NCPA - National Center for Policy Analysis

The Market-Driven Energy Revolution

May 24, 2012

Four years ago, energy prices were breaking Americans' bank accounts in a major way.  The high cost of commuting to and from work meant choosing between paying the mortgage and paying for gas, with the high price of oil undermining families' budget sanity.  But eventually, the high prices prompted the development of new sources of oil as well as oil substitutes, says Joel Kurtzman, executive director of the Center for Accelerating Energy Solutions at the Milken Institute.

New sources of domestic oil have been found and exploited, both as demand has increased and technological advancements have enabled further development.

  • Some companies began drilling new oil wells using new technology, including 3D seismic imaging and directional drilling.
  • In 2002, when oil prices were in a trough, there were roughly 800 oil-drilling rigs operating in the United States, but this figure has since grown to roughly 2,000.
  • In addition, energy companies went after -- and found -- more oil offshore and in shale, tar sands and long-abandoned wells.
  • The result: since 2008, domestic oil production has increased 12 percent, while imported oil has fallen to 45 percent of total consumption from 61 percent.
  • Four years ago, the United States was on track to spend nearly $1 trillion on imported oil each year, yet this figure has since fallen dramatically to $350 billion this year due to lower demand and prices.

In addition, the high price of oil that hurt American consumers so badly four years ago also spurred the development of alternative sources of energy, namely natural gas.

  • In 2008, estimates were that the United States had just 12 years of natural gas reserves left.
  • New technological innovations and deposit discoveries, however, have caused a revision of this estimate: analysts now argue we have at least 100 years of domestic natural gas deposits.
  • In 2008, natural gas sold for about $12-$14 per thousand cubic feet, but this figure has since dropped to a mere $2 per thousand cubic feet due to great strides in production.
  • Furthermore, this natural gas will likely be exported (denting America's trade imbalance) to Asia and Europe, where average futures prices are $16 and $9.50, respectively.

Legislative action on the federal level could ease the process of developing domestic energy by limiting regulatory red tape and subsidizing gasoline-to-natural gas transition costs.

Source: Joel Kurtzman, "The Market-Driven Energy Revolution," Wall Street Journal, May 21, 2012.

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