Tue, Jul 17, 2012 - Page 9 News List

Achieving energy independence in an interdependent world

By Joseph S. Nye

When then-US president Richard Nixon proclaimed in the early 1970s that he wanted to secure national energy independence, the US imported a quarter of its oil. By the decade’s end, after an Arab oil embargo and the Iranian Revolution, domestic production was in decline, the US was importing half of its petroleum needs at 15 times the price and it was widely believed that the country was running out of natural gas.

Energy shocks contributed to a lethal combination of stagnant economic growth and inflation, and every US president since Nixon likewise has proclaimed energy independence as a goal. However, few people took those promises seriously.

Today, energy experts no longer scoff. By the end of this decade, according to the US Energy Information Administration, nearly half of the crude oil that the US consumes will be produced at home, while 82 percent will come from the US side of the Atlantic. Philip Verleger, a respected energy analyst, says that, by 2023, the 50th anniversary of Nixon’s “Project Independence,” the US will be energy independent in the sense that it will export more energy than it imports.

Verleger says that energy independence “could make this the New American Century by creating an economic environment where the United States enjoys access to energy supplies at much lower cost than other parts of the world.”

Already, Europeans and Asians pay between four and six times more for their natural gas than Americans do.

What happened? The technology of horizontal drilling and hydraulic fracturing, by which shale and other tight rock formations at great depths are bombarded with water and chemicals, has released major new supplies of both natural gas and oil. The US’ shale-gas industry grew by 45 percent annually from 2005 to 2010, and the share of shale gas in the US’ overall gas production grew from 4 percent to 24 percent.

The US is estimated to have enough gas to sustain its current rate of production for more than a century. While many other nations also have considerable shale-gas potential, problems abound, including water scarcity in China, investment security in Argentina and environmental restrictions in several European countries.

The US economy will benefit in myriad ways from its change in energy supply. Hundreds of thousands of jobs are already being created, some in remote, previously stagnating regions. This additional economic activity will boost overall GDP growth, yielding significant new fiscal revenues. In addition, the lower energy-import bill will cause the US’ trade deficit to narrow and its balance-of-payments position to improve. Some US industries, such as chemicals and plastics, will gain a significant comparative advantage in production costs.

Indeed, the International Energy Agency estimates that the additional precautions needed to ensure shale-gas wells’ environmental safety — including careful attention to seismic conditions, properly sealed shafts and appropriate waste-water management — add only about 7 percent to the cost.

However, with respect to climate change, the effects of greater reliance on shale gas are mixed. Because natural-gas combustion produces fewer greenhouse gases than other hydrocarbons, such as coal or oil, it can be a bridge to a less carbon-intensive future. However, the low price of gas will impede the development of renewable energy sources unless accompanied by subsidies or carbon taxes.

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