Did the US Kill OPEC?

"Did the US kill OPEC?"

This is the question that New York Times economics columnist Eduardo Porter asks today, referencing 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.

— Michael and Ted