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January 16, 2011

Time to Tap the Bounty of U.S. Natural Gas

By CHRISTOPHER SWANN

 

Natural gas may be America’s most ignored blessing. With resources now equivalent to Iran’s oil reserves, domestic shale gas offers a chance to meaningfully reduce the country’s dependence on foreign oil, cut the deficit and even reduce greenhouse gas emissions.

Every president since Richard Nixon has paid lip service to the quest for energy independence. Similarly, the bloated trade deficit and climate change have become political obsessions over the past decade. Yet precious little has been done to deploy this growing gas endowment to solve these problems.

To be fair, politicians have had little time to react. Just a few years ago it seemed that falling domestic gas production would force the United States to rely increasingly on imports. Instead, new drilling technologies — hydraulic fracturing and horizontal drilling — have enabled energy companies to tap vast quantities of gas trapped in rock.

Just last month, the Energy Department more than doubled estimates of recoverable shale reserves to 827 trillion cubic feet, the energy equivalent of roughly 140 billion barrels of oil. That’s slightly greater than the proven oil reserves of Iran, the world’s third largest repository of crude.

As gas reserves have ballooned, so has the potential to help solve decades-old policy conundrums, starting with an addiction to foreign oil. Last year, the tab for the 12 million barrels of oil the nation imports daily came to around $260 billion, accounting for roughly half the total trade deficit.

Gas can be used directly in vehicles and to generate electricity. So it offers great hope of kicking the habit. By shifting America’s gasoline-guzzling heavy vehicle fleet and buses to natural gas the United States could cancel orders for up to three million barrels of oil a day. This could shave $100 billion off the annual trade deficit at current oil prices.

It would also represent a giant step toward energy independence, reducing reliance on unstable foreign powers. Three million barrels a day is equivalent to more than half of imports from OPEC; Saudi Arabia, Venezuela and Libya combined sell around two million barrels daily to America. Even greater import savings could accrue if such a move gives way to the next generation of domestically manufactured electric cars.

Finally, gas offers one of the quickest and most cost-effective ways of cutting greenhouse gas emissions. Switching electricity generation from coal to natural gas roughly halves the output of carbon dioxide. Simply raising the use of America’s advanced gas plants to 60 percent capacity, from 40 percent at present, would eliminate a quarter of the increase in emissions over the last two decades, according to Navigant Consulting.

So why has Congress so far looked this gift horse in the mouth? The speed of the shale revolution may be partly to blame. Initially many policy makers were skeptical that gas reserves could have increased so suddenly. But the political heft of the coal lobby, and its close ally, the railroad sector, also helps explain inertia in Washington. By comparison, gas producers are political parvenus. Spiraling budget deficits meanwhile have made it harder to find even modest public funds to promote a switch to gas vehicles.

Still, given the benefits of gas, further delay would be a shame. The free market has already done much of the heavy lifting. With the abundance of gas pushing down prices, only minimal policy support is needed. First, new lawmakers ought to back Senator Harry Reid’s plans to promote natural gas-powered heavy-duty vehicles.

For taxpayers, subsidizing these vehicles initially would pay off soon as rising sales drove down prices. And with gas less than a third the price of oil for the same energy content, freight companies would quickly recoup the cost of the more expensive trucks through lower fuel bills.

Second, lawmakers need to cease coddling the coal industry. Putting a price on carbon may be politically difficult, but Congress should allow the president to use the Environmental Protection Agency to penalize coal for its emissions. With so much spare capacity, gas-fired plants could pick up the slack. Rock-bottom gas prices and abundant supplies would make the impact on electricity prices virtually imperceptible.

America’s natural gas bonanza is too good an opportunity to miss. The new Congress needs to embrace the bounty beneath its feet.

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