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Obama hitches ride on shale bandwagon

The US president placed unconventionals firmly at the centre of his ‘made in America’ energy policy – but will he back up his words with action?

The US government has finally bought into the unconventional revolution, after President Barack Obama touted shale gas as part of a “made in America” energy policy in his State of the Union address, on 24 January.

In his speech, Obama held up the unconventional oil and gas industry as an example of US innovation and vowed that natural gas would play a larger role in his vision of the US’s energy future. “We have a supply of natural gas that can last nearly 100 years and my administration will take every possible action to safely develop this energy ... The development of natural gas will create jobs, and power trucks and factories that are cleaner and cheaper – proving that we don't have to choose between our environment and our economy,” he said in the address.

Shale gas accounted for about 23% of US gas supply in 2010, according to the latest Energy Information Administration (EIA) statistics, and that figure is expected to rise to about 49% by 2035. Shale-gas production is expected to jump from 5 trillion cubic feet (cf) a year to 13.6 trillion cf/y in the same period.

It’s a stunning achievement for an industry that barely accounted for 3% of US gas supplies five years ago and the president readily admitted unconventional oil and gas will be required to reduce US reliance on energy imports, alongside his pet clean-energy projects.

Mixed messages

And despite pledging, once again, that tough new hydraulic-fracturing (fracking) standards will be enforced and subsidies for energy companies ditched, Obama made it clear that gas will be an important part of US energy policy over the longer term. He said he’d force companies to disclose the components of fracking fluids, although most already do this. The tone of his speech tone seemed to suggest that fracking will be allowed if it’s proved to be safe.

The president also announced the opening of 75 million acres of federal land for oil and gas development, to encourage home-grown production.

Obama was quick to take credit for rising US oil and natural gas production. The EIA said in its 2012 outlook that US oil imports are at their lowest in 16 years and are expected to fall from 49% of total consumption to 36% in 2035.

Haphazard policy

Nonetheless, it’s hardly clear what US energy policy really is – the president called it an “all of the above” strategy in his speech – but it could politely be described as haphazard, at best. Though he only recently lifted the Gulf of Mexico drilling moratorium and opened federal lands for drilling, he’s rejected the Keystone XL pipeline, which, as well as providing Canadian oil-sands crude to Gulf coast refiners, would also move 100,000 barrels a day (b/d) of production from the unconventional Bakken play to Texas.

But critics, including the American Petroleum Institute (API), reacted strongly to the address, claiming the president’s words contradicted his actions. The API has a point. Almost all of the US’ big energy-policy initiatives of the last three years have been reactions to events such as the Gulf oil spill, or Keystone XL protests, rather than any clear vision of how the pieces fit into the whole.

Even as he was vowing to rebuild the US’ energy infrastructure, Obama slipped in an old crowd-pleaser: a promise to crack down on big oil’s outrageous profits.

Mixed message

It’s a mixed message that might score points heading into an election, but does little to show the US is serious about meeting its domestic energy needs. Taken as a whole, Obama’s State of the Union address failed to express a coherent vision of the US’ energy future. This was perhaps most obvious in respect to unconventional oil and gas resources, which seem to be the only growth story in an otherwise faltering economy.

At the same time, virtually all the US’ shale plays are facing growth and infrastructure pressures that threaten their development. While recognising some significant potential, it’s less clear if there’s an appreciation of what it means to bring those resources to market.

Every president since Richard Nixon has promised US energy independence; Obama is no different. Although he’s arguably in the best position to deliver on that long-held dream, it’s clear after his State of the Union address that the US still has a long way to go to reach it.

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