Fracktacular

THE FIRST GUSHERS sprayed oil into the skies of Texas, Ohio and California more than a century ago. America has relentlessly drained its reservoirs of oil and gas ever since. In 1986, seeing the flow begin to slow, Robin West founded PFC Energy to advise oil people how to take capital out of the American industry and invest it in newer prospects abroad. As he leaves the company 27 years later, he is amazed to see the money flowing back in record amounts.

In 2006 America’s production of oil and natural gas fell to the equivalent of about 15m barrels of oil a day (b/d). An analysis by the Wall Street Journal recently estimated output today at over 22m b/d—close to surpassing the world’s largest producer, Russia, if it has not already done so. The extra oil comes from shale and sandstone. Estimates of the amount of oil they contain vary hugely, but Navigant, a consultancy, reckons that North America could produce anything from 26.9-53.5 trillion cubic metres of shale gas alone, enough to satisfy the world’s total current demand for gas for up to 15 years, though at today’s prices not all of it would yet be worth extracting.

It is a very American success. Geologists have long known that these reserves existed, but they could not get at them. A combination of innovation (hydraulic fracturing, or “fracking”), finance and enterprise have now opened them up, often to small oil and gas firms with low costs. America’s property laws, which grant mineral rights to the landowner, have people clamouring to get their land explored. Countries with less flexible capital markets, different laws and less enterprising oilmen will make a lot less of their shale oil and gas.

The United States will not quite gain energy independence, the holy grail of policymakers ever since the oil shocks of the 1970s, but it is likely to depend on imports only from Canada and Mexico. However, the new output will benefit America, both by creating jobs and by bringing down energy bills as cheap gas replaces coal and oil. Lower prices will temper the ambitions of Russia, which lives on its oil and gas revenues. And if the world should fall to pieces, American supplies will be guaranteed.

“Independence” is not quite what it seems. Oil is traded in global markets. The oil price is set not in Texas or California but in Saudi Arabia, the world’s biggest oil exporter, and in China, which has recently become its biggest importer. If for any reason Saudi oil could not get to the market, world prices would spike and Americans would feel the pain just like everybody else.

Even so, some American critics suggest that the Fifth Fleet should be saved the trouble and expense of securing the safe passage of oil from Saudi Arabia. American taxpayers are just subsidising Chinese consumers, they say. But ensuring free navigation has always been an essential feature of American primacy. Abandoning it might encourage China and India to build ocean-going navies to vie with America’s.