USA Today sees an oily, gassy rainbow on America’s energy horizon.
“Energy independence isn’t just a pipe dream,” read a large, bold headline on Wednesday’s front. It was draped over an image of oil drums stamped “Made in USA,” laid out like bowling pins in front the US flag.
The nearly 2,000-word cover story, by Tim Mullaney, described the current “energy boom” in great detail—from rising oil production and falling oil imports, to the declining price of natural gas, to increasing exports of refined petroleum products—and reported that it promises to deliver a variety of economic benefits, particularly jobs.
The piece began with a snapshot of Williamsport, a “once-sleepy chunk of north-central Pennsylvania” that’s become “a star on the map of an emerging national energy rush,” with the arrival of 100 new companies and 20-year-olds making over six figures a year. According to the article:
Much of Wall Street and Washington is seized by the hope that the US’s energy future will be as bright as Williamsport’s.
USA Today seems similarly seized. Indeed, there are many reasons to be optimistic about domestic energy production and its economic benefits. But the paper chose, as the central thread for its article, the “most enticing” projection in recent months: a Citigroup report released in March titled “Energy 2020: North America, the New Middle East.” The report, as USA Today put it, predicted that “the US, or at least North America, can achieve energy independence by 2020.”
Actually, the report was clear that at most North America could reach zero net oil imports by 2020. The US won’t get there without Canada. But that’s not really the point. USA Today’s article, while nicely detailed, was just a bit too rosy.
As Michael Levi, an energy expert at the Council on Foreign Relations, argued in a May 7 blog post, “Oil and gas euphoria is getting out of hand.” Levi criticized The Washington Post, The Wall Street Journal, The New York Times, National Review, The Hill, and other outlets for publishing a “gusher of increasingly hyperbolic claims about the revolutionary consequences” of the positive trends in US oil and gas production.
While stressing that the benefits of the boom are manifold—from creating jobs to starting to drive coal, the dirtiest fossil fuel, out of the electricity sector—Levi rejected assertions that the boom would reduce US vulnerability to the events in the global market:
What would happen if the United States were to produce all the oil and gas it consumed? Set aside whether this is realistic; it still wouldn’t do the trick. Unless we were prepared to abandon the WTO and NAFTA, shutting the United States oil and gas sectors off from the rest of the world with all the consequences that would entail, we’d still be exposed (though less so than before) to price shocks stemming from the Middle East and elsewhere, and would still be competing with China and others to buy resources on the world market, even if those were produced from underneath our own soil.
Ed Morse, the head of global commodities research at Citi, and the author of the report that became the backbone of USA Today’s article, made a different case in an op-ed for The Wall Street Journal in March. Not only does boosting North American production insulate the US from events abroad, he wrote, it could significantly reduce the cost of oil. According to his logic:
The US’s growing crude output is affecting the price difference between the traditionally more expensive light sweet crudes (which yield higher-value products like gasoline) and heavy sour grades.
Excess Canadian crude oil produced from oil sands is expanding at a rate of one million barrels a day every five years. The more that’s produced, the less of a market there will be for oil from Venezuela and some other OPEC member countries with similar-quality oil, requiring them to either curtail production or lower prices. Even if oil prices rise in the medium term, we expect 2020 prices to be no more than $85 per barrel, compared with today’s prevailing global price of $125.
The key to that argument, however, is there will be “less of a market” for US competitors’ oil. But the US Energy Information Administration predicts that global oil consumption will continue to rise for the foreseeable future, so it seems unlikely that there won’t be demand for Venezuelan and OPEC oil.
To be fair, USA Today did pour some cold water on Citi’s sanguine forecast. Just over halfway through its article, the paper noted that, “For consumers, America’s new energy supplies help contain costs—but they’re not a magic path back to $2 gasoline.” In addition, the last section began by acknowledging that “many hopes—and fears—about the US energy boom will likely prove exaggerated,” and quoted the chief economist at Moody’s Analytics casting doubt on “Citi’s thesis that gas and oil will stay cheaper in the U.S. than aboard.”
It took too long for these caveats to emerge, however, and the contention, made by Levi and many other experts, that even zero net oil imports wouldn’t amount to “energy independence,” never came up.
The piece ended by quoting the head of the Chamber of Commerce in Williamsport, the boomtown described in its lede. “They tell us not to worry,” he said, referring to prospectors. “The gas isn’t going anywhere and neither are they.”
Unfortunately, USA Today didn’t mention that that promise has been broken countless times, and that rainbows—even oily, gassy ones—tend to disappear.
As Levi explained in his blog, “More supply can help, but to fundamentally reduce US vulnerability to the vagaries of world energy markets, we need to rein in our extraordinary (and economically self-damaging) demand.”