The Fracking Debate: The Risks, Benefits, and Uncertainties of the Shale Revolution by Daniel Raimi

Author:Daniel Raimi
Language: eng
Format: epub
Tags: Business & Economics, development, Sustainable Development, Environmental Economics, Industries, Energy, Natural Resource Extraction, Technology & Engineering, Power Resources, Fossil Fuels
Publisher: Columbia University Press
Published: 2017-12-26T00:00:00+00:00

WOULD IT BE GOOD TO BE ENERGY INDEPENDENT?

Why do we care about energy independence? One reason often cited relates to revenues flowing to unfriendly nations. In this theory, the United States helps support ideas and actions counter to its interests by purchasing oil from Saudi Arabia, Russia, Venezuela, or other nations where leaders or popular sentiment trends against U.S. objectives.

However, the world’s largest exporters, such as the Middle East and Russia, ship most of their oil to Europe and Asia. American independence would do little to change that, especially given that Asian nations, led by China and India, will account for most of the growth in global oil demand in the coming decades.22

Instead, the key factor again relates to price. The decline in oil prices brought on in large part by shale development has had large negative effects on the economies of Russia, Venezuela, and other nations that rely heavily on high oil prices to fill public coffers and stifle dissent. In addition, new LNG exports from the United States may reduce the dominance of Russia on Europe’s natural gas market, weakening Russia’s negotiating position with its European neighbors.

But these are not arguments for independence. In fact, they are arguments for the opposite. If the goal of the United States is to help its allies and weaken its foes, the shale revolution enables that goal only if it enables deeper integration into global energy markets. This integration allows the United States to provide additional energy supplies to those currently on offer in the international marketplace, reducing the leverage of incumbent exporters. Indeed, even if the United States could isolate itself from the global oil market, this isolation would tend to enhance, rather than diminish, the influence of energy powerhouses such as Russia or Saudi Arabia.

There are also strong economic arguments for tying into global markets. To illustrate the value of integration, consider another product: martinis. If the United States moved from its relatively open approach to the global liquor trade and instituted an “independence” policy for gin (I prefer gin, rather than vodka), the price of martinis would shoot up overnight. While there are plenty of good gins crafted in the United States, my favorites tend to be British. The independence policy would reduce the volume of dollars sent across the Atlantic, and American gin production would increase. However, the years it would take for U.S. distillers to get their operations up and running would be a painful period, and it’s unclear whether they would ever be able to match the quality of the Brits’ gin. And what if—heaven forbid—the United States has a bad juniper season? Gin prices would surge even higher, quality would fall further, and national happiness would surely slump.

While oil and gin markets are very different, the example illustrates an important and basic idea familiar to anyone who’s ever taken an economics course: in most cases, tying into global trade is a good idea. And while oil markets are much more geopolitically important and complex than

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