On May 10, the Wall Street Journal published a seminal essay by Rice University scholar Amy Myers Jaffe that explored the huge impact recent breakthroughs in natural-gas development are likely to have on global energy markets. The essay described how new exploitation techniques have unlocked vast domestic reserves of the clean-burning fuel found in deeply buried shale, potentially making America much more self-sufficient in energy while undermining the pricing power of companies and countries producing other types of energy. According to Ms. Jaffe, the U.S. may have 1,000 trillion cubic feet of economically exploitable natural gas, enough to meet many of its energy needs through mid-century.
Until recently it was thought that much of the world’s economically accessible natural gas, like its oil, was located in the Middle East. The scarcity of gas resources raised the specter that price-gouging cartels might be formed as industrialized nations switched from dirtier fossil fuels to more efficient natural gas, cartels that would make America’s trade deficits even bigger (most of the doubling in U.S. trade deficits during the early part of the present decade resulted from higher bills for imported energy). However, technological breakthroughs have now opened up vast new sources of natural gas stretching from the Southwest to the Mid-Atlantic states, undercutting the pricing power of prospective cartels while affording America a fast path to greater energy independence. Pennsylvania may soon become a major energy producer again for the first time in a century, and New York City is moving to protect its upstate water supply from an anticipated surge in drilling activity.
It’s still early in the shale-gas boom, but a few lessons are already becoming apparent. First, new technology is a much more appealing option than regulation in meeting America’s energy needs. The revolutionary exploitation techniques that are opening up new natural-gas reserves don’t force consumers to pay more money or change their behavior to obtain needed energy, and yet they still provide an environmentally friendly alternative to other fossil fuels. Second, the carefully crafted plans to subsidize non-traditional energy sources such as wind and solar power are unlikely to survive breakthroughs that upset pricing structures in the energy sector. Republicans were already likely to dismantle those subsidies once they retook control of Congress, and now the coming expansion in shale-gas production is undercutting any national-security rationale for keeping the subsidies in place.
Third, market forces remain the single most important tool we have for solving economic problems. The energy companies that figured out how to unlock shale gas may have been doing no more than pursuing their self-interest, but in the process they have greatly improved our prospects for reducing the trade deficit, weakening countries like Iran, avoiding draconian regulatory schemes and slowing climate change. People who were beginning to doubt the power of markets after the roller-coaster ride that we have been on for the past two years should take heart from the market-driven revolution in energy availability that Ms. Jaffe says is upon us.
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