Energy, Markets and Technology

Don’t you just love the free market and technology? I do, including when it comes to energy.

Just like in other markets, higher prices and profits drive innovation and expanded production in the energy marketplace.

Making this point crystal clear is a front-page story in today’s (August 25) New York Times titled “Drilling Boom Revives Hopes for Natural Gas” by Clifford Krauss. Consider a few key points from the article:

• American natural gas production is rising at a clip not seen in half a century, pushing down prices of the fuel and reversing conventional wisdom that domestic gas fields were in irreversible decline. The new drilling boom uses advanced technology to release gas trapped in huge shale beds found throughout North America — gas long believed to be out of reach.

• Competition among companies for rights to the new gas has set off a frenzy of leasing and drilling.

• Domestic gas production was up 8.8 percent in the first five months of this year compared with the period a year earlier, a rate of increase last seen in 1959, during the great drilling boom that followed World War II.

• Testing to determine the productivity of fields has been completed on just a tiny fraction of the potential acreage. According to a new report by Navigant Consulting, paid for by a foundation allied with the gas industry, there could be as much as 842 trillion cubic feet of retrievable gas in shales around the country, enough to supply about 40 years’ worth of natural gas, at today’s consumption rate. But thousands of wells need to be drilled before the exact reserves will be known.

• “Shale is the most significant domestic natural gas find in 50 years,” said Chris Ruppel, an analyst at the institutional brokerage firm Execution, “which means the United States will become gas independent, and more industrially competitive versus Europe for gas-intensive industries such as chemicals, fertilizer, smelting iron and aluminum.”

• Domestic gas production was in decline from the early 1990s to 2005, before production from shale beds and some lesser unconventional fields led to increases beginning in 2006. In the meantime, consumption increased by more than 15 percent, satisfied largely by rising imports.

What should government do? The answer is clear: Get out of the way. That is, provide tax and regulatory relief, and let the market work.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council