A Pivotal Moment in US Energy History

on December 02, 2013 at 1:00 PM

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We are at a transformational moment in energy history. Just a few years ago, all energy projections forecast increased imports, increased scarcity, and increased natural gas prices. Today, we’ve shifted from scarcity to abundance. U.S. oil production has increased by 2.5 million barrels per day (B/D) since 2010. This year, the United States overtook Saudi Arabia as the largest producer of liquid fuels (including crude oil, natural gas, and biofuels) in the world. U.S. oil imports are at their lowest level in 25 years and are projected to continue declining. The natural gas outlook is even more striking. New geological surveys and production data continue to surprise to the upside. And multi-billion-dollar terminals proposed not long ago to import natural gas are being flipped to export instead.

This transformation is not only a U.S. story. New technologies mean that what were once challenging sources of oil and gas can now be tapped economically from the oil sands in Canada (and potentially Venezuela), the ultra-deepwater “presalt” off the coast of Brazil, and many other parts of the world. Iraq, parts of Africa, and elsewhere are poised for sharp increases in production.

The changing North American landscape has significant economic, geopolitical, and environmental implications. On the economic front, increased oil production has helped moderate global oil prices. Consider what the state of the global oil market would be today without the extra 2.5 million b/d from the U.S., at a time when supply disruptions are at an unusually high 2.7 million b/d (due to Libyan and other outages) and OPEC spare capacity is historically low at only 2 million b/d. More broadly, increased oil and gas production means more economic activity and job creation; lower consumer energy bills; and billions of dollars in manufacturing investment.

The changing energy landscape is having important geopolitical consequences as well. The U.S. shale boom has increased Europe’s leverage with long-time suppliers like Russia and helped reduce European natural gas prices. It has called into question the traditional burden-sharing relationships between countries to maintain global-oil market stability, as more and more Middle Eastern oil heads east to China rather than west to North America. It has raised new uncertainties about OPEC’s ability to hold together as a coalition, as more production outside OPEC puts pressure on prices. And the increase in U.S. oil production has offset the loss of oil supply from Iran, making it easier for nations to impose economic harm on Iran without harming themselves by driving up oil prices.

As for the climate change impacts, cheap natural gas has begun to displace coal for power generation, which was a key reason U.S. greenhouse gas emissions were 12 percent lower in 2012 than in 2005 (although higher natural gas prices mean coal use is likely to rebound in 2013). Natural gas also has large public health benefits by sharply reducing local pollution relative to coal. To be clear, cheap natural gas alone does not solve the climate change problem. Climate policy, like pricing carbon, will be needed. But cheap natural gas can help lower the cost of implementing that climate policy. Importantly, even if policy puts us on a path to stay below the globally agreed targets of a two degree-Celsius temperate increase, fossil fuels (especially oil and gas) will remain the predominant sources of energy for decades to come.

While the opportunity presented by the North American energy boom is tremendous, energy policy too often reflects the outdated view of scarcity that has prevailed from the 1970s until recently. Policy needs to be modernized in various ways to reflect today’s reality—for example, liberalizing export restrictions on energy; loosening Jones Act restrictions to allow industry more flexibility to move petroleum products between U.S. ports; permitting energy infrastructure more quickly to allow the pipeline system to catch up to changes in the U.S. production picture; reducing flaring and fugitive methane emissions; and improving safety standards for crude-by-rail transportation.

The problem is that too often, the debate over energy policy is dominated by easy answers and blinkered slogans on both sides that do little to advance the public interest.

The public dialogue becomes dominated by a single pipeline project to Canada rather than a serious discussion about how to balance the economic and security benefits of increased oil and gas resources with the need to drive the development, cost reduction, and deployment of emerging clean energy technologies and improve the energy efficiency of the economy.

The new global energy landscape requires decisions informed by the kind of independent and balanced analysis that all too often is missing in public debate. The new Center on Global Energy Policy at Columbia University launched in early 2013 aims to do just that by producing market-oriented, policy-relevant analysis. The Center approaches the analysis of energy as a complex and multifaceted pursuit, in which policymakers must balance between competing economic, security, and environmental concerns. And it will maximize the impact of its analysis with practical policy recommendations.

Meeting the energy challenges ahead requires an understanding of how to balance competing priorities so that we can unlock the door to an energy future that is more prosperous and secure. By providing a platform for cutting-edge research informed by real-world experience and needs, the Center will help policy makers navigate the increasingly complex world of energy, and allow us to realize the vast potential of this unique moment for energy.

Jason Bordoff is a Professor of Professional Practice in International and Public Affairs and Director of the Center on Global Energy Policy. Prior to joining Columbia, he served as Special Assistant to the President and Senior Director for Energy and Climate Change on the Staff of the National Security Council. The views and opinions expressed in this article are those of the author and do not necessarily reflect the views or policies of GEI.

Republished with permission from Global Energy Affairs