News Column

EDITORIAL: Whither the U.S. energy boom? Answer may lie in the halls of government

August 31, 2014

The Oklahoman, Oklahoma City



Aug. 31--WHITHER oil prices?

The question is posed here rhetorically, but it's not an academic question in the halls of commerce and the halls of government. Oil prices are critical to Oklahoma's economic fortunes and state tax revenues.

"Energy price forecasts are highly uncertain, and the current values of futures and options contracts suggest that prices could differ significantly from the forecast levels," the U.S. Energy Information Administration noted on Aug. 12.

In other words, the most reliable answer to the question posed above is, "Who knows?" Indeed, that answer has been apt for decades when the same question was asked. But other answers have never been in short supply. In this area, "experts" abound.

Prices for the international benchmark Brent crude topped out at $115.71 a barrel as ISIS forces advanced toward Baghdad earlier this summer. Brent is the low-sulphur oil from the North Sea, far afield from Iraq and other major sources of crude. Forecasts of a price shock are heard from time to time as international crises come and go. High oil prices can push global recessions; global recessions can pull down oil prices.

Lately we've heard fears of an oil price shock not only related to ISIS but to instability in Africa and economic growth in China. What's different about this era of uncertainty and previous ones is the ability of North American producers to satisfy more of the continent's demand.

"New U.S. oil and gas supply has helped the United States become more energy independent, and that in turn has cushioned consumers and industry here from the vagaries of the global market," says Chris Faulkner, chief executive officer of Breitling Energy Corp. of Dallas. Breitling is active in Oklahoma, among other states.

What's happening in Texas, Oklahoma, North Dakota and other active areas of exploration is "the one bright spot" (Faulkner's words) in an international energy picture forever darkened by terrorism, regime change, rogue behavior and environmental activism. The latter affects U.S. exploration as well, of course, and it's essential to remark that the American energy boom is largely a shale boom and the shale boom is largely a hydraulic fracturing boom.

Faulkner recently published a book titled "The Fracking Truth." Not far from Breitling's headquarters, voters in Denton, Texas, will decide in November whether to make the city the first in the state to ban hydraulic fracturing within the city limits. Colorado officials this year pushed back against an antifracking proposal, but the beat will go on to demonize the one thing that's increasing domestic supply and defusing the potential of international crises to create panic in the marketplace.

Another drumbeat is happening as well, one that America should encourage. It's the push to increase natural gas exports and allow crude oil exports. These changes would help reduce Russian power to control world events by deflating the leverage it now has, due to European dependence on Russian energy supplies.

More importantly for Oklahoma, exports could help keep prices for state-produced crude at an economically sufficient level. Despite recent international events, Oklahoma producers have seen a 12 percent price plunge since July 1.

Will exports push up domestic prices for North American oil and gas? Perhaps. With any vital commodity, though, reliability of supply is paramount to cheap energy. Domestic producers are under no obligation to provide Americans with cheap energy. The last thing Oklahoma's economy needs is depressed energy prices.

Dependence on foreign sources is a guarantee of higher prices and, more concerning, price volatility and supply disruptions.

Whither oil prices? Who knows!

Whither the domestic energy boom? The answer to that question may lie not in the halls of commerce but instead in the halls of government.

___

(c)2014 The Oklahoman

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Distributed by MCT Information Services


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Source: Daily Oklahoman (Oklahoma City)


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