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Daniel Nestlerode: As U.S. Becomes a Net Energy Exporter, Green-Energy Push on Last Legs

by on December 04, 2011 4:42 PM

Very quietly and without any political fanfare, the United States became a net energy exporter in the last calendar quarter.

In historical context, this event essentially ends the calls for a national energy policy, the green alternatives and the potential for shortages derived from price controls. Those of you who remember the lines at your local filling station in the mid-1970s will recall what I am talking about.

This event came about not as the result of a coherent political energy policy or the rise of renewables of all kinds – wind, solar, biomass and ethanol, for example. It is the direct result of the application of technology devised, inspired and developed by America's energy companies, namely Mitchell Energy, among others. This development was not seeded by the Department of Energy (Think of bankrupt Solyndra, for example), nor politically assisted. It came about because of the vision of one individual who doggedly persisted in finding the methods and ways to develop the naturally occurring oil and gas shale formations in Texas.

The success in the Barnett Shale in Texas led to the application of the technology to the Bakken formation in the Dakotas (oil shale) and the Marcellus Shale (natural gas) in the eastern United States, as well, and a number of other energy shale formations. The development was spurred by the high prices of energy over the past few years and the notion that we have reached peak fossil-fuel-energy output.

High prices and potential shortages of fuels -- as well as disruptions caused by hurricanes, equipment and process failures in the Gulf, and terrorist activities -- pushed development into high gear. Now we have more oil in the United States (indeed North America) and natural gas coming to market than anyone believed was possible just a few years ago.

What does all this mean? The push for green energy is on its last legs again, just like in the Carter administration 40-some years ago. We are already seeing the demise of a number of solar companies bitten by price-cutting from subsidized Chinese energy companies and the coming end of financial support from various states and the federal government.

I am struck by the wind mills observable from I-99 as one leaves the Nittany Valley heading toward Port Matilda and on down toward Tyrone. Millions of dollars were spent on wind generation right over one of the largest and cheapest sources of natural gas in the world -- giant wind turbines that will probably be left idle.

Nuclear power is also not cost-effective against the sharp increase of cheap and dependable natural gas. We will probably not have to ponder going to war over energy supplies as we have all that we need. At least we won't hear that political justification when the next deployment of troops occurs.

As consumers, we are entering a period of stable prices and plentiful supplies of gasoline, oil and natural gas. Some will adopt natural-gas-fueled vehicles because of the price advantage, while others will benefit from lower gasoline prices as gasoline and diesel lose their stranglehold as transportation fuels. Harry Dent predicted the end of commodity price inflation years ago, noting that commodities like oil peak every 30-or-so years, then fall into quiet periods for following couple decades. For those industries dependent of cheap, dependable energy, welcome to the new surplus.

These energy developments are not limited to the United States. Israel has located substantial energy reserves in the Mediterranean Sea just off her West Coast, Brazil is developing one of the largest oil fields in the world (Think Saudi Arabia-sized) in the Atlantic, and Europe has discovered numerous gas shale fields in Germany, Poland and other places. The world is awash in energy.

For our country, the balance-of-payments issue will be sharply reduced as energy was about 60 percent of our balance-of-payments problem. It would seem that the economy is turning better despite all the help from Washington.



Dan Nestlerode is the Director of Research and Portfolio Management at Nestlerode & Loy Investment Advisors in State College. A graduate of Penn State University, Nestlerode has been an investment advisor since 1965. He can be reached at danielj@nestlerode.com.
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