The Trillion-Dollar Energy Bonanza: Dealing with the Political Realities

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The Trillion-Dollar Energy Bonanza: Dealing with the Political Realities

Energy "shortages" are nothing new to the United States, and in every case, those deficits have proven to be short-lived.  For example, during World War II, Secretary of the Interior Harold Ickes declared that we were running out of oil.  Yet, by 1959, there was such a glut of domestic oil, an import quota was imposed.

By 1971, the growing demand for oil led the U.S. to become a net importer, creating a scenario where the country would experience one energy shock after another.  Yet, oil prices dropped precipitously in the early ‘80s owing to dramatically increased global production.

This global oil glut caused the United States to increasingly rely on imports to meet its energy needs.  The unsoundness of this arrangement was summarized by President George W. Bush when he said, "America is addicted to oil which is often imported from unstable parts of the world."  However, this dependence on other countries was not due to dwindling domestic supplies, as many would later claim, but rather the low price of foreign oil.  It was simply cheaper to import oil than it was to produce it domestically.

Consequently, oil imports hit a peak in 2005, and then dropped due to a decrease in demand caused by the Great Recession.  It was these high-priced imports that ultimately encouraged investment in new projects that have dramatically boosted both production and reserves. 

According to research firm Global Data, global oil and gas industry capital expenditures in 2012 beat 2011 expenditures by 13.7 percent, pushing spending over $1 trillion for the first time.1  The budgets being spent by some companies, such as Exxon Mobil, rival the GDP of many small sovereign governments.

Worldwide, about $230 billion of this spending will take place in the Middle East and Africa in the search for oil, while $254 billion will be spent in the U.S.  Not only will it be the largest amount spent anywhere, it is the fastest-growing share, up 15.7 percent from 2011 spending levels.  A significant portion of this spending will be on drilling in Texas' Eagle Ford shale and North Dakota's Bakken shale.

As the technology for discovering and extracting new sources of oil improves, so do the estimates of our true abundance of natural energy resources. 

According to a report from the Congressional Research Service (CRS), the energy resources available in America are the largest in the world.2  They outrank the combined resources of Saudi Arabia, which comes in third, China, which is fourth, and Canada, which ranks sixth.  This is not taking into account America's "shale oil" deposits, and the huge potential supply of methane hydrates off our coasts...

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