BY: Parry Elliott
One
of the main challenges of the 21st century facing nations worldwide
is how to adequately and economically meet current and future energy
demands. This is particularly imperative for a country like the
United States, which according to the Energy Information
Administration, consumes on average 20.5 million barrels of oil a
day, making it the largest consumer of oil in the world. As a result
the US has essentially been at the mercy of OPEC amongst whose
responsibilities it is to set the global price of oil. However, in
the past decade, oil and natural gas markets have become highly
volatile with prices soaring to unknown heights one day only to
dramatically plummet the next. Apart from energy, the derivatives of
oil and natural gas are integral to a host of other industries and
applications including steel and paper production and use as key raw
materials in the chemical industry. The advent of hydraulic
fracturing, commonly known as fracking, provides a novel method for
tapping vast wells of natural gas from previously inaccessible shale
deposits.
Recent
technological advancements have fueled increased exploration for
shale gas, natural gas trapped within shale formations, with some of
the largest reserves being found in the Maine, California and
Pennsylvania. This means that cost to production and cost of natural
gas becomes significantly cheaper in relation to importing expensive
oil. Consequently, higher revenues can be obtained which can then be
funneled or invested into the development of more efficient
technologies and practices for exploration and refinement.
Companies
in the United States have been cognizant of these developments and in
an effort to remain competitive in the market have been, according to
Blackrock, increasing the amount of total capital expenditure they
feed into the energy sector. Accompanying this trend has been
increased US crude oil and liquid natural gas production and for the
first time in about a decade, US imports of crude oil have begun to
show a steady decline which when coupled with increased trade exports
leads to trade surpluses.
Other
benefits are also accrued in the scope of the broader economy. As the
US energy supply increases, the prices that consumers pay in the long
run conversely decrease. This in turn promotes a drop in the
inflation index and the energy expenditure of the United States. One
of the most promising or exciting advantages of increased domestic
energy production is the simultaneous increase in need for jobs from
a wide variety of backgrounds, i.e. from blue collar straight up to
advanced technical. Growth and expansion of industries, aside from
the energy industry, such as transportation, construction, builders,
mining, consumer durables and middle income retail are also observed.
With a 7.2% unemployment rate in the United States, it is clear that
shale gas exploration can be part of the solution to alleviating some
of the current job market woes. Ultimately, most important is the
increased energy independence of the US which can have implications
on a much broader geopolitical scale.
