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30 KIUC CURRENTS
By Steven A. Yetiv
Why the Latest Energy Boom
Won’t Mean Cheaper Oil
The United States is experiencing a boom in oil and
natural gas production—one that many people see as a
game­changing, tectonic shift in our energy picture. But
while the boom is real, the benefits are less than meet
the eye.
The United States produces 1.6 million more barrels of oil
each day now than it did in 2008. That’s a significant
increase in a world that consumes around 89 million barrels
per day, with the United States accounting for about a
quarter of that amount. In addition, America’s net
petroleum imports have fallen from 60 percent of total
consumption in 2005 to 42 percent today. This is partly
because of new discoveries and the reclamation of “tight oil”
using hydraulic fracturing technology that shoots pressurized
liquids into compact, underground rock formations—the
same technology driving the natural gas boom.
But what does this oil boom really mean? Will it deliver
lower oil prices and enhance energy security, which is what
most Americans want and many may expect?
We should not be overly optimistic.
First, the boom would mean far more if America alone
used its own oil resources. But oil is a global commodity.
Imagine a giant pool of oil. No matter where the oil comes
from, buyers will pay roughly the same price for it. And all of
that extra American oil will be sold chiefly on global oil
markets, not set aside for Americans. As an extreme
example, Norway is a net exporter of oil, but its gas prices
are very high, even after accounting for that country’s higher
fuel taxes.
Second, it follows that because oil is traded globally, a
supply disruption or development anywhere in the world
affects oil prices for all consumers. Even if the United States
were to import little oil because of a homegrown energy
boom, Americans would still be vulnerable to global events
that raise the price of oil.
Third, the energy boom probably won’t stop oil
speculation—the purchase of oil futures to make a quick
buck rather than to obtain oil. Tens of billions of dollars went
into the nation’s energy commodity markets in the past few
years, earmarked to buy oil futures contracts. Institutional
and hedge funds are investing increasingly in oil, which has
prompted President Obama and others to call for curbs on
oil speculation. Data released in March 2011 by Bart Chilton,
a member of the Commodity Futures Trading Commission
who has urged limits on speculation, suggest that
speculators increased their positions in energy markets by
64 percent between June 2008 and January 2011.
The rub is that despite the domestic oil boom, speculators
will still buy oil futures whenever they think oil prices will
rise. Of course, extra American oil on the market might
temper speculation under some conditions, but then again,
it might not.
Fourth, the Organization of the Petroleum Exporting
Countries won’t sit by idly if America’s boom begins to hurt
oil prices seriously. Its members will most likely agree to
decrease their production to try to keep prices higher. For
instance, in June, when the price of oil dropped to around
$80 a barrel from $107 in March, fellow OPEC producers
pressured Saudi Arabia to cut output. Producers need oil
revenues to maintain their cradle­to­grave welfare states;
otherwise, they could face Arab Spring revolts at home,
which most oil­rich countries have avoided by using their
wealth to quell dissent and maintain domestic control.
Fifth, a backlash against hydraulic fracturing, which can
pollute water, is growing as Americans learn more about it.
Technological breakthroughs may make the process—
popularly known as fracking—safer, but it’s not apparent
when or if they could be implemented at a reasonable cost.
To be sure, the American boom has its positives. The
world needs all forms of energy to meet its rising demand,
and the boom will help in that regard. It could also dampen
the impact of oil disruptions, especially if the drilling
revolution goes global down the road. Use of America’s
abundant natural gas can also offset reliance on dirtier coal.
But let’s not exaggerate what the energy boom can do for
the United States and American consumers. At its current
pace, the oil boom probably won’t significantly lower
prices—though it may temper their rise at times. Greater oil
independence does not equal greater oil price
independence—something lost in our national debate. And
finally, a boom in fossil fuels is hardly something to
celebrate, given the urgency of climate change.
A green revolution would protect future generations from
climate havoc and wean us from our dependence on the
vagaries of oil prices. We shouldn’t let the fossil­fuel boom
divert our attention from that goal.
Steve A. Yetiv, a professor of political science at Old
Dominion University, is the author, most recently, of “The
Petroleum Triangle: Oil, Globalization and Terror.” This
commentary originally was published in The New York Times
on Sept. 4, 2012 and is reprinted with the author’s
permission.