to the refineries sit the Eagle Ford and Permian Basin areas, where the oil will still flow, and where some of it will turn into anti-Obama TV ads, as if he were some sort of enemy of all this increase in hydrocarbon production.
So under the Democratic progressive president who loves talking about clean energy, and who takes on no end of political baggage in promoting solar, wind, and other non-carbon alternatives, the oil patch is booming. Harvard’s Maugeri estimates that by 2020, a conservative estimate of additional production will add over four million barrels a day to the current daily US production of almost eight million barrels. That will get the US up to two-thirds of daily consumption, without counting sensitive areas like the North Slope of Alaska.
Sprawling, hot, and growing?
Maugeri addresses environmental issues specifically because, he says, without a “revolution in environmental and curb-emissions technologies,” there is a very real possibility that producing all this new energy from domestic sources could be thwarted by “massive over-regulation.” Without such a revolution, continuous fighting could delay it all.
But think of what cheap and plentiful oil will do. First, all the calamitous increases in the cost of living in suburbia—and in exurbia—will go down after four years of having been punishingly high. Suburban real-estate development will once again enjoy a comparative advantage over center-city development for the same reasons suburbs have been eating dessert for decades—namely, the well established consumer preference that ideologues like Joel Kotkin and the Manhattan Institute, among others, have been declaiming about even as the new-urbanistas celebrate cities.
Urban revitalization will continue to reshape the marketplace. Densely settled, diverse, low-entry-price city neighborhoods that are walkable and near institutions, and that have interesting sexual opportunities (no joke here—people write lots of studies about this) will still draw young people, just as Boomers were drawn to cities in the 1970s and 1980s. But upscale, educated white Millenials, and their Boomer parents who are now fatigued with suburban living, are not the only consumers and place-shapers in the land. The allure of the suburb as a haven from concentrated urban poverty will, with cheaper gas once again available, prove Joel Kotkin correct in saying that most of the next 100 million Americans who arrive or who are born here by 2035 will want to live in suburbs.
That is, unless those suburbs are like the ones around Washington, DC, or St. Louis, or Columbia, South Carolina, or Charlotte, North Carolina, where temperatures have passed 100 degrees for several days. Climate-change modelers all report the same thing that the weatherman is talking about—increasing drought in the Midwest, where wildfires rage and the corn crops wither; increasingly destructive weather, as in the swath from the Ohio River Valley to the Potomac River that has been without power for six days in record-setting heat; and ever higher temperatures.
Should you curl up poolside with Oil: The Next Revolution, which you can download for free from the Harvard Kennedy School website, you will doubtless wonder why the author bothered to toss in any words about the environment. This study attempts to cover all the bases, like environment and geopolitics, and answers the following question: If we have all the oil we need here from domestic production, Canada, Venezuela and Mexico, what the hell do we care about the Middle East, anyway?
One reads this report with dread about our political culture. Cheaper and endlessly abundant oil for the next couple of decades means, one expects, that the alternative-fuels industry will get slammed. Energy-efficiency programs will get ignored or at least un-funded. Greenhouse gas emissions won’t be curtailed. The scientists whose models of global warming connect the increase in carbon dioxide with climate change can be expected to predict a quicker onset of the climate impacts they’ve been predicting. Politicians all over the world, however, will ignore the scientists because politicians need for economies to grow.
There is something quite spooky about a report that says, essentially, that there is no energy crisis, and that there won’t be an energy crisis, and that everything James Howard Kunstler has said is wrong, because gas will be, if not cheap, then at least not so impossibly expensive as it has been. And plentiful, too. One wonders if this means that we will all fry just a little more quickly in a much more quickly heated atmosphere, thanks to all the cheap new carbon dioxide we’ll be releasing into it.
Bruce Fisher is director of the the Center for Economic and Policy Studies at Buffalo State College. His new book is Borderland: Essays from the US-Canada Divide, available at bookstores or at www.sunypress.edu.blog comments powered by Disqus
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