To grasp the importance of the revolutionary change in oil and gas drilling sweeping across the United States -- and its significance for our economy -- just consider how far behind the rest of the world is lagging.
America's innovative use of energy technology by "petropreneurs" is rejuvenating oil and gas production. Thanks to the combination of hydraulic fracturing and horizontal drilling in shale deposits, along with advances in seismic imaging that allow geologists to examine deposits more than a mile underground, energy resources long presumed to be beyond reach are now being tapped, or at least will be eventually. And it's happening as a result of something unique about America.
"In most of the world, if people are living on the land and there's hydrocarbons underneath it, they will fight it," Bob Dudley, group chief executive of BP, said recently in an interview with the Wall Street Journal. Private ownership of mineral rights in the U.S., along with an existing network of pipelines, enables oil and gas to find their way to market. And this, Dudley said, has given America its big head start.
The upshot is that a United States reliant on imported oil and natural gas is a thing of the past. To be sure, the U.S. will continue to be subject to world oil prices, and supply disruptions in the world will still create price spikes. But an abundance of domestic oil -- and growing use of natural gas in truck fleets -- will dampen price volatility, providing more stability for consumers.
We have seen a 40 percent increase in domestic oil production since 2008, the highest growth in oil output of any country in the world over that time period. As could be expected, net oil imports have plummeted, from more than a 60 percent share of domestic consumption in 2005 to less than 40 percent this year, the lowest dependence on foreign sources of oil in more than 20 years. Domestic oil production is booming, and the United States could even surpass Saudi Arabia to become the world's biggest oil producer by 2020.
The upsurge in U.S. natural gas production has been no less dramatic. The Energy Information Administration, or EIA, estimates that the U.S. has enough gas to last more than 100 years. What has become known as the "shale gale" has turned a shortage into a surplus, and now natural gas accounts for more than a quarter of America's total energy.
The abundance of cheap gas has helped reduce utility bills for consumers through lower electricity costs and lower costs for the millions of Americans who use gas to heat their homes. And the "shale gale" has sparked a revival in domestic manufacturing, mainly in the chemical industry but also in other energy-intensive industries like iron and steel. Because U.S. natural gas prices are now the lowest in the world, industries that once exported manufacturing facilities abroad are suddenly bringing them back home as they pursue new investments. All of this has increased economic growth, created jobs with good wages and produced revenue for governments at all levels.
Shale gas has also helped the environment by slashing carbon dioxide emissions. As natural gas has replaced coal in electricity generation, U.S. carbon dioxide emissions declined to their lowest levels in 20 years, the largest reduction of all countries. Solar and wind can't deliver comparable energy and environmental benefits within the same time frame, but the shift from coal to natural gas could buy the time needed to expand the use of carbon-free energy sources and further reduce greenhouse emissions to safe and acceptable levels.
The United States, moreover, could become a major exporter of natural gas in the future. With thousands of new wells being drilled, the EIA projects that natural gas supply could exceed demand by 2016, enabling the U.S. to liquefy and export natural gas to markets abroad.
The revolutionary drilling technologies developed in the United States will eventually be employed everywhere. Although foreign countries lag behind us, there has been considerable interest in oil-and-gas shale deposits in Europe, Latin America and Asia. China's shale gas resources alone are said to exceed those in the United States. This means that the U.S. will be an exporter of energy and drilling technologies well into the future.
The impact of the extraordinary production growth of U.S. oil and gas is becoming increasingly apparent. Even if the current growth subsides in the years ahead, the transformative impacts of this energy revolution on economic expansion will have dramatic effects. A study by Merrill Lynch pegged that contribution at 2.2 percent of America's GDP -- equivalent to an economic stimulus of $1 billion every day. The big takeaway is the unfolding scale of America's amazing oil and gas revolution -- and the huge economic impact it's having on jobs, manufacturing, the environment and competitiveness.
Mark J. Perry is a professor of economics and finance at the University of Michigan in Flint and a scholar at the American Enterprise Institute.