I was in graduate school in the early 1970s when I first heard about the energy revolution. Until then, energy wasn’t a problem for the U.S. economy, in fact, energy was a benefit. We were still a major energy exporter; indeed, oil production in Texas peaked in that decade. The long-running TV soap opera “Dallas” (starring the recently deceased actor Larry Hagman), featuring the oil industry, began in the 1970s.
But U.S. economic growth, combined with declining U.S. oil production and increasing foreign oil output, turned our energy world upside down. The U.S. became a net energy importer and subject to the ups and downs of world energy (mainly oil) prices. Periodic spikes in oil prices pushed the domestic economy into recession. Energy alternatives became the goal (I heated with wood in the 1980s), but energy independence seemed a long way off into the future.
But the future is now, and energy independence may be within the country’s grasp. The International Energy Agency recently predicted the U.S. would be able to meet all its own energy requirements internally within 10 years. Another report estimated positive economic benefits if the country began exporting one growing source of energy, natural gas. In short, the U.S. is returning as an energy production giant (even “Dallas” is back on the airwaves).
What changed? Most economists answer two things: price and technology. It’s a simple rule of economics that when the price of something increases, the value of producing and selling that something will increase, and eventually more of the something will hit the market. Even accounting for general inflation, oil prices rose five-fold between 1970 and today. This has made finding and pumping oil much, much more profitable. So oil companies are willing to spend more to access oil in places they wouldn’t have considered decades ago.
At the same time, the technology for finding and producing oil and other energy sources, like natural gas, has dramatically improved, especially in the last 20 years. Deposits of energy that drillers previously couldn’t reach can now be tapped. And even if the costs of doing so are high, high energy prices make the deal a winner for the companies.
The big energy production gains in the country have been seen in oil (up almost 20 percent in the last year) and natural gas (also up almost 20 percent in the last five years).
To date, North Carolina hasn’t participated in this domestic energy boom from oil and natural gas. But many think we should. Although estimates are highly uncertain, some analyses indicate the state has the largest off-shore supplies of oil and natural gas of any state on the east coast. There are also government estimates of significant on-shore gas supplies in the central part of the state. Recognizing the caveat that estimates are highly variable, reports indicate that full development of these energy resources could support as many as 50,000 jobs in North Carolina.
So what’s stopping us? There are several factors. For one, North Carolina doesn’t control the ability to drill and access ocean energy reserves. Federal approval must be obtained. There are also important environmental issues with both off-shore and on-shore energy development. Concerns about accidents, drilling failures and contamination of water supplies are real issues that worry the coastal tourist industry and households who live in potential drilling areas.
There’s also the viewpoint that the country should move away from fossil-fuel energy sources such as oil and natural gas to renewable sources like solar, wind and wave power and biofuels. The renewable sources have certainly seen tremendous growth, on a percentage basis, but they still compose a relatively small share of total energy used. Each also faces its own challenges, such as up-front costs, variable production, fuel storage and land usage.
And we shouldn’t forget those who recommend we change our technology and lifestyles to use all types of energy more efficiently, allowing us to reduce our energy footprint.
My own view, for what it’s worth, has two parts. First, I think we are in the midst of an energy transformation. What kind of energy we use, how we use that energy and the cost of different types of energy are all changing. The major driver of our energy shift is the expanding economies of much of the rest of the world, particularly in Asia and Africa. History shows that as economies prosper, energy use jumps and so do prices.
Second, I predict all of the viewpoints highlighted above — increased development of domestic fossil fuels, continued growth of renewable energy alternatives and moves to increase our efficient use of energy — will play roles in the future. One of the biggest transformations that could occur is movement away from oil-based gasoline to natural gas fuel and electric-powered fuel for our vehicles. This shift would be a major game-changer.
So although we face numerous energy challenges — including adequate supplies, affordable prices and environmental impacts — I think we do live in an exciting time for addressing these challenges. So put your futuristic hat on and decide what our energy future will look like!
Editor’s note: Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy.