Wednesday, July 11, 2012

North American Energy Colossus is Poorly Understood

The rapid ongoing rise in North American energy production is receiving a great deal of attention in the energy media. But very few analysts have accurately described the potential impact of the energy technologies which have made this growth in production possible. A recent report from the Manhattan Institute (PDF) seeks to place the North American Energy Colossus in perspective. (h/t Mark Perry)
New energy tools and technologies are making large energy deposits accessible at affordable prices. As these tools and technologies themselves grow more affordable, the underlying commodity or product also grows more affordable.
It is not just the mere fact of this growing trove of affordable energy that is important to keep in mind. It is all of the economic effects which result from these affordable resources which must be kept in mind -- as well as the effect of ever newer technologies on affordability of resources (neglecting an ongoing governmental devaluation of currencies and other destructive governmental policies).
When the increased jobs and local and regional government revenues are taken into account, the economic effects of these new energy resources become more obvious.

There is always the possibility that global energy prices might be driven so low as to render much of this unconventional energy production unprofitable. That is a point which has been pressed not only here at Al Fin Energy, but also in the energy media at large.

The shale gas-ification of oil, a recent article in Petroleum Economist, goes so far as to claim that unless Brent oil prices remain above $100, that most of this grand new North American unconventional energy production will go bust.

That claim has been widely made elsewhere, with the breakeven price varying from $60 a barrel up to $120 a barrel or more for unconventional production (including oil sands, CTL, GTL, oil shale, shale oil, etc).

But if unconventional energy production has a built-in economic stimulant incorporated in itself, much of this concern about an imminent oil bust may well be overwrought.

As long as governments do not insert themselves unduly into the production of unconventional liquids -- including offshore oil, tight oil & gas, CTL, GTL, oil sands etc. -- the natural boom and bust price swings are likely to work themselves out throughout the economy. Some enterprises will thrive, others will go bankrupt -- just as they have always done. Best to keep government out of the corrupting job of picking winners and losers.

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