Thursday, May 24, 2012

The Vision Thing

As U.S. oil and gas production is back in the game, there is growing faith that achievement of full energy independence is just over the horizon. According to the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook 2012, net imports of energy have been declining in the U.S., which is largely attributed to an increase in domestic oil and natural gas production. EIA anticipates an increase in U.S. crude oil output from 5.5 million barrels per day (mbpd) in 2010 to 6.7 mbpd by 2020. Echoing this positive scenario, a recent conference of the International Association of Drilling Contractors was upbeat that U.S. unconventional oil and gas production would bring net imports to zero in the next 6-7 years, the only wildcards being a possible geopolitical problem, such as war with Iran, and stricter limitations on drilling imposed by the Environmental Protection Agency (EPA).

The confluence of the Great Recession and affordability of drilling techniques and technologies such as hydraulic fracturing and horizontal drilling was a silver lining in a cloud of declining oil production in the U.S. over the past 40 years. While reliance on more domestic energy sources and less on foreign ones is good news, it is unclear whether the U.S. will learn to be a prudent energy user or continue taking energy sources for granted and expect gasoline prices to be permanently below $3 a gallon. There is still a danger that a potential accident from the production of unconventional energy sources may have a backlash on the industry and slow it down with regulations that would carry huge ramifications on the economy.

More importantly, it is uncertain whether the newfound energy bonanza will hamper development of a sorely missing comprehensive energy policy in this country that would not rely on short-term gains and low energy prices or politicization of one resource over another at election times. There is no guarantee that the abundance of unconventional energy will not taper off in coming decades with the level of energy use in the U.S. up to now.

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