North Carolina Cooperative Extension

You Decide: Is there a statewide energy revolution under way

By Mike Walden | Dec 21, 2012

I was in graduate school in the early 1970s when I first heard about
the energy revolution. Until then, energy wasn’t a problem for the
U.S. economy, in fact, energy was a benefit. We were still a major
energy exporter; indeed, oil production in Texas peaked in that
decade. The long-running TV soap opera Dallas (starring the recently
deceased actor Larry Hagman), featuring the oil industry, began in the
1970s.


But U.S. economic growth, combined with declining U.S. oil production
and increasing foreign oil output, turned our energy world upside
down. The U.S. became a net energy importer and subject to the ups and
downs of world energy (mainly oil) prices. Periodic spikes in oil
prices pushed the domestic economy into recession. Energy alternatives
became the goal (I heated with wood in the 1980s), but energy
independence seemed a long way off into the future.


But the future is now, and energy independence may be within the
country’s grasp. The International Energy Agency recently predicted
the U.S. would be able to meet all its own energy requirements
internally within 10 years. Another report estimated positive economic
benefits if the country began exporting one growing source of energy,
natural gas. In short, the U.S. is returning as an energy production
giant (even Dallas is back on the airwaves).


What changed? Most economists answer two things: price and technology.
It’s a simple rule of economics that when the price of something
increases, the value of producing and selling that something will
increase, and eventually more of the something will hit the market.
Even accounting for general inflation, oil prices rose five-fold
between 1970 and today. This has made finding and pumping oil much,
much more profitable. So oil companies are willing to spend more to
access oil in places they wouldn’t have considered decades ago.

At the same time, the technology for finding and producing oil and
other energy sources, like natural gas, has dramatically improved,
especially in the last 20 years. Deposits of energy that drillers
previously couldn’t reach can now be tapped. And even if the costs of
doing so are high, high energy prices make the deal a winner for the
companies.

The big energy production gains in the country have been seen in oil
(up almost 20 percent in the last year) and natural gas (also up
almost 20 percent in the last five years).

To date, North Carolina hasn’t participated in this domestic energy
boom from oil and natural gas. But many think we should. Although
estimates are highly uncertain, some analyses indicate the state has
the largest off-shore supplies of oil and natural gas of any state on
the east coast. There are also government estimates of significant
on-shore gas supplies in the central part of the state. Recognizing
the caveat that estimates are highly variable, reports indicate that
full development of these energy resources could support as many as
50,000 jobs in North Carolina.

So what’s stopping us? There are several factors. For one, North
Carolina doesn’t control the ability to drill and access ocean energy
reserves. Federal approval must be obtained. There are also important
environmental issues with both off-shore and on-shore energy
development. Concerns about accidents, drilling failures and
contamination of water supplies are real issues that worry the coastal
tourist industry and households who live in potential drilling areas.

There’s also the viewpoint that the country should move away from
fossil-fuel energy sources such as oil and natural gas to renewable
sources like solar, wind and wave power and biofuels. The renewable
sources have certainly seen tremendous growth, on a percentage basis,
but they still compose a relatively small share of total energy used.
Each also faces its own challenges, such as up-front costs, variable
production, fuel storage and land usage.

And we shouldn’t forget those who recommend we change our technology
and lifestyles to use all types of energy more efficiently, allowing
us to reduce our energy footprint.

My own view, for what it’s worth, has two parts. First, I think we are
in the midst of an energy transformation. What kind of energy we use,
how we use that energy and the cost of different types of energy are
all changing. The major driver of our energy shift is the expanding
economies of much of the rest of the world, particularly in Asia and
Africa. History shows that as economies prosper, energy use jumps and
so do prices.

Second, I predict all of the viewpoints highlighted above — increased
development of domestic fossil fuels, continued growth of renewable
energy alternatives and moves to increase our efficient use of energy
— will play roles in the future. One of the biggest transformations
that could occur is movement away from oil-based gasoline to natural
gas fuel and electric-powered fuel for our vehicles. This shift would
be a major game-changer.

So although we face numerous energy challenges — including adequate
supplies, affordable prices and environmental impacts — I think we do
live in an exciting time for addressing these challenges. So put your
futuristic hat on and decide what our energy future will look like!



Dr. Mike Walden is a William Neal Reynolds Professor and North
Carolina Cooperative Extension economist in the Department of
Agricultural and Resource Economics of N.C. State University’s College
of Agriculture and Life Sciences.

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