The transformation of the U.S. energy market created by the new extraction techniques for oil and gas has some predicting a renaissance for U.S. manufacturing based on lower, stable energy costs. In today’s Policy Initiative Spotlight, Renewing America contributor Steven J. Markovich examines those claims and argues that the impact will likely be modest.
The United States is experiencing a boom in oil and natural gas production. High global oil prices and new technologies have spurred the development of unconventional sources such as deepwater oil drilling and hydraulic fracking. The rapid adoption of these new extraction techniques has roiled energy markets, and the environmental effects are still being determined. But will they improve U.S. competitiveness?
According to the Energy Information Administration (EIA), in the past three years domestic production increases have outpaced demand increases. Domestic crude oil production increased 5.9 percent, while demand only increased 0.2 percent. During this period, world oil prices rebounded after crashing with the start of the recession; oil futures are trading at more than double their price in January 2009.
Oil trades on a global market, so a surge in domestic production is unlikely to shrink oil prices in the United States, or increase national competitiveness. Additionally, many unconventional U.S. sources of oil are only economical with high prices. Natural gas is a regional, not a global market. As a gas at normal temperatures and pressures, natural gas is difficult to trade overseas, so prices are more localized.
According to the EIA, the United States produces over 90 percent of the natural gas it consumes, and imports most of the remainder by pipeline from Canada. Liquefied natural gas (LNG) does allow global trade, but that technology requires substantial infrastructure investment in specialized terminals to chill natural gas until it becomes a liquid. The United States currently has few LNG terminals, and LNG was responsible for less than 1 percent of the U.S. market.