Gassed Up In The USA
By Michael MaherMay 2, 2012
America is in the midst of a mining boom that is propelling it towards energy self-sufficiency. The country's reliance on Middle Eastern oil may soon be a thing of the past.
While much of the US economy is suffering from an acute case of anemia, the mining sector is a picture of rude, boisterous health. In fact, the country's current oil and gas boom is of such a magnitude that the United States stands to overtake Russia and Saudi Arabia as the world's largest energy producer in less than a decade.
''This is a big deal. This is huge.'' Robin West, chairman of the energy consultancy PFC Energy, told The Global Mail. ''It's the energy equivalent of the Berlin Wall coming down.''
The figures speak for themselves. Just a few years ago, the US government was warning that natural gas reserves were so low there was a critical need to boost imports. Now there are plans afoot to build export facilities, as gas production has jumped by more than 2 trillion cubic feet since 2007. Domestic oil production is the highest it's been since 2003. "It's truly transformational,'' enthuses West.
''It's good news for the American economy, it's good news for the American dollar and it's good news for employment. Everything has changed and it's a very exciting time in America.''
Excitement in the energy sector, of the sort expressed by Mr. West, is understandable given the industry's buoyant state. Not so excited are environmentalists, who point out that much of the boom has been driven by new and controversial extraction techniques such as hydraulic fracturing or ''fracking'', which tap into reserves buried deep in shale. Concerns abound that the chemicals used to break up the shale and release natural gas will contaminate the water table.
France, South Africa and Bulgaria all have put a stop to fracking for fear of polluting water supplies. And New York state has put in place a moratorium on the practice. However, just two years out from the worst environmental disaster in US mining history — the BP oil spill in the Gulf of Mexico — the federal and state governments aren't inclined to play tough with the mining sector.
After all, there's an economic bonanza on offer just when America needs it most. The extent of that bonanza was described in a Citigroup report in March this year as "potentially extraordinary'', capable of increasing real GDP by between 2 and 3.3 per cent. The report went on to declare that the US, together with resource-rich Canada and Mexico, could become the next Middle East.
In a presidential election year in which the ailing US economy will be overwhelmingly the central issue, the story of an old-fashioned mining boom might well be embraced by voters faced with an otherwise stodgy economic narrative.
While President Obama came to office on a platform of fostering renewable energy and combating global warming, his administration has been an unlikely beneficiary of the dramatic upturn in the mining of fossil fuels and can be expected to attempt to harness that upturn for political ends. Last month, in a move regarded by many as a reaction to mining industry complaints that it was being over-regulated, the Obama administration set up a senior working group to streamline government oversight of natural gas production.
Quite apart from the economic advantages of the mining boom, the accompanying strategic benefits are also high in the minds of Americans.
Energy self-sufficiency has been the holy grail successive US presidents have aspired to since the shock of the Arab oil embargo in the early 1970s. Reliance on oil from the Middle East has been a pressing factor in US strategic thinking for decades but is now becoming less so, to the delight of those in charge of foreign and defense policy.
"There is no question that many national security policy makers will believe they have much more flexibility and will think about the world differently if the United States is importing a lot less oil," Michael A. Levi, an energy and environmental senior fellow at the Council on Foreign Relations recently toldThe New York Times. "For decades, consumption rose, production fell and imports increased, and now every one of those trends is going the other way."
Robin West of PFC Energy cautions about using the term energy independence. Rather, he prefers to talk about energy security. ''We define energy security as reliable supply at a reasonable cost,'' says West. ''What's going to happen in the United States is that we will end up importing 20 to 25 per cent of our oil but those imports will come largely from Canada and Mexico, nearby countries which are less volatile than the Middle East. So we'll have very reliable supply.''
The US would still be exposed to world oil prices, as those prices are set globally. However, West points out that so far as natural gas is concerned, genuine energy independence is at hand: "The price of gas is not set globally. It's set by regional markets, and the North American market for natural gas now is much, much lower than anywhere else in the world and it's going to continue that way for the foreseeable future.'"
There are those who point out that energy production is not a large part of the U.S. economy, that the mining sector — which includes oil, gas and coal production — makes up only 1.9 percent of GDP. But in states such as North Dakota, where mining is largely responsible for a low unemployment figure (3.3 per cent, compared to the national rate of 8.2 per cent), such points are falling on deaf ears. There is a long line of other states hoping new technologies like fracking will help them out of their economic malaise as well.
In the meantime, one of the world's leading experts on renewable energy says the argument for a more diverse energy base in the United States is being lost.
Professor Dan Kammen is a lead author for the Intergovernmental Panel on Climate Change, which won the Nobel Peace Prize in 2007, and he has just stepped down as the World Bank's chief technical specialist for renewable energy and energy efficiency.
Here's what he told TGM's Michael Maher.
Kammen: I don't think the science community or the energy systems community have done our job very well in selling the clear economic, social and health benefits of a more robust, diverse economy. It's not a case of renewables against fossil fuels, it's about gradually shifting the mix in a way that's pro-business and pro-environment. That's a story myself and my colleagues have just not made very clearly so far. I really think it's a case of self-blame more than the so-called ''evil opposition''. I think everyone is advocating well for their position except the group that's trying to tell the most complex story, and that is that we do need to think about the overall system. That's a hard sell.
TGM: In the 2008 presidential election campaign we heard a lot about renewable energy and the need to tackle global warming from the Democrats. We're hearing decidedly less now.
Kammen: I wish there was more pressure on politicians. We have not achieved what many people thought were the very reasonable energy diversity and sustainability goals that we were talking about in the 2008 campaign. I think it's very disappointing. There are some politicians who are really recognizing the advantages of energy diversity, but I think right now, because of the state of the economy, it's very easy to avoid the issue altogether. And that's not necessarily the fault of politicians, that's really the fault of educators, who need to make clear what the trade-offs are. The general public also needs to be pushing politicians more. I really think we have our collective work cut out for us to make clear all the cost-benefits. That is not getting much coverage so far.
TGM: Have the renewable options you're talking about been squeezed out of the energy debate because the oil and gas boom looks highly attractive to an electorate and its political leaders who have just endured a very deep recession?
Kammen: It's a complicated story, because in part we were either at the tail-end or at the leading-edge of a long run of investment in clean energy. Over the last six years we've seen a remarkable increase in investment in renewables. If you look at the very near term, people see renewable subsidies and those market expansions coming to an end. I actually don't. What I see is that the low-carbon options are getting closer and closer to grid parity in terms of cost. And gas is an important part of that mix, but there are strategies to use gas wisely and profitably and there are strategies to use gas which effectively block the future development of the clean energy sector. My worry is that an overly short-term focus will say ''exploit the gas and don't worry about the rest of the mix'.' That's a strategy that will produce less jobs, that will build a lot of fossil fuel infrastructure that could be used in a more balanced way. That's sort of what integrated planning is about. It's about balancing and using gas to firm up renewables, as opposed to having them crowd renewables out, and we're engaged in a conversation in the US where a lot of developers are seeing only the gas side of the equation, not the integrated planning side of the equation.
TGM: To your mind, is the idea of energy self-sufficiency flowing from the oil and gas boom being overplayed?
Kammen: I do think it's overblown, because the focus so far is essentially on the excitement over the large conventional and unconventional gas reserves. I do think that the US, like many nations, could be energy self-sufficient, and gas has a role to play in that. And if more countries begin to recognize that energy self-sufficiency is possible based on their energy source endowment and their social and environmental goals, then I think it's a useful plan, but if it's really just about expanding the market for fossil fuels, I actually think it works against many countries' long-term interests, the US being one of them, because the we have such a remarkable resource of clean energy. Gas is cleaner, but certainly not clean on the climate scale. What's really needed are energy plans that emphasize sustainability. I would like to see more countries pushing towards that sustainable mixture than just being driven by the mining camp.
TGM: New technologies such as fracking have been primarily responsible for the dramatic increases in gas production. What's your view on these technologies?
Kammen: Right now we're at a point of dueling studies within the literature. We've a very important research report out of Cornell University highlighting some real environmental and social and health negatives of fracking and then a recent study conducted by the former director of the United States Geological Survey for the University of Texas saying that there is very little adverse impact of fracking beyond regular gas mining. So the full story isn't in yet. But when I look at the countries that have managed energy transitions that have generated more jobs and more economic growth, they have a very healthy component of renewables no matter what the carbon impact of gas is. Germany and Denmark and Portugal have all seen dramatic increases in employment by increasing the renewables sector for both domestic use and for export. My suspicion is that we will discover that gas is ultimately more expensive than it looks right now. Although it is still an absolutely vital part of a low-carbon portfolio, it's a part of that portfolio not the dominant piece.
TGM: On the issue of low carbon portfolios, what's your view on the effectiveness of government legislation such as Australia so-called carbon tax?
Kammen: Last year I was asked to come down to Australia by the Climate Commission, chaired by Tim Flannery, to talk about the international experience around carbon issues. I was in the parliament the day the carbon bill was introduced, and it was really interesting to see the debate between the two sides — the ''go for carbon price and diversify renewables'' side versus the ''we can manage this through land use change'' side. I actually think the Australian position is very thoughtful, in the sense that the legislation did get through, as you know, but there was a real sense that Australia, as a country of only 23 million people and as a fossil fuel exporter, can't go it alone and there needs to be international partnerships. I certainly anticipated that the US would be more of partner at this stage. We have some states and regions which are being very thoughtful on this, but we have not progressed as far as we need to in terms of the conversation.