Economic Prosperity and Fossil Fuels, Part 2;

Avoiding an Economic Crisis

By Bob Shoup
Tuesday, July 14, 2009

As was discussed in part 1 of this series, your quality of life depends on reliable access to low-cost energy. Yet the sources of energy are at risk for becoming much more expensive. A number of existing and proposed laws such as Waxman-Markey are designed to make the cost of energy significantly higher.

This, combined with increasing global demand for energy, and the fossil fuels that are the source of that energy, could mean that you will no longer to be able to count on reliable low cost energy. When that happens, you will see a significant increase in your cost of living and a corresponding decrease in your standard of living. If the gap between global energy supply and demand becomes too large, the United States could face a far more serious economic crisis than what we are facing now.

Before we discuss some of the potential solutions to this dilemma, it will be useful to understand how we got here in the first place.

In the spring of 1986, the price per barrel of oil on the world market plummeted in a few short weeks from $30.00 per barrel to $10.00 per barrel. The affect of that price drop on the oil and gas industry was significant. Oil and gas fields that were marginally economic at $30.00 oil were non-economic at the lower prices, and were shut-in or sold to smaller, low cost operators. Mergers and layoffs, affecting 10’s of thousands of workers left a toll on the energy industry

Exploration and development projects years in the planning were halted so domestic oil and gas drilling plummeted and US. Production declined. This decline in domestic activity was offset in large part from increased imports from the Middle East, where the costs of production are much lower. At the same time, U.S. demand for oil imports kept growing.

As the domestic oil and gas industry recovered from the 1986 oil price collapse, it found it increasingly difficult to explore and develop remaining domestic reserves. Due to environmental concerns, access to many prime oil and gas basins, including offshore Florida has been limited.

Permitting costs added to already high operational costs; keeping many projects un-economic. In short, the costs of exploration and development activities, coupled with the traditionally high economic risk of drilling hampered our domestic industry’s ability of offset the increasing imports.

So, we have allowed ourselves to become overly dependent on imported oil and now, increased global competition for that oil threatens our economic stability.

The solutions to the problem will to some extent require changes in our thinking, as well as changes in policy and legislation. It is beyond the scope of this paper to recommend specific legislative changes. What can be said with certainty, however, is that for any solutions to be truly effective, they must address both the supply and the demand sides of the equation.

The Supply Side
To address the supply side of the equation, we must look at all of the available options to increase US Energy Supply. There are 5 steps that must be taken together to do this, and all steps are necessary.

Develop Wind and Solar technologies
You have no doubt heard that “green energyâ€