A Big Frackin’ Deal

A development boom in the energy sector is set to challenge the traditional geo-political landscape. For decades, Americans have bemoaned an energy policy dependent upon sending U.S. money for foreign oil buried deep beneath hostile sands.

‘But The Times They are A-Changin’

2012 marked a record year for U.S. energy production, and projections show that the United States is set to become the number one exporter of oil by 2020, passing Saudi Arabia. Within the next decade, the United States could actually become energy independent.

This boom in U.S. oil and gas production has become a modern day gold rush. In an economy defined by stagnant economic growth, natural gas has become big business. Massive investments into new technology and a refined process of drilling have made vast areas of shale gas available for extraction through a process of horizontal drilling and hydraulic fracturing — or fracking.

But fracking’s rapid ascension into prominence has not gone unchallenged.  The practice has come under specific attack for polluting ground and surface aquifers through chemical leaks and creating smog due to methane releases. Such concerns have gained notoriety through recent films including Matt Damon’s new movie “Promised Land” and the oft viewed documentary “Gas Land.”

Matt Damon in “Promised Land”

Fracking’s effect on the environment deserves scrutiny, and it should by no means be considered a panacea to solve all of our energy problems. However, a recent study conducted by the state of New York found the practice to be environmentally safe, findings consistent with recent testimony from the EPA. Certainly the use of fracking will lead to some pollution, but so does the production of alternative energy technologies. Some evidence shows that the increase of natural gas production does not add to environmental concerns, but rather replaces dirtier forms of current production found in oil and coal.

“Clearly, the booming American oil and gas businesses are not problem-free, but the benefits — economic, geopolitical and environmental — of this impending energy independence far outweigh the drawbacks.”

A Global Focus: The U.S. & Natural Gas: An International Model for Growth or Cautionary Tale?

The rise of natural gas drilling in the United States will either serve as a model for state growth or a cautionary tale to the international community.

The twin benefits of fracking-creating jobs and fostering greater energy independence through expanded domestic drilling-have caught the attention of the global community. Today, Russia and the Middle East sit atop the largest reserves of crude oil in the world, but many countries have potentially vast amounts of homegrown energy sources at their disposal in natural gas reserves-including nontraditional energy states in Eastern and Western Europe, Canada, Australia, Algeria, and South America.

2011 Recoverable Natural-Gas Reserves

While shale gas reserves are plentiful in many countries, most nations have been slow to try and replicate the all-in approach of increased natural gas drilling currently allowed in the U.S. The reasons for this vary: many governments have banned the nascent technology temporarily as to allow further research into the negative side effects of increased drilling; countries often lack the readymade infrastructure and underground pipelines necessary to produce and transport materials; and, the relationship between private property rights in the U.S. and incentives differ from country to country.

“In Europe, Asia, Africa and South America, mineral rights belong to the governments of most countries, not private property owners as in the United States. That creates little incentive for landowners to put up with the noise and disruption of drilling – or the feared byproducts of air, soil and water pollution. Except in countries like Australia, where the government has the power to pressure landowners to grant access, fracking skeptics can often thwart the projects by barring the drillers from their land.”

How governments respond to the twin challenge of meeting national energy demands, while simultaneously addressing concerns over climate change and pollution, stand to shape the future landscape of energy development and international security.

Consider: With U.S. production of natural gas continuing to rise and energy independence a very real possibility in the near future, will Middle Eastern regimes be able to pivot their focus East to help meet growing energy demands in Asia or face economic turmoil? What role will China play in all of this? Currently, there is zero State production of shale gas in China, but with estimates of 36 trillion cubic meters, making it the world’s largest reserve pool according to EIA, and nearly 50% larger than the U.S.’s reserves, on top of forecasts for tremendous growth in future energy demand, will China seek to keep up with demand through increased imports from the Middle East/Russia or ramp up massive production of domestic resources? What happens to global energy powers like Russia if Poland, which currently imports oil from Russia but sits upon large swaths of its own natural gas, decides to pursue an aggressive approach to domestic drilling? Could the exorbitant gas costs felt all across Europe be assuaged by an increase in natural gas alternatives to crude?

The answers to these questions remain to be seen, but their impact will surely be felt. How will countries decide between economic growth and environmental damage, and is this even the right question? A concern over the international acceptance of increased drilling for natural gas is that such measures will take away from, or replace, current attempts at developing clean, renewable energy sources. Because natural gas is a finite resource, much like oil, it is not to be seen as the final energy solution, but as a transitional tool to longer-term sustainable energy measures that are exploding in growth as an industry and transforming the global energy landscape.

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