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November 7, 2013

U.S. Oil and Gas Boom Won’t Go Bust

Energy official Adam Sieminski says Obama administration is optimistic about domestic energy production.

How long can the U.S. energy boom last? While some firms predict a decline of oil and gas production around the corner, others see a prolonged period of high production. The Obama administration is optimistic -- but not overly so -- about domestic growth opportunities, according to Adam Sieminski, who leads the Energy Information Administration (EIA), which is responsible for energy statistics and analysis.

Speaking at an Oct. 29 lecture and discussion organized by the Center on Global Energy Policy, Sieminski said that there is room for growth in production of oil and gas in the near term, according to new information collected by EIA.

Technological innovations applied to oil and gas production in the last decade have made possible a so-called “American energy renaissance.” The EIA projected in early October that the United States would surpass Saudi Arabia and Russia to become the world´s top producer of petroleum and natural gas hydrocarbons in 2013.

Still, the United States would need to double its production of crude oil to satisfy its large demand. Sieminski said that some of his agency´s forecasts contemplate the possibility of the U.S. becoming a net exporter of oil some time after 2030.

Sieminski stressed that even in that optimistic scenario the United States would not achieve the “illusive goal of energy independence,” because like any other oil producer it will always be exposed to price shocks.

“If oil prices go up, they go up all around the world and in the U.S., even if we were a net exporter” of oil, he said.

The head of the EIA presented the new approaches it has been developing to assess the productivity of drilling operations. Just a decade ago, most predictions signaled that the United States was on a path of decreasing productivity and output. But a decline in recent years in the number of drilling rigs has been offset by gains in productivity that production in oil and gas has grown substantially, Simienski said.

“We can't just use the rig count anymore,” he said. “It's not the only thing. It's not by itself sufficient to help you understand what's going on.”

Following Simienski´s answers to the audience questions, Paul L. Joskow, president of the Alfred P. Sloan Foundation and one of the leading energy economists in the United States, gave a lecture also hosted by the Center on Global Energy Policy focusing on the causes and consequences of the U.S. energy boom.

Joskow said that better regulations could convincingly address the legitimate environmental concerns that the new techniques employed in oil and gas production present.

The hydraulic fracturing process, also known as fracking, can unlock various compounds and chemicals trapped in the underground rock formations along with the targeted oil and gas resource. If wells are improperly sealed, this flowback material can potentially leak, increasing the risk of contaminating surface level groundwater around the drilling site. Another potential concern Joskow listed is the improper storage of flowback material above ground – either in lined pits or tanks. (A poll in September by the Pew Research Center for the People and the Press found that opposition to increased use of fracking had risen in the previous six months.)

“It is an issue that needs to be addressed through a regulatory perspective,” Joskow said. “Regulation is not well-developed.”

The economist said that in some states the standards are too low, and argued that best practices should be developed in areas like inspections and sanctions of firms that contaminate drinking water.

Joskow stressed that the U.S. is reducing CO2 emissions thanks in part to cheap natural gas produced by fracking. While noting that methane leakage is a key environmental issue to better understand, he added that in his opinion it is likely easier to address than the risk of water contamination.

— Fernando Peinado MIA ’14


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