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Government Policies May Hinder U.S. and Texas Shale Production

A few months ago, the nonprofit organization Resources for the Future sponsored a seminar entitled “The Future of Fuel: Toward the Next Decade of US Energy Policy.” The seminar highlighted the future of five key fuels over the next decade–oil, coal, natural gas, renewables, and nuclear–as well as the future of energy efficiency. The opening remarks were presented by Phil Sharp, president of Resources for the Future. Kristin Hayes, a Center Manager for Resources for the Future, moderated the event and Michael Schaal of the federal Energy Information Administration gave a presentation on energy projections.

One of the speakers was Alan Krupnick, a senior fellow and director of the Center for Energy Economics and Policy at Resources for the Future, who asserted that restricting carbon emissions could significantly slow growth in US shale gas production.

He said, “Fugitive emissions are the biggest issue, and if they are considered too high, it could reverse the potential gains.” He noted that most regulation of shale gas comes at the state level, so it can vary widely across the country. Even states with a long history of oil and gas production, like Texas, are still working out the kinks with some local governments.

Mr. Krupnick also cautioned against assuming that other countries could be as successful as the United States has been with unconventional oil and gas production. He used China as an example, where an unconventional well costs $12 million to drill. The same unconventional well would cost $1 to $3 million to drill in the US.

Another speaker at the seminar, Frank Verrastro, a senior vice president at the Center for Strategic and International Studies, discussed the political pressure to create oil and gas regulations at the federal level and about the challenges this presents during an era where the US has plentiful oil and gas supplies but possibly decreasing domestic demand. Mr. Verrastro discussed environmental concerns vis-a-vis the high cost to develop unconventional or ultra-deepwater technology, noting that “regulations should be effective, but not overly burdensome. We should seek a balance.”

Mr. Verrastro addressed the uncertainties in the US energy sector. It is not clear at this point that the efficiency of production will continue to increase and whether the necessary capital investments will continue. He noted that these uncertainties are aggravated by governmental uncertainty, because as governments change, so do priorities in Washington and the statehouses. He stated that “(s)ometimes climate is at the top, sometimes economics, and sometimes energy. That’s what makes it so hard … to be consistent.”

The balance between government regulation on one hand, and the future of the US energy industry on the other, should be a topic of discussion, not just among politicians, but among the public. We all owe it to ourselves to become informed about these issues, and be part of this discussion.

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