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AMERICA'S NEW ENERGY REALITY IS ONE OF SURPLUS

Domestic gas and oil production is rising, not falling, so it's time to rethink U.S. energy policies.

By DANIEL YERGIN

America needs a new political discourse on energy. This would recognize the emerging reality that the United States has turned around as an energy producer and is on a major upswing. And the impact will be measured not just in energy security and the balance of payments. Energy development also turns out to be an engine for job creation and economic growth.

In 2008, the rise in oil prices was accompanied - and partly fueled - by a belief that an era of permanent scarcity was at hand. This mentality had deep roots extending back to the 1970s, when the United States went from being a minor importer of oil to a major importer. In the 2008 rendition, falling oil output was considered simply inevitable. The only questions were at what rate petroleum imports would rise and whether that rate would be slowed.

The outlook was much the same for natural gas. Production would inevitably decline, and the country was on the way to spending $100 billion a year to import liquefied natural gas from West Africa, the Middle East, even Australia and Russia. The energy burden on our trade deficit would only increase, adding to our economic distress.

But that is not at all how things are turning out.

In fact, just a few days ago, the International Energy Agency reported that the United States will overtake Saudi Arabia as the world's leading oil producer by about 2017 and will become a net oil exporter by 2030. That increased oil production, combined with new American policies to improve energy efficiency, means that the United States will become "all but self-sufficient" in meeting its energy needs in about two decades - a "dramatic reversal of the trend" in most developed countries, concludes the new report by the agency, which advises industrialized nations on energy issues.

Technology made the difference. The natural gas market has been transformed by the rapid expansion of shale gas production. The oil story is also being rewritten.

The improving gasoline efficiency of cars will eventually reduce oil demand by at least a couple of million barrels per day. But the other part is the supply side - the turnaround in U.S. oil production, which has risen 25 percent since 2008. The biggest part of the increase is coming from what has become the "new thing" in energy - tight oil. That is the term for oil produced from tight rock formations with the same technology used to produce shale gas.

Tight oil is redrawing the map of North American oil. At the beginning of this year, North Dakota overtook California as the nation's third largest oil-producing state. It didn't stop there. It just overtook Alaska, to become No. 2 after Texas.

What really brings home the new reality is a milestone attained last year: In 2011, the United States registered the largest increase in oil production of any country outside of OPEC.

If one takes a broader North American perspective, the changes in the supply picture are even more striking. The output of Canadian oil sands has tripled since 2000 and is now greater than Libya's output before its civil war began in February 2011.

This adds up to a very different outlook from a few years ago. The result is a hemispheric upsurge that includes Brazil and Canada as well as the United States, and it will have far-reaching consequences - nothing less than a rebalancing of world oil. Much less oil will come from the Eastern Hemisphere to the Western Hemisphere, and much more Middle Eastern oil will flow to Asia. As it is, China already imports more oil from the Persian Gulf than the United States does.

This new discourse is shaped not only by the surge in oil and gas production. But it also represents a growing recognition of what this means for the overall economy. Traditionally, the major arguments in favor of domestic oil and gas production have mainly been about energy security and balance of payments.

But now this surge is recognized as an engine of economic growth. Increasing domestic supply means that fewer dollars are going overseas and more of them are staying at home, going into investment and job creation. Nothing looms larger right now than the employment part. This domestic production comes with long supply chains and creates a lot of jobs along those chains.

Lower energy costs are also providing a big boost to the revival of manufacturing in the United States and the competitive position of American industries in the global economy. A few years ago, both U.S. and European petrochemical companies, which use natural gas to make their products, would not have contemplated new investments in the United States. Natural gas was too expensive. Now, with abundant and cheap gas, they are migrating back, bringing billions of dollars of new investment with them - and a lot of new jobs.

America's new story for energy is still unfolding. It includes the continuing development and expansion of renewables and increased energy efficiency, both of which will be essential to our future energy mix. But what is striking is this great revival in oil and gas production in the United States, with wide impacts on jobs, economic development and the competitiveness of American industry.

This new reality requires a new way of thinking and talking about America's improving energy position and how to facilitate this growth in an environmentally sound way - recognizing the considerable benefits this will bring in an era of economic uncertainty.

Daniel Yergin is the author of "The Quest: Energy, Security and the Remaking of the Modern World" and chairman of IHS Cambridge Energy Research Associates.

© 2012 New York Times

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