Domestic Oil & Gas Production: America's Hadrian Wall

Hadrian, the third of the “five good emperors” of Rome, ruled from 117 to 138 in a time of consolidation of the Roman Empire.  Best known for building Hadrian’s Wall, which marked the northern most reach of the Roman Empire, his policy focus was securing the Empire by leveraging its strengths rather than overextending its reach. Hadrian had a disciplined attention to detail and focused on the infrastructure needed not only to defend the Empire’s territory but leverage its resource potential and revenue growth. 

Today’s economy is marked by uncertainty and volatility at home and abroad. This uncertainty is causing businesses to hoard cash—at last estimate about $1.4 trillion worth.

We have a huge federal deficit, a broken housing situation, and looming costs for unsustainable entitlement programs promised for generations by spend-now, pay-later politicians. Incrementalism is becoming unsustainable in the face of these mega-problems.

Most Americans want their president to succeed, but Obama’s policies seem out of touch with our economic realities, his style too partisan, and his poor performance leaving “Yes We Can” blowing in the wind. Next year’s election portend a sharp break from the more-rather-than-less government status quo of President Obama.

America Is Not Alone

Emerging markets around the world—including China, Brazil, and India—face daunting economic problems. That adds to uncertainty because faster emerging-market growth was expected to help developed-world countries recover.  Instead they face rising inflation, rising wages, falling exports as prices rise and thus slower growth and weakening economic fundamentals.

The MSCI Emerging Market equity index fell 0.6% year to date after rising 16.4% in 2010 and 74.5% in 2009. Brazil’s and India’s government yield curves are inverting with short-term rates higher than long term yields screaming “recession ahead,” as investors take lower long-term rates anticipating declining yields in the economic contraction.

China faces an economy with rising inflation and slowing growth from its frenetic pace forcing the government to raise wages, tighten controls or face serious economic dislocations that risk the social unrest it fears so much.  Rising cost of China exports is good for Vietnam and other lower-cost countries successfully winning away manufacturing contracts.  The signals are clear that the emerging markets are not going to save the world’s economy from bad fundamentals, poor judgments, and unsustainable spending behaviors or policies.

The EU has its own set of economic problems to face ranging from saving the PIGS to Germany’s knee-jerk reaction to Japan’s nuclear tsunami problems to the uncertainty over the efficacy of NATO evidenced most recently by Libya and the difficulty extricating ourselves from Afghanistan without the government and its economy collapsing.

An Energy Hadrian Wall

America ’s future needs a Hadrian Wall, not to isolate ourselves or withdraw from the rest of the world but to secure the foundation of America’s finances, markets and our ability to project military and economic power around the world.  That foundation of financial strength and integrity will allow the U.S. to remain the market of choice for the world.

In a world of uncertainty and volatility, the bright spot in America’s economic future has been the unqualified success of unconventional oil and gas exploration and production right here at home and the prowess of America’s energy technology in 3D seismic, horizontal drilling and hydraulic fracturing to keep the door from being slammed shut by overzealous regulators.

As more and more drilling rigs leave the Gulf of Mexico for lack of permits to drill, we are learning that Exxon has discovered three substantial new oil finds in the Gulf of Mexico that have a combined conventional potential of more than 700 million barrels of recoverable oil plus natural gas.

At the same time Exxon has also bet big again on unconventional gas E&P with its acquisition of Phillips Resources and TWP Inc for $1.69 billion adding about 317,000 acres for exploration in the Marcellus shale basin.  The message from Exxon is clear—some of the best opportunities for energy production growth are right here at home.  And ExxonMobil’s view is shared by other oil and gas finders–and should be repeated time and again.

Alaska Governor Sean Parnell is focused on refilling the trans-Alaska pipeline where falling oil production has reduced pipeline flows to an average of about 640,000 barrels a day creating increased maintenance and operating problems.  The state has been unable to persuade the Federal Government to permit additional drilling and oil production in Alaska and fears falling oil flow will cause the shut-down of the pipeline which would then have to be dismantled according to the laws governing it.  At its late-1980s peak the Trans-Alaska pipeline moved 2.1 million barrels of oil a day from the North Slope. Alaska has recoverable oil potential to again refill the pipeline to meet domestic energy demand if the Government will permit it.

To restore confidence and jump-start economic growth, U.S. policymakers must unleash the job-creating, revenue-producing, investment-inducing potential of domestic energy production.

America’s Hadrian’s Wall is domestic energy production because it signals more powerfully than anything else that America intends to restore its economic strength and act in its strategic best interest because doing so is good for America and good for the global economy. The building blocks of America’s version of Hadrian’s Wall include:

• Accelerating domestic E&P in the Gulf of Mexico and Alaska. America’s best energy companies should be encouraged to develop America’s best conventional energy resources rather than exporting that technology and expertise around the world.
• Authorizing E&P and Renewable Energy Development Off-shore on the Atlantic and Pacific Coasts giving the affected states a material interest in royalties, severance taxes and economic growth potential on a competitive basis. Beyond just oil and gas this off-shore strategy should include wind and other renewable energy potential and transmission.
• Expanding unconventional oil & gas production across America and quickly resolve concerns over the hydraulic fracturing impacts on water quality by setting reasonable best practices, encouraging transparency and quickly resolving issues with mitigating actions.
• Balancing environmental and economic interests in regulations to promote national goals and reforming environmental procedures to prevent the use of intervention merely to delay decisions and drive up the costs would fundamentally change America’s business climate for the better without adversely affecting our environmental stewardship.  Today we allow our environmental laws and rules to be abused for partisan and political purposes that hurt our economy while failing to secure our environmentally responsible energy potential for the future.
• US-Mexico Energy Development Cooperation would benefit both nations.  Mexico has a rapidly declining energy sector and would benefit from American investment, technology and expertise without ceding control over Mexico’s energy industry.  Creating new oil and gas production jobs in Mexico and additional energy resources for American markets would be good for both countries.

Turning on America’s domestic energy production will send a powerful and unmistakable signal that America is again open for business. 

Doing so in a way that assures that the energy and technology to fuel domestic economic growth in manufacturing, trade, exports and services will be available and the Government and business are aligned to  make it happen will reduce uncertainty and unleash the hoarded cash sitting on the sidelines just when President Obama needs it most.

Related articles

• The Gift: Energy Security and Economic Growth from Unconventional Oil & Gas (insightadvisor.wordpress.com)
• Obama plays the Energy Shot Clock (civicchoices.wordpress.com)
• BP, Conoco Halt $35B Alaska Pipeline Project (businessweek.com)
• Exxon makes 3 deepwater finds in the Gulf (msnbc.msn.com)
• America’s E&P Mojo is Back! (civicchoices.wordpress.com)
• Alaska’s Ebbing Oil (online.wsj.com)
• Alaska Pipeline Getting Dangerously Cold (newser.com)