Chicago Tribune: Free markets and U.S. energy independence


Chicago Tribune



”Energy resources are so limited that not only can’t the present living standard of the United States be available to all mankind, it is not likely to continue in this country beyond the present decade.”

—Lawrence Rocks and Richard P. Runyon, “The Energy Crisis,” 1972

“The U.S. Just Became a Net Oil Exporter for the First Time in 75 Years — Shale Boom Has Boosted U.S. Crude Oil Shipments to Record”

—Bloomberg News headline, Dec. 6, 2018

The stunning turn of fortunes was largely overlooked in a whirlwind of other Washington news this month: Nearly half a century of free-market initiatives and government encouragement has turned what long looked like an American weakness into a strength.

“We’re becoming the dominant energy power in the world,” Michael Lynch, president of Strategic Energy & Economic Research, told Bloomberg. The United States is now the world’s biggest petroleum producer, ahead of Russia, Saudi Arabia, Venezuela and all the others.

That’s remarkable news for Americans with capacious memories. In the early 1970s, energy shortages pounded the American psyche and drove several of the world’s supposedly robust industrial economies into recessions. Arab members of OPEC, the Organization of the Petroleum Exporting Countries, retaliated for U.S. support for Israel during the Yom Kippur War by placing an embargo on oil shipments to this country.

Humbled by the sudden realization that fickle Mideast regimes held so much clout over them, Americans sat in long lines to buy increasingly expensive motor fuels.

On Nov. 7, 1973, Richard M. Nixon became the first of several U.S. presidents to declare the goal of U.S. energy independence, a mission that at the time seemed almost as crucial as the Manhattan Project — the quest to develop atomic bombs before Germany did — had been during World War II.

Authors Rocks and Runyon, two of their generation’s most respected prophets of doom, warned Americans about the limited capacities of hydroelectric, nuclear, solar and wind generation to offset reductions in petroleum-based energy: “Despite obvious drawbacks, we can see that only coal holds prospects for saving the nation from an immediate energy shortage.”

Such jeremiads seemed sensible at the time. But the pessimism discounted four factors that have radically improved the U.S. energy picture and delivered the nation to the role of net oil exporter. That distinction may be more temporary than enduring.

The U.S. is likely to be a minor net importer for some time. Yet the net export of 211,000 barrels a day of crude oil and refined products is a stark contrast to the reliance on other countries at the peak of U.S. dependency. That came in 2005, when this country imported a net 12 million barrels every day — 60 percent of the nation’s crude oil consumption.

The fracking revolution’s bonanza of energy production was mostly unanticipated. In 2008, the International Energy Agency estimated that U.S. oil and gas production would be flat to declining until about 2030. Instead, by 2013, U.S. crude production had leaped by 49 percent.

And U.S. production continues to surge. The Wall Street Journal says America’s wells are expected to produce 28 percent more crude in 2019 than they did in 2017.

The energy crisis of the 1970s awoke consumers and the breadth of American industry — not just automakers — to the nation’s reckless squandering of petroleum and other resources. Government agencies have encouraged and demanded conservation measures across society. But the private sector supplied most of the initiative and the resulting innovations.

Customer demand for more efficient automotive engines and other types of motors drove engineers and manufacturers to develop more efficient machines — many fueled by electricity, natural gas and hybrid combinations. The upshot: less reliance on petroleum fuels.

Market forces and market freedoms birthed fracking and related extraction technologies that have vastly increased the potential supply of oil and natural gas. These techniques create their own environmental risks, and we won’t diminish or ignore them. That said, no incentive has been as integral to U.S. energy domination in recent years as the ability of wildcat drillers and other entrepreneurs to win returns on their investments.

To see how industry employment has grown, visit three regions a modest distance from metropolitan Chicago: the Marcellus pumping fields of Pennsylvania, the Permian Basin of Texas and the Williston Basin, the rock formations that hold rich deposits of oil and gas beneath 140,000 square miles of high plains and rumpled valleys in the two Dakotas, Montana, Saskatchewan and Manitoba.

In this country, governments let market pricing drive refiners’ decisions on how to align supplies with demands. The journal National Affairs has reported that of the world’s key petroleum-producing countries, only the U.S. allows private entities to control large-scale oil and gas reserves. When the federal government has tried to pick energy winners and losers via subsidies or taxation, its record is, as you’d expect, mixed: Ethanol mandates have done little more than prop up that industry, and tax breaks for the purchase of certain vehicles have won limited numbers of converts.

So the move toward energy independence — with its enhancement of affluence at home and U.S. influence overseas — has come more despite than because of government interventions. Not that Washington doesn’t benefit from the private sector’s risk-taking. America’s energy strength is a bulwark to the nation’s foreign policy. The U.S. is less hostage than before to geopolitical disputes or domestic unrest in dangerous neighborhoods of Africa, South America and, of course, the Middle East.

Producing goods the world wants to buy is an expression of America’s economic strength. Each barrel of American oil shipped overseas helps offset purchases here of foreign-made electronics and other goods. And imagine how the notion of growing U.S. independence from global oil markets frustrates the leaders of Russia, Iran and other countries whose energy exports largely drive their economies.

By contrast, the frustration for many Americans is that the phrase “energy independence” keeps the policy and production focus primarily on petroleum products — and on the two-thirds of those products used by the transportation sector.

Fossil fuels contribute to global warming. We empathize with environmental and clean-energy advocates in hoping that the practicalities and economics of wind, solar and other renewables free America and the world from reliance on petroleum and coal.

America rode energy technologies and supplies to became the world’s leading nation in the 19th and 20th centuries. Maybe breakthroughs in energy storage, hydrogen, fusion or other fields we can’t today envision will revolutionize how we power, heat, cool, move and carry.

Remember, coal is in decline largely because this century’s fracking advances have freed up great quantities of relatively cheap and clean-burning natural gas. That market-driven transformation at power plants, coupled with slower growth in demand for electricity and the rise of the renewable fuels, are the main reasons why U.S. carbon dioxide emissions have been declining.

Based on the last two centuries of American history and the evidence now on (and under) the ground, the research and development that yield those breakthroughs are likeliest to occur if a free-market U.S. economy continues to grow and prosper. That economic expansion funds and incentivizes the risk-taking that has produced our greatest energy innovations.

The startling rise of the U.S. energy outlook, including this month’s news about oil exports, once again reminds us:

Prophets of doom tend to underestimate the power of liberated initiative — this ability of their fellow Americans to invent solutions that the prophets, blinded by their certitude, cannot see.

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