Analysts: Energy policy not keeping pace with technology

02 06, 2013 by Fuel Fix

The United States’ energy landscape has been turned upside down by new technologies allowing companies to harvest oil and gas once locked deep underground, but federal policy hasn’t kept pace with the transformation, experts told a House panel on Tuesday.

Instead, scarcity remains the backbone of U.S. energy laws drafted over the past few decades, said the analysts testifying before a House Energy and Commerce subcommittee.

“For 30 years, the American people have been told that we are a nation of declining resources at the mercy of OPEC,” said panel chairman Fred Upton, R-Mich. “Our overall energy landscape has changed dramatically in just a short period of time, and it is not only rewriting the economic outlook that we have as a nation, but also beginning to change the geopolitical nature of global energy economics.”

By combining horizontal drilling with hydraulic fracturing, energy companies have been able to extract oil and gas from dense shale formations nationwide. This so-called “shale gas” represented 2 percent of the U.S. natural gas supply in 2008 but makes up 27 percent of it now.

Reversing a long downward trend, the U.S. has now seen a 38 percent increase in domestic oil production since 2008 — equivalent to the entire output of Nigeria and nearly identical to Iran’s total exports before sanctions, said Daniel Yergin, vice chairman of IHS CERA.

Adam Sieminski, head of the government’s Energy Information Administration, noted his agency is forecasting the U.S. will produce some 8 million barrels per day in 2014, with most of the expected growth coming from tight oil. “With some very strong assumptions about how drilling could proceed (that) could get as high as 10 million barrels per day,” Sieminski said.

“Our thinking needs to catch up with reality,” Yergin said. “Our logistics need to catch up with production. Everything’s been turned upside down.”

Natural gas production has risen so rapidly that supplies exceed the current domestic market, prompting more than a dozen companies to ask federal regulators for licenses to export the fossil fuel to Japan and other countries that don’t have free trade agreements with the U.S.

Yergin predicted that ultimately, fewer than six of those expensive facilities for liquefying and exporting natural gas will be built in the U.S., because of competition from similar operations planned in Canada and the development of gas near Israel and Africa.

Expanded natural gas demand — whether in the form of tapping the international market or more U.S. power plants burning the fossil fuel — is necessary to sustain current domestic production, Yergin said.

Sieminski noted that if strong natural gas supplies keep prices low, “that would actually lead to more demand in the electricity sector,” as power plants move away from coal.

Rep. Gene Green, D-Houston, lamented that when he drives through South Texas, he “sees so much flaring of the natural gas” from oil wells. When that fossil fuel isn’t captured “because we don’t have the capacity or the infrastructure or the customers for it, it’s such a waste.”

Rep. Henry Waxman, D-Calif., the top-ranking Democrat on the Energy and Commerce Committee, warned against a wholesale rush to extract all of the United States’ oil and natural gas supplies, which could cause “immense” damage to the planet.

“The question we must ask is whether we are on a sustainable course for years to come,” Waxman said. “The biggest energy challenge we face as a country is carbon pollution. You can’t have a conversation about America’s energy policy without also having a conversation about climate change.”

Jennifer Morgan, director of the World Resources Institute’s climate and energy program, insisted that the U.S. must make a “rapid shift to clean-energy technology,” which would drive economic gains and make America a world leader in innovation.

Noting that “the investment choices we make today will shape our energy and economic future for decades to come,” Morgan warned against locking “in a pollution-intensive energy future.”