An e-mail came in the other day with a subject line that I couldn’t ignore. It was from the oil economist Phil Verleger, and it read: “Should the United States join OPEC?”
Verleger’s basic message was that the knee-jerk debate we’re again having over who is responsible for higher oil prices fundamentally misses huge changes that have taken place in the United States’ energy output, making us again a major oil and gas producer—and potential exporter—with an interest in reasonably high but stable oil prices.
We’re seeing the impact of the ethanol mandate put in place by President George W. Bush, which established fixed quantities of biofuels to be used in gasoline, Verleger says. When this is combined with improved vehicle fuel economy—in July, the auto industry agreed to achieve fleet averages of more than 50 miles per gallon by 2025—it will inevitably drive down demand for gasoline and create more surplus crude to export.
Add to that, he says, “the increase in oil production from offshore fields and unconventional sources in America,” and that exportable U.S. surplus could grow even bigger.
Then, add the recent discoveries of natural gas deposits all over the United States, which will allow us to substitute gas for coal at power plants and become a natural gas exporter as well.
Put it all together, says Verleger, and you can see why the United States “will want to consider joining with other energy-exporting countries, like those in OPEC, to sustain high oil prices. Such an effort would support domestic oil and gas production and give the U.S. a real competitive advantage over countries forced to pay high prices for imported energy—nations such as China, European Union members, and Japan.”
But this will come true at scale only if these oil and gas resources can be extracted in an environmentally sustainable manner. This can be done right, but we need a deal between environmentalists and the oil and gas industry to lock it in—now.
In the case of natural gas, we need the highest standards for cleanup of land that is despoiled by gas extraction and to prevent leakage of gas either into aquifers or the atmosphere. Yes, “generating a kilowatt-hour’s worth of electricity with a natural gas turbine emits only about half as much CO2 as from a coal plant,” says Hal Harvey, an independent energy expert, and that’s great. “But one molecule of leaked gas contributes as much to global warming as 25 molecules of burned gas. That means that if the system for the exploration, extraction, compression, piping and burning of natural gas leaks by even 2.5 percent, it is as bad as coal.”
Hence, Harvey’s five rules for natural gas are: Don’t allow leaky systems; use gas to phase out coal; have sound well drilling and casing standards; don’t pollute the landscape with brackish or toxic water brought up by fracking; and drill only where it is sensible.
I’d add a sixth rule for crude oil. No one likes higher oil prices. But—perversely—the high price benefits the United States as we rapidly become a bigger oil producer and it ensures that investments will continue to flow into energy efficient cars and trucks. If we were smart, we would establish today a floor price for any barrel of crude oil or gallon of gasoline sold or imported into the United States—and tax anything below it. A stable, sufficiently high floor price serves the environment, our technology investments and our energy productivity. As our producers succeed, we would become increasingly energy self-sufficient, keep a lot more dollars at home for our Treasury, stimulate innovation on renewables and drive down the global oil price that is the sole source sustaining Iran and other petro-dictators.
But all of this depends on an understanding between the oil industry and the environmentalists. If President Barack Obama could pull that off, it would be a huge contribution to the United States’ security, economy and environment.•
Friedman is a New York Times columnist. Send comments on this column to [email protected].