White House Recognizes Oil and Natural Gas Benefits

Mark Green
Posted September 3, 2013

It’s good to see a pair of senior White House officials pointing to increases in domestic oil and natural gas production as key factors in an improving U.S. economy. On the White House Blog, Gene Sperling, director of the National Economic Council, and Jason Furman, chairman of the Council of Economic Advisors, write about last week’s upward revision in second-quarter GDP from 1.7 percent to 2.5 percent:

This stronger estimate of growth was a result of an upward revision in net exports, with the trade data showing that a key part of the revision is because the trade deficit in petroleum fell to a record low in June. This is yet another reminder that the President’s focus on increasing America’s energy independence is not just a critical national security strategy, it is also part of an economic plan to create jobs, expand growth and cut the trade deficit.

Sperling and Furman note that net oil imports have fallen by one-third since 2008 and that “every barrel of oil or cubic foot of gas that we produce at home instead of importing from abroad” means more U.S. jobs, faster economic growth and a lower trade deficit.

Bravo! We’ve long talked about the connection between increased domestic oil and natural gas production and job creation (most recently here, here and here), economic growth and national security. With increased access to U.S. reserves offshore and onshore and a common-sense approach to regulatory policy, we can build on the energy momentum noted by Sperling and Furman.

Now, while they’re right that U.S. oil and natural gas production is resurgent – so says the International Energy Agency, the U.S. Energy Information Administration (EIA) and private studies like this one from IHS – here’s a different take on how that came about, which we point out mainly to argue for the policies needed to keep reducing imports.

Sperling and Furman write:

Government funded research supplemented private industry’s work to develop the technology that sparked the boom in oil and gas production. Crude oil production has grown each year the President has been in office to its highest level in 17 years in 2012. … In fact, over the past four years, domestic oil supply growth has accounted for over one-third of global oil production growth.

The second part first. EIA reported earlier this year that sales of crude oil and natural gas from federal lands, onshore and offshore, decreased in fiscal year 2012 from FY2011. Meanwhile, a Congressional Research Service report found:

On non-federal lands, there were modest fluctuations in oil production from fiscal years (FY) 2008-2010, then a significant increase from FY2010 to FY2012 increasing total U.S. oil production by about 1.1 million barrels per day over FY2007 production levels. All of the increase from FY2007 to FY2012 took place on non-federal lands, and the federal share of total U.S. crude oil production fell by about seven percentage points.

In other words, while U.S. oil and natural gas output has grown, this has largely occurred on private lands. Meanwhile, production in areas under federal control has decreased. That we’re producing more oil and natural gas despite current federal policy, not as a result of it, must be understood so we can make policy choices that help increase domestic energy – and job creation, economic stimulus and improved balance of trade.  

As for the origin of the current boom in oil and natural gas production, a true understanding of how hydraulic fracturing and horizontal drilling came about also will help get the policies to keep the boom going. Read here, here and here for discussion of the federal role in developing the technologies that led to the shale revolution. It was probably best summarized by the late George Mitchell, widely recognized as the father of hydraulic fracturing, who told The Economist in 2012:

“Although the federal government did research about fracking, it was routine, and certainly not collaborative. Our research and development efforts and technology innovations tended to be proprietary—and it was mainly our team, with other firms contributing very little.”

We need policies that will encourage energy investments, fostering the kind of entrepreneurship displayed by Mitchell and others in industry to meet the challenges of geology, distances and depths.

It’s great the White House agrees that more domestic oil and natural gas is good for America, but it should support pro-energy development policies – and abandon punitive tax hikes that could reduce energy output and job creation. With access to reserves, sound regulatory policies and decisions that allow our energy abundance to become assets in the global marketplace, the United States could be stronger in an energy and economic sense and more secure in the world, now and in the future.