American Consumers Reap the Benefits of Energy Technology
Technology has proved to be an invaluable asset for energy development, producing an economic boon that has been great for the American consumer. Innovative techniques for unlocking massive new supplies of oil from shale – hydraulic fracturing and horizontal drilling but also better data analytics – helped drive oil prices down from an all-time high of $145 per barrel in 2008 to less than half of that today, a welcome change for consumers but somewhat of a surprise to the companies themselves as they try to achieve better functionality at lower cost. When oil producers use data to hone in on sweet spots in shale rock, they can significantly increase production and cut the investment required to drill holes and begin producing crude.
And because oil production technologies – not only fracking but offshore drilling – continue to rapidly evolve, oil and gas companies are learning to make money even when oil prices drop below $50 per barrel. Cheap oil has been a bane to OPEC and Russia who, although they attempted to put a lid on world oil production, were never able to adequately deal with the stunning growth in U.S. shale oil production. For starters, sustained low oil prices have made it more difficult for Russia to balance its budget, since 35% of the government’s revenue still comes from oil and gas. The United States, thanks to the shale revolution, is now the world’s largest producer of oil and gas and has become a counter-weight to OPEC and Russia, blocking their efforts to dominate global energy markets.
Ironically, lower oil prices probably came as the biggest surprise to Americans who now have more disposable income and view the cost of gasoline as a litmus test for a sound economy. And it isn’t just motorists who benefit from low gasoline prices. Energy is the fundamental input of most everything we produce in America. Manufacturers of all from automobiles to refrigerators have lower production costs when the price of oil and gas falls. Natural gas is half or even less as expensive here as it is in Europe and Asia, giving U.S. industry a critical competitive advantage.
Today, global oil production has grown to around 100 million barrels per day, and we can put aside the notion that the world is running out of oil. It wasn’t so long ago that Barack Obama said: “The United States of America cannot afford to bet our long-term prosperity, our long-term security, on a resource (oil) that will eventually run out.”
The reality is quite different. America isn’t running out of oil. Even though oil prices remain low, investment in production is growing. And the reason has mainly to do with technological advances in energy production that show no signs of slowing down. The benefits are really unlimited. For example, every penny reduction in prices at the gas pump puts more than $1 billion into the hands of the American consumer.
Matthew Kandrach is President of CASE, Consumer Action for a Strong Economy, a free-market oriented consumer advocacy organization.