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Did the US Kill OPEC?

Michael Shellenberger & Ted Nordhaus .'s picture
Consultants, Breakthrough Institute
  • Member since 2018
  • 21 items added with 19,228 views
  • Jan 27, 2015

OPEC and US Energy Policy

“Did the US kill OPEC?”

This is the question that New York Times economics columnist Eduardo Porter recently asked, referencing the Breakthrough Institute’s research, which found that 35 years of public-private investments led to the technologies that allow for the cheap extraction of natural gas and oil from shale.

The Breakthrough: Did the US Kill OPEC?

Four decades ago, in response to the 1973 OPEC oil embargo and declining natural gas supplies, the US government initiated a wide-ranging effort to find alternatives to conventional energy. The most infamous was “syn-fuels” — efforts to make transportation fuel from coal, a technology that has existed since World War I. There were also research projects and demonstrations to gasify coal underground and to build and deploy solar panels and wind turbines.

One effort that was viewed as a long shot within both industry and government was the search for “unconventional” oil and gas. Few thought it possible that a technology could cheaply pull gas — much less oil — from a rock formation as tight as shale. It almost seems a Hollywood cliché that it was the unconventional technology underdog that changed the world. 

When natural gas is replacing coal, the environmental benefits are easy to understand. But what are the environmental consequences of cheap oil? Will we use more of it and make the transition to alternatives harder?

Not necessarily. The good news is that low oil prices will likely only modestly increase oil consumption, which is not very responsive to price changes. Even when oil was more than twice the price it is today, there was little reduction in demand. 

The bad news is the reason for this: we are still a long way from having a cheap and viable substitute for oil, a uniquely energy-dense transportation fuel not easily replaced by batteries or alternative fuels. 

What Tesla has done with the electric car is inspiring. Hydrogen fuel cells continue to hold great promise. They are both a very long way from being able to do what oil can do. 

The shale revolution proves the government and the private sector can work together effectively to accelerate technological progress. Even so, it took four decades of hard work with a lot of failures to achieve cheap natural gas and oil, lower greenhouse gas emissions, and a broken OPEC.

Democrats and Republicans can agree to disagree about which technology they think will be better, fuel cells or electric vehicles, nuclear or solar — all merit a technology push. We can afford to spend a tiny fraction of the benefits of the bounty that cheap oil and gas have brought so that our children and grandchildren can similarly benefit from cheap and clean energy in the future. 

There is bipartisan agreement that the huge decline in gas prices merits an increase in the gasoline tax. Establishing a price floor for gasoline will make it less likely that cheap oil will induce wasteful new uses of gasoline. 

There are many national priorities to which the revenues might be put, from deficit reduction to tax cuts to national infrastructure investments. But clearly one priority should be to pay the shale revolution forward. Cheaper oil and gas will contribute an estimated $2,000 per American household this year, and $74 billion to state and federal governments coffers.

Increasing energy innovation spending to the same amount we spend on the National Institutes of Health, about $30 billion a year, would allow for the kind of demonstration efforts across technologies — including in the redheaded stepchildren that few believe in. 

Shale teaches us that change can come from where you least expect it.

Photo Credit: OPEC and the US Energy Boom/shutterstock

Ed Dodge's picture
Ed Dodge on Jan 26, 2015

You guys are on the right track, but if you take the logic a little farther you can see that natural gas is the obvious replacement for oil.

LNG is being used today as a direct replacement for diesel fuel in a wide variety of high horsepower machinery, such as container ships, drill rigs, enormous mining trucks and soon freight trains. There is no other game in town for replacing diesel in these in these high volume applications.

Natural gas is simply methane, and methane is our most abundant fossil fuel and our most abundant renewable fuel. Whereas ethanol and biodiesel require engineering compromises to utilize and have serious questions about scalability, methane does not. Biomethane is chemically identical to fossil methane and can be blended without restriction, a true ‘drop-in’ fuel. We can also produce robust quantities of biomethane, there are trillions of cubic feet available from waste resources alone.

Natural gas enables intermittent renewables and also enables carbon capture. And the best way to mitigate concerns over methane emissions is to capture them and use them for fuel.

Methane is non-toxic, abundant, renewable, and a universal fuel that can be used across the entire energy spectrum.

Mark Heslep's picture
Mark Heslep on Jan 26, 2015

LNG is being used today …”

In the US? With the LNG cost premium over CNG, how does LNG displace CNG on the like of a bus, where it’s been used for years.

US export price per Mcf:

  • CNG: $4
  • LNG: $15

There’s an additional capital premium paid for the cryo storage on the vehicle.

Ed Dodge's picture
Ed Dodge on Jan 27, 2015

LNG is being used today in the USA in tractor trailers, mining trucks, big ships and in industry. The operational experience is good.

LNG and CNG serve different applications. LNG is more economical at large bulk volumes, while CNG is more practical at smaller production scales. 

Mark Heslep's picture
Mark Heslep on Jan 27, 2015

The operational experience with LNG may well be good, as one would expect with a high energy density liquid fuel.  It is economic success that would surprise me.  

I’m aware of some prototype and and subsidized demonstration programs for LNG that are made viable with subsidies and  mandates for use.   But given the comparable price to diesel fuel,  and the  requirement for the double walled, super insulated, pressurized tank,  and the relatively limited LNG distribution network,  I don’t see an economic advantage that can hold at scale. 

Nathan Wilson's picture
Nathan Wilson on Jan 29, 2015

Shecky, you listed several sustainable energy sources, but no energy carriers; oil is a source and a carrier.

Sure, batteries can carry sustainable energy for some applications, but predicting how far batteries will go is like any other form of predicting the future.  

Syn fuel from sustainable energy will also have to play a major role in a post-oil energy system.  Synfuels are most promising in developing nations (with their lower cost sustainable energy due to low wages); but they won’t happen without leadership from the developed world with our technological expertise.  The intermittent energy sources you mentioned are not well suited to making synfuel, due to the low duty cycle.

The free market will not move away from oil on its own, and thus far the environment movement has only backed to most expensive and impracticle alternatives.

Michael Shellenberger & Ted Nordhaus .'s picture
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