Energy boom will push US past Saudi Arabia, benefit economy

The United States is in the midst of an energy boom that at the end of the decade will make it the world's top oil producer, temporarily displacing Saudi Arabia, and a net exporter of natural gas, according to a new report.

By 2030, America will be nearly energy self-sufficient on net and North America as a whole will become a net oil exporter, says the report released Monday by the International Energy Agency (IEA), a Paris-based research and advocacy group for oil-importing developed nations. 

These are huge developments. Not since the fall of the Berlin Wall in 1989 and the prospect of the so-called "peace dividend" of reduced military spending has the US received such an unexpected economic boost. As long as the so-called "fracking" technology proves environmentally safe, the surge in unconventional oil and natural gas production will offer many benefits to the US economy. Among them:

• Jobs: The sector currently supports 1.7 million workers directly and indirectly and that will rise to nearly 3 million by 2020, according to IHS Global Insight, an economic forecasting firm based in Lexington, Mass. Many of those jobs will become available in some of the most rural and, until recently, economically depressed areas of the US.
• Infrastructure spending: Wells will have to be drilled; pipelines and railroads built. In all, IHS Global Insight expects the US to spend more than $5.1 trillion in capital expenditures between 2012 and 2035 on unconventional oil and natural gas activity. That's a huge surge of investment. Nearly $3 trillion will be devoted to natural gas alone.
• Trade balance: Currently, the US relies on imports for 20 percent of its energy needs. Last year, as the world's largest oil importer, it spent a net $327 billion to bring in foreign oil. As the US moves toward energy efficiency, that's money that will no longer be spent overseas and will flow, instead, largely to domestic producers.
• A boom in gas production: Low prices and huge amounts of supply will increase natural gas use to the point that by around 2030 it overtakes oil as the dominant fuel in America's  energy mix, according to the IEA forecast. With gas plants cheaper to run than coal-fired facilities, natural gas is already starting to supplant coal to produce electricity. But how much the surge in unconventional gas undercuts the future growth in coal depends, in part, on what happens in other parts of the world. At the moment, the US is exporting coal to Europe because it's cheaper than higher-priced natural gas on the continent.

There are strategic advantages as well. The nation will become far less vulnerable to foreign oil embargoes or other disruptions of energy supplies, even before it becomes nearly self-sufficient. For example: Merely reducing oil imports from today's 8.7 million barrels per day to 6 million b.p.d., the US would effectively extend the buffer of its Strategic Petroleum Reserve from 80 days to 116 days, points out David Goldwyn, a former US State Department special envoy for international energy and assistant secretary of energy, in an article for the International Herald Tribune.

There are also climate effects. America's move from coal to cleaner natural gas helped cut US carbon dioxide emissions in the first quarter of 2012 to levels not seen since 1992, Mr. Goldwyn points out. If natural gas can supplant coal internationally, especially in China, the climate benefits would be huge.

Of course, this is not the cleaner solution envisioned by environmentalists. Under their scenario, increasingly scarce oil would become more expensive, making "green" energy alternatives cost-competitive, leading to even more dramatic cuts in emissions. By contrast, the surge in oil and gas production means the US and the world will remain reliant on fossil fuels for longer than expected.

Governments could step in and encourage that switch toward renewables. Some economists are pushing for a carbon tax in the US that would help make renewables more cost-competitive. The IEA forecasts that a concerted global effort on energy efficiency could cut the growth in global energy demand in half through 2035 and cause oil demand to peak before 2020 and then fall substantially. Global output would rise a cumulative $18 trillion, with the India, China, the US, and Europe reaping the biggest gains.

While the surge in unconventional oil and gas is expected to deliver many economic benefits, there are at least two things it won't do: 1) lower the price of oil – at least, not singlehandedly; and 2) free the US from its geopolitical commitments to other nations in the Middle East, Europe, or Asia.

"Security always trumps economics in U.S. foreign policy," Goldwyn writes. "The country's commitment to global security and its vulnerability to global oil prices will keep Washington engaged for the foreseeable future."