The Coming Energy Abundance
How new technology can lower prices and reshape the global economy
As politicians, consumers, and manufacturers fret over the price of oil, there's good news on the energy front: Natural gas production is booming from "huge shale beds found throughout North America," reports The New York Times. The improving technology of underground horizontal drilling and fracturing has opened up trillions of cubic feet of gas that had formerly been thought unobtainable. And natural gas can also be used to run automobiles (after about $2,000 in conversion costs). These and other alternative methods of lowering fuel prices could dramatically reshape not only energy policy but the global economy.
The same report quotes an industry study estimating 842 trillion cubic feet (40 years supply) as now accessible. Drillable quantities exist in 23 states, much of it relatively close to existing pipelines. The Times describes one field in Texas, the Barnett, where shale technology was first developed. Production has gone up tenfold since 2001 and it alone now produces 7 percent of the nation's gas supplies. A giant new field has been found in Pennsylvania in the energy-hungry Northeast. New York and Michigan also have large reserves. This year, a 9 percent increase in U.S. production has already brought about a 40 percent decline in the price since July.
Drilling into coal beds provides another very promising source of gas. Forbes recently described how this technology already accounts for nearly 10 percent of all U.S. gas production. It also reported on research into the use of methane hydrates, yet another potentially fabulous new source of gas in shallow, colder coastal waters. Natural gas is the fastest, cleanest and lowest capital cost way to generate electricity, compared to coal or nuclear. It would make competition in electricity production more viable and hence bring down prices.
Gas-to-electricity is not the only promising conversion. The Germans fought World War II mainly with oil produced from coal. South Africa, when under trade sanctions, produced 70 percent of its liquid fuel needs from coal. Billions of tons of coal are easily accessible in the United States. This is an area where Washington might spend sensible money instead of subsidizing will-o'-the-wisp wind power, or, worse, using heavily subsidized corn-based ethanol, which raises food prices and costs more in energy and subsidies to convert to gasoline than it produces.
The Washington Times recently described how coal conversion works, estimating the cost equivalent at $1.85 per gallon using coal priced at $30 per ton. The conversion rate is 1.25 barrels of oil per ton of coal. "Coal can produce gasoline, diesel and kerosene directly and its use in motor vehicles does not require addition of costly technologies of reforming or cracking," reports the article. The conversion process is cleaner than burning coal. Also it uses low grade, cheap coal and produces electricity as a byproduct. Other industry estimates place the cost of conversion as equal to $30-40 per barrel oil. See The Energy Blog for what is now generally known about the technology and costs.
An interesting facet of the 40 percent decline in natural gas prices is how the major media still parrots the extreme environmentalists' line that offshore drilling won't bring major drops in oil prices. A recent and representative U.S. News article quotes a Department of Energy report that "the impact [of offshore drilling] on global oil prices would be insignificant." That view, constantly repeated by anti-drilling interests, is actually from 2007 when oil prices were around $70 per barrel. Mainly, however, it is based upon the current time frame of snail-pace leasing and unending lawsuits (without mentioning them as a cause of delay). The fact is that ending the prohibition on offshore drilling, along with new laws to allow faster permitting and special courts to speed up hearing environmental suits, would have an immediate impact upon oil prices. That's because current prices are based on future anticipation. The same goes for ANWR in Alaska. The world oil shortage was caused by political reasons, not geological ones.
Extreme environmentalists will not be happy with the news about shale. They will try to block production just as they do with offshore oil drilling and nuclear electric power. Their mindset is that all new energy use contributes to global warming, so they don't want production of cheap energy. Many commercial interests support them. For example, farmers producing high cost ethanol don't want to see gasoline costs coming down. Beach front owners don't want to see oil platforms "polluting" their ocean views. Foreign oil producers want to see prices stay high. The shale fracturing does use much water and, already, there are questions about aquifers and lawsuits against drillers trying to control their access to water. Perhaps, in populated areas, new standards will be needed for "frac water" used in drilling.
Shale gas and coal deposits similar to those in the U.S. exist all over the world. Europeans are now searching for them to ease their dependence upon Russian gas. China is building the largest coal-liquefaction plant in the world. Nations with the ability to harvest these resources could become free of their dependence upon a few world oil exporters. Low energy costs could propel the world's economy back to faster growth and prosperity.
Jon Basil Utley is associate publisher of The American Conservative. He was a foreign correspondent for Knight Ridder newspapers and former associate editor of The Times of the Americas. For 17 years, he was a commentator for the Voice of America. In the 1980s, he owned and operated a small oil drilling partnership in Pennsylvania.