Explaining Southern California's economy

Wait! The U.S. could be the worlds largest energy producer by 2020?

Keith Srakocic/AP

A rig in Washington, Pa., drills into shale rock to extract natural gas.

Indeed it could. This is from Bloomberg:

Domestic oil output is the highest in eight years. The U.S. is producing so much natural gas that, where the government warned four years ago of a critical need to boost imports, it now may approve an export terminal. Methanex Corp., the world’s biggest methanol maker, said it will dismantle a factory in Chile and reassemble it in Louisiana to take advantage of low natural gas prices. And higher mileage standards and federally mandated ethanol use, along with slow economic growth, have curbed demand.

[...]

The transformation, which could see the country become the world’s top energy producer by 2020, has implications for the economy and national security -- boosting household incomes, jobs and government revenue; cutting the trade deficit; enhancing manufacturers’ competitiveness; and allowing greater flexibility in dealing with unrest in the Middle East.

What's stunning about this is how quickly the facts on the ground reversed themselves. The U.S. has been reliant on primarily imported oil for decades. But the "fracking" revolution has begun to reverse that trend faster than anyone expected. There are serious environmental questions about the process, but as Bloomberg points out, they're unlikely to derail the hydraulic-fracturing train. 

I usually think of this in terms of America's "environmental equity." Over the past 30-40 years, the country has invested heavily in having the kind of environment that people actually want to, you know, live in. Cleaner water, cleaner air, heathy forests, vast preserves of unspoiled natural lands...you get the idea. 

Fracking does represent something of a threat to this environmental equity. But we could think of it another way. We could now decide to spend some of that equity to correct economic imbalances. As Bloomberg notes, the U.S. domestic energy revolution could chop $145 billion off the trade deficit. That's money that could be spent at home, helping the domestic economy recover, rather than going into the sovereign wealth funds of Middle Eastern countries, to be used to build luxury hotels with sixteens helicopter pads and three underground levels of gilded Ferrari parking.

What's truly impressive about the advent of fracking is how it relied on good old-fashioned American entrepreneurship. It's not a stretch to say that it was about one man and his dream:

The shale-gas technology that’s boosting U.S. natural gas production was spawned in the Barnett Shale around Dallas and Fort Worth by George P. Mitchell, who was chairman and chief executive officer of Mitchell Energy & Development Corp.

Helped by a provision inserted in the 1980 windfall oil profits tax bill to encourage drilling for unconventional natural gas, the Houston-based oil man pursued a trial-and-error approach for years before succeeding in the late-1990s. The fracking method he devised cracked the rock deep underground, propping open small seams that allowed natural gas trapped in tiny pores to flow into the well and up to the surface.

Recognizing that Mitchell was on to something, Devon Energy Corp. bought his company in 2002 for about $3.3 billion and combined it with its own expertise in directional drilling, a method derived from offshore exploration.

It's well worth remembering that innovation isn't confined to Silicon Valley and the high-tech realm. Energy remains a big part of the overall economy. And it encouraging that we're continuing to develop entrepreneurs there, too. They might be worth the expenditure of some of that precious environmental equity. We can afford it.

Follow Matthew DeBord and the DeBord Report on Twitter.

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