Oil Boom Gives U.S. New Edge In Energy And Diplomacy

The US is in the middle of an unprecedented oil boom leading to rising fortunes in the global energy economy. According to a recent article in the >New York Times, “This year, the United States is expected to surpass Saudi Arabia and to rival Russia as the world’s leader [in oil production], with record output of over 10 million barrels a day.” This prosperity arises from technological advances that make new shale fields accessible at lower investment costs. Places like North Dakota and New Mexico are becoming “world class petroleum hubs” and the building of new pipelines allows energy companies to take their product to “ports where oil can be pumped onto tankers headed for China, India and other markets.” As the title of the New York Times article suggests, this “Oil Boom Gives the US a New Edge in Energy and Diplomacy.”

But how long will that edge last, and at what long-term cost?

Will the US move toward the future or remain stuck in the past?

The economic situation of Americans as we move into the middle of the 21st century and beyond depends not upon short-term oil profits or cheap prices at the gas pump today, but on how well we collectively deal with the problem of climate change. “Companies like Exxon Mobil and Chevron are putting increasing amounts of capital in shale fields, particularly in West Texas and New Mexico,” the New York Times reports. But, while this may be good for the short-term balance sheets of American oil companies, the gains occur at the cost of Paris climate agreement targets.

The Paris climate agreement commits the global community to keep warming well below 2 degrees Celsius, recognizing that an upper limit of 1.5 degrees Celsius is ideal to stave off the dire consequences of climate change. The earth has already warmed about 1 degree Celsius since the beginning of the industrial revolution. Since then, we have raised the concentration of carbon in the atmosphere to its highest level in more than 650,000 years. More carbon in the atmosphere traps more heat from the sun and warms the planet. To limit this warming, we must begin a managed decline of the fossil fuel industry to reach zero emissions in the coming decades.

Achieving zero emissions cannot occur overnight. So, we cannot simply wait until we’ve exhausted the remainder of our available carbon budget — the amount of CO2 we can afford to emit and still prevent warming in line with the Paris agreement targets — to suddenly stop burning fossil fuels. Our carbon budget will be exhausted at the current rate of emissions by 2037 for a likely chance of limiting warming to 2 degrees Celsius and by 2025 for a medium chance of limiting warming to 1.5 degrees Celsius. Crucially, burning the oil, coal, and gas at sites currently in operation would take us well beyond our carbon budget. This means new exploration and development is off the table if we are to meet the Paris agreement goals.

So, here’s what we must do as a nation to begin a managed decline of the fossil fuel industry: (1) scale up clean energy sources as we phase out fossil fuels from currently operating sites, (2) no longer pursue new sites for development, and (3) stop building new pipelines. Individuals and organizations should divest from or invest in companies based on whether they follow these principles.

Energy company executives and investors must recognize what a managed decline means for stock prices and future business opportunities. Nearly 80 percent of known oil and gas reserves must be kept in the ground to prevent severe climate change, inevitably stranding carbon assets. That means that today’s fossil fuel companies must become tomorrow’s renewable energy companies to maintain their value. Savvy oil company directors would do well to position their companies as broadly-focused energy companies, leveraging current returns to invest in renewable energy technologies. Companies that take the lead would be well-positioned in the new energy economy that is right around the corner.

The price of renewables makes now the right time to move full-speed ahead into the new energy economy. Xcel Energy, for example, is finding that it can save money by replacing two of its coal-burning power plants in Colorado with wind and solar plants. >The New York Times reports that “the company will be able to build and operate the new plants for less money than it would have to pay just to keep running its old, coal-burning power plants.” That’s good news for Xcel Energy and double-good news for its customers who will benefit from a more stable energy source and cleaner air. Even oil giant Saudi Arabia has started to invest in renewable energy. “By the end of the year, Saudi Arabia aims to invest up to $7 billion to develop seven new solar plants and a big wind farm.”

Unless we begin a managed decline to zero emissions now, the costs of climate change under a business-as-usual scenario will overwhelm any short-term gains from the current US oil boom. The 2017 hurricane season brought unprecedent losses, and climate change will only make the frequency and intensity of such storms more likely if we stay on our current trajectory. According to research by Zillow, sea-level rise alone by the end of the century could result in losing at least half of the homes in nearly 300 US cities, “and 36 US cities would be completely lost.”

A forward-looking analysis must conclude that any edge the US gains from its current oil boom will be short-lived. We must begin a managed decline of fossil fuels today, and position the US as a leader in zero-emissions technology. That will truly give the US an edge in energy and diplomacy, and set ourselves up for a more economically stable future.

Source : https://medium.com/global-perspective/us-oil-boom-or-bust-how-the-us-can-gain-a-lasting-edge-in-energy-48b96d01e90a

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