There Will Be Oil

Suddenly, the United States is energy rich. The problem is that we’re still guided by policies that assume the opposite.

Have you ever seen one of those nighttime satellite photos in which North Dakota is lit up nearly as brightly as Chicago? Those lights are a result of “flaring,” the practice—environmentally harmful and economically wasteful—of burning off natural gas that can’t be collected and put into pipelines because our pipeline system has not kept up with the boom in North American energy production.

And when you think about moving crude oil around North America, do you envision pipelines stretching thousands of miles, like the proposed Keystone XL pipeline that has attracted so much controversy? Most people do. It may then surprise folks to learn that the fastest-growing form of oil transportation in North America is a throwback to the industrial era—the locomotive. Warren Buffett’s big bet on rail is paying off, with the BNSF railroad he bought in 2012 projected to ship almost six times as much oil by the end of this year as it did in 2011.

The sharp increases in flaring and crude-by-rail shipments are just two manifestations of how the North American energy infrastructure is struggling to catch up to the transformational changes in the North American energy landscape. U.S. oil producers cannot fetch world prices because of pipeline bottlenecks. Although the United States is now a net exporter of refined petroleum, the East Coast still imports a million barrels of it per day, thanks to regulatory and logistical constraints on moving it from the Gulf Coast—where more of the refineries are—to East Coast markets. Even as oil production surges in North Dakota, drivers in New York and New Jersey last fall had to sit in line for up to ten hours to fill up because our fuel-system infrastructure was unable to withstand Hurricane Sandy’s wrath.

But it’s not just a lack of infrastructure. Indeed, the United States has a vast network of oil and gas pipelines, about 2.5 million miles—and has built enough miles of pipeline in the last eight years to travel three-quarters of the distance to the moon. It also has 2.5 billion barrels of fuel storage capacity, and many of the most sophisticated refineries in the world. The problem is that the changed energy landscape has rendered this infrastructure outdated. Our energy infrastructure was built to move oil from the Gulf Coast up into refineries in the middle of the country. But that entire infrastructure now needs to be flipped on its head to accommodate the massive growth in production from Canada, North Dakota, and other parts of the midcontinent.

Moreover, the policies and regulations that govern our energy infrastructure largely date from the 1970s, when concerns about shortage and the Middle East dominated the minds of policy-makers and the public. Today, the outlook has shifted from scarcity to abundance. Suddenly, policy-makers are being asked to consider questions that would have been hard to imagine just a few years ago. Should the United States export oil and gas? What are the safety and other implications of moving vastly larger quantities of oil by rail? How should our policy for engagement in the Middle East change if we import very little oil from the region? And there are many other questions.

Policy-makers must deal with these dilemmas while confronting not only a changed supply outlook, but also rapidly accumulating evidence that the effects of climate change are likely to be felt with increasing severity and frequency. Thus, they must consider whether committing now to large, long-term capital investments in our oil and gas infrastructure will make it harder and costlier to transition to lower carbon forms of energy in the long term.

To be clear, government does not need to build this infrastructure for the most part. The private sector will finance the build-out of our pipeline network; indeed, pipeline spending in North America is projected to increase nearly fivefold in 2013 from the prior year, and dozens of pipeline projects are planned. But federal and state governments have a key role to play. By putting in place the right policy and regulatory frameworks, they can allow economically viable infrastructure investments to happen and help rationalize individual projects that collectively must form an integrated energy transportation system. Moreover, these policy reforms also hold the promise of bringing industry to the table to support serious action on climate. Although oil and gas will remain important parts of our energy infrastructure for the foreseeable future, we must act now to avoid the worst impacts of climate change. The new energy infrastructure that the changing landscape requires can be an essential part of a compromise that seeks to advance domestic supply increases while taking meaningful action to address climate change.

The Changing Energy Landscape

We are at a transformational moment in energy history. Just a few years ago, all energy projections forecast increased imports, increased scarcity, and increased natural gas prices. Today, we’ve shifted from scarcity to abundance. U.S. oil production increased by nearly one million barrels per day (B/D) in 2012, the largest annual increase in U.S. history. In 2013, the United States is projected to be the largest producer of liquid fuels (including crude oil, natural gas, and biofuels) in the world, overtaking Saudi Arabia. U.S. oil imports are at their lowest level in 25 years and are projected to decline much more steeply as a result of surging production and reduced gasoline use due to higher prices and the Obama Administration’s increase of fuel-economy standards. And these projections may well be too conservative, as reflected in numerous private-sector forecasts.

• 1
• 2
• 3
• 4
• 5
• 6
• 7

Post a Comment

Name

Email

Comments (you may use HTML tags for style)

Verification

Note: Several minutes will pass while the system is processing and posting your comment. Do not resubmit during this time or your comment will post multiple times.