Slow growth? Government shutdown? The United States has its fair share of problems. Yet, in the background, an economic revolution is happening, which could save the country billions and bring high-level manufacturing jobs back.
“Could it be possible that oil is our get-out-of-jail free card?” asked James Lucier, head of energy practice at Capital Alpha Partners LLC, a research firm in Washington, D.C.
The International Energy Agency’s (IEA) answer to that question is a clear “yes.” The Paris-based intergovernmental organization released its “World Energy Outlook 2013” Tuesday. It predicts the United States will be energy independent by 2035, with oil and gas leading this achievement.
“The United States is the world’s largest oil producer for much of the period to 2035,” said the agency, without specifying when exactly the United States will become the world’s largest producer.
Recoverable Reserves
“Oil is really a stunning story, it’s a technological story. Forget all this stuff about geology and hydraulic fracturing [fracking], oil is about information technology” and the ability to locate oil more effectively, Lucier said.
He means that much of the 1.7 trillion barrels of recoverable hydrocarbons the United States holds can soon be recovered at a profit. “That is literally hundreds and hundreds of years’ worth of supply at the current consumption,” he said.
According to Lucier, improvement in computer technology virtually assures companies there will be oil when they start drilling, drastically minimizing risks and costs. “There is no exploration risk anymore; we are producing all the oil we want.”
Driving Growth
Energy is a major input cost for any business. More domestic oil production leads to reduced energy costs, and more money for hiring people, or investing in innovation.
The United States already produces cheaper gas and electricity than most other nations. “In terms of any business that is about making things; power, gas, energy—we got a critical structural advantage,” said Lucier.
The IEA report confirms Lucier’s findings, estimating cost savings from energy for U.S. manufacturing businesses at around $130 billion in 2012. Natural gas prices in the United States are one-third of the import prices in Europe and one-fifth of the Japanese prices. Electricity is twice as expensive in Japan and Europe than in the United States.
“Energy costs can be vital to the competitiveness of energy-intensive industries, particularly where energy accounts for a significant share of total production costs, and where the resulting goods are traded extensively,” states the report. It cites chemicals, aluminum, cement, iron, steel, pulp and paper, glass, and refining as the most energy dependent sectors.
Consequently, the IEA estimates the United States will increase its global exports of energy intensive goods, whereas Europe and Japan will see sharp declines.
“Lower energy prices in the United States mean that it is well-placed to reap an economic advantage, while higher costs for energy-intensive industries in Europe and Japan are set to be a heavy burden,” said Fatih Birol, IEA chief economist.
In terms of the growth of economic output (GDP), Lucier cited a Citigroup study, which estimates as much as three percentage points of added growth because of cheap energy.
High-Paid Jobs
But it’s not only the cost savings for conventional industries that makes this proposition so attractive from an economic perspective.
Lucier predicts the technological innovation necessary to recover the oil will add a lot of high-paying science and manufacturing jobs.
In fact, according to a Moody’s study, one-third of all jobs created between 2002 and 2012 were oil and gas related.
“It’s about manufacturing process efficiency. You have to keep the process going,” said Lucier.
According to him, oil exploration in the United States would use numerous individual wells rather than a few big ones like in Saudi Arabia. While this makes the oil here relatively more expensive, there is an opportunity to add more value in the recovery process onshore.
“The extraordinary rise of [oil that is easy to process] in the United States will play a major role in meeting global demand growth over the next decade, but the Middle East—the only large source of low-cost oil—will remain at the center of the longer-term oil outlook,” states the IEA report.
Opposition
However, the oil and gas revolution is not a done deal. The environment will be a factor to consider, according to Lucier, and regulation could prevent a full-scale implementation.
“Climate regulation is clearly a dagger at the heart of the American petro-chemical industry,” he said, adding that new regulation limiting the scope of drilling would stop technological progress in its tracks.
“It’s a fragile resource, we could mess it up.”
