8 Jan 2014

American energy independence

The fracking revolution has dramatically increased America's supply of oil and natural gas. Prices have dropped; industries and consumers are switching from coal and renewables to oil- and gas-powered machines and generators.

American industrial firms now enjoy a significant cost advantage over international competitors. American politicians claim that America is finally reaching the "dream" of energy independence. More Americans are working in energy-related -- and energy-intensive -- jobs. Consumers pay less to keep themselves warm and their laptops charged.

The big debate now is whether politicians will end the ban on American oil and gas exports. (Yes, there's a ban, but it hasn't mattered for decades, due to a consistent need to import oil.)

I'm guessing that the ban will not end, due to a baptists and bootlegger coalition of "consumer advocates" who like lower energy bills and industrial bosses who want to pay less (and make more) than their competition. The most likely reason they'll lose is that oil companies with better lobbying more money convince politicians that oil exports will help the country, reduce the trade deficit, and make big profits, but they may also lose to common sense.

A ban on exports keeps domestic energy cheap, but such a ban is harmful because:
  • People use more energy when it's cheap. That's not bad per se, but it's bad when long-run (3+years) efficiency and competativeness fall. Remember how bad US cars were in the 1970s before the Japanese kicked butt and disrupted the cozy industry?
  • Neighbors are unlikely to respond well to an ongoing ban. They may impose tariffs and taxes "to level the field" on US exports
  • It's not a great idea to use more energy if you worry about climate change
  • The US -- and the world -- needs integrated energy markets to minimize the impact of disruptions -- everything from battles in Nigeria to exploding rail cars in North Dakota
  • Energy firms focussing on "cheap" are less likely to spend the money it needs to prevent environmental pollution. Export profits will make it easier for them to produce without ruining the country
Bottom Line: The fracking revolution can help everyone if it's not turned into a subsidy for American industrial firms. Integrated, world energy markets help the US achieve real independence... from energy disruptions and inefficiency.