The US Energy Conundrum: Keeping the Supply Side of the Equation
US energy policy for the next 10 years will be directly affected by two disasters which occurred less than a year apart: the Deepwater Horizon spill in the Gulf of Mexico in April 2010, and last month’s Japanese earthquake and tsunami.
The Deepwater Horizon incident caused dramatic curbs on the future supply of fossil fuels here in the US, and the tsunami is already causing a significant increase in demand.
As a direct consequence, the price of natural gas is destined to be pushed significantly higher, and our reliance on imported oil, which had been falling since 2006, should stop declining, or may even rise.
In Washington, the political focus has been zeroed in on the debate over the Environmental Protection Agency’s powers to control the emissions toxic pollutants from electricity generating stations.
The outcome of that debate will be important for formulating the energy landscape of the remainder of this decade.
But the most significant influences will be the policy responses to those two disasters.
The supply side will be impacted by how far the authorities will allow domestic oil and gas production to expand.
At this time, only two permits for the drilling of deepwater wells in the Gulf have been granted by the offshore regulator since the Deepwater Horizon blowout.
This slowdown in the awarding of permits, even though the formal deepwater drilling moratorium on ended last October, is already having a huge impact on oil production in the gulf, and that slowdown on output will continue to grow greater month after month. Chrevon, the second largest domestic oil company, has already set their gulf development plans back a full year.
This deepwater drilling slowdown says a great deal about our current energy policy stance.
Faced with a worldwide headlined crisis, the authorities’ response has been to reach for the often used blunt force regulation, and to ignore the collateral damage to US companies working in the Gulf, or to worry about US energy supplies.
The next target for such a reaction is the domestic shale gas and oil industry, which extracts resources through the use of long horizontally drilled wells and the fracturing of rocks via the injection of water and chemicals under higher pressure.
“Fracking”, as the operation is known, has become evermore controversial, drawing protests from residents of northern states, where the drilling and fracking are already being used.Continued on the next page