The Free Market Works

In spite of interference, energy production is increasing. Imagine what we COULD do.

Hey folks,
This really is a great piece by Joel Kurtzman. It's in the Wall Street Journal. Now I know, Obama will attempt, and has attempted to take credit for all this. However, just remember this. Moratorium, de-facto Moratorium, increased and oppressive regulations. Slowed Permitting process. Stated goals of bankrupting the coal industry. Hundreds of billions of dollars thrown away on "Green Energy" that has produced nothing. No folks, This increase in energy production is in spite of Obama. Not because of Obama.

But this piece in the Wall Street Journal hit's it right on the head. It IS the free market. That is what has produced all the advancements in natural gas, shale and tar sands oil production, and other areas that are still being worked on. Nothing to do with this administration. The free market.

Those who doubt that market forces still have the power to transform the world aren't paying attention to America's revitalized energy sector.

Revitalized from Obama

Four years ago, oil prices climbed to about $145 a barrel world-wide. The impact on the U.S. economy was devastating. Consumers who paid between $2.50 and $3 for a gallon of gas in 2007 paid as much as $5 a gallon in 2008. For many Americans, the high cost of commuting to and from work meant choosing between paying the mortgage or paying for gas. Many chose the latter.

But eventually prices did what they're supposed to do in a market economy—they prompted the development of new sources of oil as well as oil substitutes. Some companies began drilling new oil wells using new technology including 3D seismic imaging and directional drilling. In 2002, when oil prices were in a trough, there were roughly 800 oil-drilling rigs operating in the U.S. Today, there are roughly 2,000. The last time we had that many rigs drilling for oil was 1985. In addition, energy companies went after and found more offshore oil, and far more "unconventional" oil from shale, tar sands and long-abandoned wells than most people thought possible.

The results of these efforts have been impressive. Since 2008, domestic oil production has increased 12%, while imported oil has fallen to 45% of total consumption from 61%. Four years ago, when prices were high, the U.S. was on track to spend nearly $1 trillion on imported oil each year. Lower prices and falling demand mean we are likely to spend $350 billion this year—still high, but falling.

Not surprisingly, companies also sought opportunities developing cheaper alternatives to oil. Chief among these fuels is natural gas, which is a cleaner fossil fuel than oil and coal. In 2008, estimates were that the U.S. had just 12 years of natural gas reserves left. Plans were being put in place to import liquefied natural gas from the Middle East, perhaps even Russia, to meet future demand.

But high energy prices prompted companies to develop new technologies. Hydraulic fracturing—drilling deep vertical wells then drilling horizontally to release natural gas from shale rock—was perfected. Because of that, natural gas reserves increased dramatically while prices fell. In 2008, natural gas sold for about $12-$14 per thousand cubic feet. Now it sells for about $2 per thousand cubic feet. Instead of supplies lasting only 12 years, there is now sufficient natural gas for at least 100 years.

However, keep in mind that Obama is currently attacking Hydraulic Fracturing. He is trying to slow it down. Administration officials have come right out and said that they think one of the reasons that the green energy market has slowed, non-existent, is because natural gas is just too cheap. With this administration , cheap energy is bad.

Rather than importing natural gas, the U.S. may begin exporting it. Since natural gas is sold in local rather than global markets, price differentials between countries are high. Average futures prices are about $9.50 per thousand cubic feet in Europe and about $16 per thousand feet in Asia, versus $2 in the U.S. Pricing differences this big will make exporting natural gas lucrative, perhaps even balancing our perennially in-the-red trading account.

Right now, natural gas is so abundant and cheap that some worry the U.S. and Canada, which has large reserves north of those in the U.S. Midwest, may soon run out of storage capacity. Some companies have even announced plans to curtail drilling due to falling prices and oversupply.

But here the price-mechanism is again at work. Trucking companies and fleet operators, wanting to take advantage of low natural-gas prices, are looking into converting trucks from diesel to natural gas, cutting their fuel bills by half. Passing the bipartisan Natural Gas Act (HR1380 in the House and S1863 in the Senate) would facilitate and accelerate this process by providing tax credits for the cost of conversion and for building natural-gas fuel stations, increasing demand even further.

This is how the free market works folks. There comes a need. People figure out how to meet the need. In time, if the need is there for "green Energy" someone will figure out how to make it work. In time, they will come up with the new technology, the ability to make it viable, and affordable to all. People will buy it. There will be a shift to it. The government will not have to spend a cent on it. It will just happen. as it IS happening with all these new sources of natural energy now.

High energy prices have transformed the American energy landscape. A study released last December by the Congressional Budget Office indicates that new oil and gas finds, combined with traditional sources of energy, including cheap-but-dirty coal, has transformed the U.S. from an energy has-been to a heavyweight.

According to the CBO, total U.S. energy reserves now exceed those of all other countries, including those in the Middle East. The U.S. is so energy rich there's little to prevent us from achieving energy independence.

Prices more than policy are driving these remarkable changes. Other problems to be fixed, rising CO2 emissions, for example, will also yield to the indomitable pressure of price, if carbon is taxed. While Washington squabbled over which energy direction to take, and which energy bill to kill, the markets moved us in exactly the direction the country should go—toward cheap, plentiful energy.

If carbon is taxed. If the government continues to interfere with the market. If Obama and crew stand in the way, the prices will change course and go up. This is why this is such a great piece. It is telling you the truth. Government control brings prices higher. Free market lowers prices, through innovation and demand. Which way do you think is the most logical way to go? It isn't government control.
Peter

Sources:
The Wall Street Journal - The Market-Driven Energy Revolution by JOEL KURTZMAN