The Progressive Case for Fracking: James Bloodworth
http://www.wsj.com/articles/james-bloodworth-the-progressive-case-for-fracking-1419898265
Tumbling oil prices have sent repressive regimes around the world reeling. Liberals should rejoice.
Christmas came early for the world’s liberal democracies this year, with news in mid-December that repressive regimes from Russia to Venezuela and from Iran to Belarus are tumbling down an economic spiral. Who or what should we thank for this geopolitical yuletide? The neocons? Pro-democracy protesters? George W. Bush and Tony Blair ?
No. Thank instead American shale producers. The shale-gas and hydraulic-fracking revolution is lighting a figurative bonfire under the world’s petrocracies. Dictatorships that for years blackmailed the West in the knowledge that we would come crawling back for the black stuff are now catching a glimpse of a bleak future.
As the American people and companies shift more of their consumption to cheaply produced domestic energy, the geopolitical leverage of oil-rich autocrats diminishes. A barrel of crude on Monday sold for less than $60, down nearly 50% since June when it went for $115. Take that, ayatollah.
This is a price drop made in the shale-rich heartlands of the U.S. Between 2007 and 2012, shale production in America jumped by more than 50% a year. In that time the shale share of total U.S. gas production rose to 39% from 5%. Last year the U.S. overtook Russia as the world’s leading energy producer; next year America is projected to overtake Saudi Arabia as the world’s biggest producer of crude oil.
One consequence is a massive fall in the price of oil just a few years after the words “peak oil” were being bandied around as gospel by environmentalists. Peak oil now looks like one of the most outlandish theories of our era. Rather than contract, the global supply of energy continues to diversify and expand, in no small part because of the boom in American shale.
This ought to put a smile not only on the faces of free-market economists, but liberals and progressives, too. As America becomes a net exporter of energy, shale could help topple some of the world’s worst regimes.
The relationship between oil wealth and autocracy is well-established, with a number of studies showing that democracy is less likely in oil-rich nations. Oil wealth helps keep dictators in their palaces by allowing vast military expenditure to repress dissent and providing a ready pool of money with which to co-opt their populations through generous welfare stipends.
Sitting atop large and valuable energy reserves also gives autocrats the luxury of keeping a tight lid on economic entrepreneurship. Winning the geographical lottery ensures that the oil money comes in regardless of how little revenue the rest of the economy generates.
Consider Russia and Venezuela. At least some voters in both countries have tolerated the emaciation of civil society while the Putinist and Chavista regimes have learned to use oil money to fend off unrest and buy off loyal cronies. Meanwhile, the armed forces in both nations have been placated with high-tech toys and rising salaries.
Despite legitimate environmental concerns about fracking and horizontal drilling, the long-term impact of shale on the global oil price means that regimes that have long relied on a single export for their survival are facing a potentially ruinous economic future.
Russia’s economic woes are well-documented, largely due to the fact that oil revenues make up 45% of the government budget. But elites in Iran and Venezuela also have the jitters and have been pleading with OPEC, the world’s largest oil cartel, to cut production to prevent the price of oil from falling any lower. Venezuela needs a price of $151 a barrel next year to balance its budget while Iran requires around $131.
So far Sunni Saudi Arabia has been willing to tolerate low prices in order to hurt its Shiite rival in Tehran. Yet Riyadh is no less worried about the long-term consequences of shale than are the Iranians—it simply has a bigger buffer of foreign-exchange reserves with which to soak up the short-term consequences. If oil stays at $60 per barrel in 2015, Riyadh will run a deficit equal to 14% of gross domestic product.
Some of the most vociferous opponents of fracking are liberals, yet the shale revolution has the potential to undermine some of the world’s most illiberal regimes, in the process freeing the U.S. from its bondage to Saudi Arabia, as demanded by progressives for decades. Thuggish governments in Caracas, Moscow and Tehran don’t much like shale either, which ought to endear it still further to democrats.
This is not to dismiss the environmental concerns regarding shale extraction in urban areas, nor to call for the abandonment of a long-term strategy in the West for the development of green renewables. Yet it is to recognize that American shale producers are engaged in a price war with some of the world’s vilest regimes. In that respect, the left should get on board the fracking revolution.
Mr. Bloodworth is editor of the blog Left Foot Forward.
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