The $3.7 Trillion Shale Gas Windfall

In 2007 Exxon’s CEO Wrote Off the US Gas Sector. Nineteen Years Later Shale is Saving every American Hundreds of Dollars Per Year  

 

 

Making predictions can be dangerous. Predictions are particularly tricky when it comes to energy.

To prove that point, consider some of the claims that have been made about biofuels. Back in 1976, Amory Lovins, the co-founder of the Rocky Mountain Institute, and a darling of the Green/Left, claimed that with better efficiency in automobiles and a large enough installation of cellulosic ethanol distilleries, “the whole of the transport needs could be met by organic conversion.”

Thirty-five years later, Lovins was still hitting the biofuel bong. In a 2011 book titled Reinventing Fire, Lovins and several co-authors claimed that by 2050, the US will get 23% of its total energy from “non-cropland biofuels.” That same year, in his State of the Union speech, President Barack Obama declared that “We can break our dependence on oil with biofuels.”

What’s the reality of biofuels?

Today, biofuels supply just 6% of the energy used in transportation, and nearly all of that fuel is blended with gasoline, diesel, or jet fuel before it is consumed. Put another way, of all the energy consumed in the US (about 94 exajoules per year), just 1.8% comes from biofuels. And remember, producing those biofuels (mainly corn ethanol and biodiesel) would be impossible without abundant supplies of oil and natural gas.

Forecasts about natural gas supplies have also missed the mark.

In 1922, the US Coal Commission, an entity created by President Warren Harding, warned that “the output of gas has begun to wane.”

In the mid-1950s, M. King Hubbert, a Shell geophysicist who became famous for his forecast known as Hubbert’s Peak, predicted that US gas production would peak at about 38 billion cubic feet per day in 1970.

In 1977, John O’Leary, the administrator of the Federal Energy Administration, told Congress that “it must be assumed that domestic natural gas supplies will continue to decline” and that the US should “convert to other fuels just as rapidly as we can.”

In 2003, Matthew Simmons, a Houston-based investment banker, predicted that natural gas supplies were about to fall off a “cliff.” Simmons went on, claiming that “All the big deposits have been found and exploited. There aren’t going to be any dramatic new discoveries and the discovery trends have made this abundantly clear.”

Four years later, Lee Raymond, the famously grouchy CEO of Exxon Mobil, claimed that “gas production has peaked in North America.” Except it didn’t peak. And US consumers should be thanking their lucky stars for that.

Why?

Since 2007, when Raymond made that claim, domestic gas production has more than doubled. And the shale gas revolution, which began in the Barnett Shale in Texas, has reordered geopolitics. Instead of becoming a major gas importer, the US is now the world’s largest gas exporter, and countries like France, the Netherlands, Egypt, Belgium, and Germany rely heavily on US LNG to fuel their economies.

But forget the foreigners. The real beneficiaries of the shale revolution are American consumers. According to a recent analysis, since 2007, the tsunami of gas coming from formations such as the Permian, Haynesville, Marcellus, and Utica, has saved US consumers about $3.7 trillion. Put another way, the shale revolution is now saving every American citizen about $571 per year.

Before you rush out to kiss a roughneck, let’s look at three new documents that spotlight the stunning gains being made in the Gas Patch and why those gains are benefiting everyone in the US.