Drilled, Baby, Drilled
Readers of pre-millennial vintage may recall the 2008 presidential campaign when Republicans and especially Sarah Palin picked up the chant “drill, baby, drill” as a response to soaring oil prices. The theme was much derided, not least by Barack Obama, who as late as 2012 called it “a slogan, a gimmick, and a bumper sticker” but “not a strategy.” Ten years later, who was right?
The U.S. Energy Information Administration (EIA) reported Thursday that U.S. crude oil production exceeded 10 million barrels a day for the first time since 1970. That’s double the five million barrels produced in 2008, thanks to the boom in, well, drilling, baby.
The EIA summary puts it this way: “U.S. crude oil production has increased significantly over the past 10 years, driven mainly by production from tighter rock formations including shale and other fine-grained rock using horizontal drilling and hydraulic fracturing to improve efficiency.” This is the “fracking” boom our readers know well that has been driven by innovation in the private oil and gas industry.
The magnitude of the boom is remarkable. The gusher has pushed the U.S. close to overtaking Saudi Arabia and Russia as the world’s leading oil producer. In 2006 the U.S. imported 12.9 million barrels a day of crude and petroleum products. By last October that was down to 2.5 million a day. Some gimmick.
This translates into greater energy security as the U.S. is less dependent on foreign oil sources. Donald Trump calls it “energy dominance,” which implies that the U.S. wants to husband its supplies like gold at Fort Knox. The reality is we want to produce and sell what the market will bear, including exports to willing buyers around the world.
Thanks to Congress’s deal with Mr. Obama in 2015 when Republicans extended wind and solar subsidies in return for lifting the oil export ban, the U.S. exported some 1.5 million barrels of oil a day in November. Some readers may recall that Heritage Action instructed Congress to vote no, and Breitbart called the bill “a total and complete sell-out of the American people.” Perhaps even they can now see that trading temporary subsidies for a permanent change in export law was shrewd and good for the country.
Also striking is how quickly the oil and gas industry has recovered from the oil price plunge of 2015-2016. Previous price declines led to multiple bankruptcies and bank failures. This time drillers adapted quickly, took the rig count down fast, and cut costs. America’s flexible private capital markets helped the companies ride out the price trough, and now producers, investors and lenders are reaping the benefits of the oil price rebound to $69 a barrel.
And don’t forget the fracking boom in natural gas. EIA says U.S. gas production increased by some 50% from January 2010 to November 2017, reducing carbon emissions and heating prices. Thanks to new export terminals, the U.S. is now selling liquefied natural gas around the world. This has the potential to compete with Russian gas so Western Europe doesn’t have to succumb to Vladimir Putin’s periodic energy blackmail. Unleashing U.S. energy is Donald Trump’s best Russia containment strategy.
It’s worth stressing some of the policy lessons in all this. The first is that the best response to energy shocks is to let the market adjust to the price signals. As oil prices soared in the latter half of the last decade, politicians panicked and rushed to ban certain light bulbs, and subsidize and mandate cellulosic ethanol and other energy fads. The media fed the panic and cheered the politicians on. We were back at “peak oil” and the end of fossil fuels.
Yet American ingenuity was already discovering the solution for high prices in the shale plays of North Dakota, Pennsylvania, Texas and elsewhere. These drillers could move fast because they had the support of private capital and could lease private land. The frackers were also largely regulated by the states, which meant even the Obama Administration couldn’t stop them.
This is a familiar American story of invention and wealth creation that benefits everyone, but it never would have happened if central planners in Washington had to approve it. That’s the most important lesson.
Appeared in the February 2, 2018, print edition.