Unconventional Energy Meets Conventional Politics: Which Will Win?

May 25, 2012

Cheap natural gas is upending the entire energy outlook.  It has scrambled the outlook for coal-fired energy -- new gas-fired electricity is now cheaper than coal -- more than any prospective cap and trade program or punitive Environmental Protection Agency regulation could ever do.  It also renders most renewable sources such as wind and solar even less competitive with fossil fuels, says Steven Hayward, the F.K. Weyerhaeuser Fellow at the American Enterprise Institute.

Meanwhile, the price of natural gas has fallen so far that the industry is desperately trying to figure out how fast it can become an export industry to sell it overseas where the market price is higher than here.  In short, natural gas has the potential to become a crucial boom industry for the United States.

A similar story is starting to unfold with domestic oil.  In testimony recently by Anu Mittal, the director of natural resources and environment for the Government Accountability Office, she explained deposits in the western United States (chiefly oil shale in the Rockies) have approximately 3 trillion barrels of proven reserves.  Public and private analysts estimate that half of this is recoverable.

This establishes the starting point of what could be a novel of America's energy renaissance.  However, this outlook should be taken with a grain of salt: government regulation and political buckling to environmental groups can choke this industry and halt the energy revolution before it begins.

  • Most shale oil, unlike shale gas, is located on federal land.
  • This offers the current administration ample leeway in mandating burdensome permitting processes and applications, driving up costs.
  • Furthermore, these deposits of shale oil are far from the nation's refiners -- pipelines will have to be built that can crisscross the United States to get this resource where it needs to go.
  • This will likely result in a lengthy political battle involving the environmental lobby, not unlike the one that has caused costly delays for the Keystone XL pipeline.

If domestic energy in both gas and oil is to be optimized and our dependence on foreign energy lessened, Washington will have to get out of the way and allow producers to do what they do best.

Source: Steven Hayward, "Unconventional Energy Meets Conventional Politics: Which Will Win?" Real Clear Markets, May 16, 2012.

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