President Donald Trump, sensing an opportunity, is looking past liberty to what he calls energy dominance. His administration plans to open vast ocean acreage to offshore exploration and for the first time in 40 years allow drilling in the Arctic National Wildlife Refuge. It may take years to tap, but the Alaska payoff alone is eye-popping–an estimated 11.8 billion barrels of technically recoverable crude.
It sounds good, but be careful what you wish for. The last three years have been the hottest since recordkeeping began in the 19 th century, and there’s little room in Trump’s program for energy sources that treat the planet kindly. Governors of coastal governments have already pointed out that an offshore spill could devastate tourism–another trillion-dollar industry–not to mention wreck fragile littoral environments. Florida has already applied for a waiver from such drilling. More supply could lower prices, in turn discouraging investments in renewables such as solar and gust. Those tend to spike when high oil prices rise, so enthusiasm for nonpolluting , nonwarming energies of the future could wane.
For now, though, the petroleum develop is chugging. And you can thank the resilience of the U.S. shale industry for it.
Shale’s triumph seemed impossible a few years ago. In late 2014, Saudi Arabia targeted competitives, including American drillers. Rather than cutting production to keep prices high, Saudi Arabia persuaded OPEC to open the taps, mailing costs lower than $40 a cask in December, down from more than $100 a barrel merely 4 months previous. The Saudis were hoping to starve the shale revolution. At first, they seemed poised to succeed, like they had in the past. U.S. production fell from a crest of 9.6 million barrels per day to 8.5 million barrels per day. Bankruptcies riddled shale spots from Texas’ Permian Basin to the Bakken Formation in North Dakota, and tens of thousands of employees lost their jobs.
Rather than say defeat, shale corporations dug in, slashing cost and borrowing like crazy to keep drilling. By late 2016 the Saudis blinked. They persuaded OPEC and the Russians to cut output. Slowly, steadily, West Texas Intermediate, the petroleum benchmark traded in New York, rose from $26 a barrel in February 2016 to where it persists today.
What didn’t kill shale drillers attained them stronger. The survivors have transformed themselves into leaner, faster versions that can thrive even at very low oil prices. Shale isn’t any longer just about grit, sweat, and luck. Technology is key. Geologists use smartphones to aim drilling, and companies are putting in longer and longer wells. At current prices, drillers can walk and chew gum at the same time–lifting production and profits simultaneously.
Fracking–blasting sea and sand deep underground to free petroleum from shale rock–has improved, too. It’s what many call Shale 2.0. And it’s not just the risk-taking innovators who predominated the first phase of the revolution, such as Trump friend Harold Hamm of Continental Resources Inc ., who the hell is benefiting from the surge. Exxon Mobil Corp ., Chevron Corp ., and other major petroleum groups are to intervene in the hurry. U.S. shale is” seemingly on steroids ,” says Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London.” The market remains enchanted by the ability of shale producers to adapt to lower costs and to continue to grow .”
The results are historic. In October, American net imports of crude and refined products plummeted below 2.5 million barrels a day, the lowest since official data were first collected in 1973. A decade ago, U.S. net oil imports stood at more than 12 million barrels per day.” For the last 40 times, since the Arab oil embargo, we’ve had a mindset of energy scarcity ,” says Jason Bordoff, founding administrator of the Center on Global Energy Policy at Columbia University and a former Obama administration official.” As the purposes of the shale revolution, the U.S. has emerged as an energy superpower .”
For OPEC, the emergent superpower presents an unprecedented challenge. If the cartel cuts production, shale drillers can respond by boosting output, stealing market share from OPEC nations and undermining great efforts to manipulate costs. The only solution for OPEC is to prolong the limits, as it’s doing now, and hope for the best. If collaborations between OPEC and Russia breaks down, it’s not impossible that OPEC breaks down, too.
If Shale 2.0 output holds prices low, Russia would be a big loser. Moscow has employed petroleum revenue to finance aggressive foreign intervention from Ukraine to Syria. The only solution is to continue cooperating with Saudi Arabia on continuing production low–not something the oligarchs relish.
With shale surging, U.S. the importation of Saudi oil plunged to a 30 -year low last year. The turnabout stimulates China and Japan far more dependent than the U.S. on the Countries of the middle east. It’s now possible for the U.S. to argue that other countries should help shoulder the burden of policing the shipping lanes leading to Middle Eastern and North African petroleum exporters.
Yet not all traffic lights are green for the U.S. It’s not immune from the ups and downs of the world market. When the price rises because of, say, political upheaval in the Middle East, it doesn’t matter where you are and how much you pump. The price rises in America, too.
There’s another problem: Shale 2.0 could suffer refiners. Shale petroleum is too good. For times, refiners spent billions of dollars on special equipment proceeding with the dense, high-sulphur, low-quality petroleums coming from Mexico, Venezuela, Canada, and Saudi Arabia. The quality of shale petroleum is so high that it harvests little diesel, the fuel that powers manufacturing.
Such restrictions may be mere speed bumps. But U.S. dominance is far from a panacea. It won’t reverse climate change. It won’t abate the political affect of fossil-fuel producers in Washington. Nor will it totally neutralize the political influence of erratic petrostates.
With demand rising despite the emergence of renewables and the developing electric vehicles, shale may struggle to keep pace with world intake. There’s a chance the world will witness that rarest of marketplace loop-de-loops–high oil prices as well as rising U.S. production.
Saudi Arabia and Russia could then remain formidable obstacles to U.S. energy independence. They would be crowing from the top of the hill even as they continue a wary eye on America’s shale drillers.
These are troubles that would have been an embarrassment of riches for Americans who had to wait in line to fill up in the 1970 s, when the U.S. specifying its own energy future was just a nightmare. Any celebration over this accomplishment ignores the evidence that such dependence on fossil fuel is no freedom at all. —