December 22nd 2012

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Articles from this issue:

FRONT COVER: Picture Credit

EDITORIAL: Hard landing likely for Australia's economy

CANBERRA OBSERVED: Julia Gillard's survival strategy for the New Year

WATER POLICY: Disastrous Murray-Darling Basin Plan is now law

ENVIRONMENT: Australia signs up for Doha cash grab

EDUCATION: Kirby attacks state aid to non-government schools

AUSTRALIAN SOCIETY: The left's long march through Australia's institutions

LABOUR RELATIONS: How to make unions accountable to members

POLITICS: The challenges that await Australia in the New Year

ENERGY: US to achieve energy independence in 15 years

ECONOMIC AFFAIRS: Time to reappraise the Washington Consensus?

OBITUARY: International advocate for family values dies

CINEMA: Well-crafted tale about an ageing pro

BOOK REVIEW A divided calling

BOOK REVIEW Atheist philosopher now sceptical about Darwin

POEM: Enlightened Willie's Prayer

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US to achieve energy independence in 15 years

by Patrick J. Byrne

News Weekly, December 22, 2012

The United States, as it aims to reach energy self-sufficiency within 15 years, now has a “gas glut” that is forcing down energy prices and helping to revive US manufacturing.

The US — which currently imports six million barrels of oil per day from the rest of the world — is on track to meet all its energy needs within 15 years from domestic sources and from three million barrels per day from neighbouring Canada and Mexico.

The world’s biggest energy-user has a deliberate policy of achieving energy independence, so that it is no longer dependent on oil imports from volatile Middle East countries.

In 2007, President George W. Bush signed the Energy Independence and Security Act.

The stated aim of this law is “to move the United States toward greater energy independence and security, to increase the production of clean renewable fuels, to protect consumers, to increase the efficiency of products, buildings, and vehicles, to promote research on and deploy greenhouse gas capture and storage options, and to improve the energy performance of the Federal Government, and for other purposes”.

For example, the Act set new fuel economy and emission standards for motor vehicles, and required all federal agencies to purchase only vehicles that met those new standards.

In reaching the new standards, the manufacture of biofuels has been required, particularly for reducing diesel-vehicle emissions by 50 per cent.

Together, the Energy Independence Act and new technologies have led to a massive increase in gas and biofuels production.

Following a huge increase in the production of gas from America’s vast shale oil deposits, a “gas glut” has forced down the price of gas by 78 per cent since 2008, according to The Banker magazine (September 6, 2012),[1] published by the UK’s Financial Times.

This has led to heavy trucks switching from diesel to gas engines, according to the Wall Street Journal (May 23, 2012).[2]

There was no significant gas extracted from shale deposits in 2000, yet gas now accounts for one-third of US gas supplies. The US is the fastest growing producer of gas in the world.

Coal-generated electricity has fallen from 45 per cent in the first quarter of 2011, to 36 per cent a year later, as gas has replaced coal.

A paradigm shift is underway as the US looks to extract both gas and oil from its vast untapped shale oil deposits.

Further, the US is now the world’s largest producer of ethanol fuel for transport.

By 2015 it will be producing the equivalent of almost one million barrels of ethanol per day, about one-third from sugar cane and the rest from corn, according to the US Energy Information Administration (EIA).[3] One barrel equals 42 gallons, or 160 litres.

According to US Agriculture Secretary Tom Vilsack the production of biofuels has lowered the cost of transport fuels by between 25 cents and US$1.30 (BBC Business News, August 8, 2012).[4]

The falling cost of energy is helping to make US industry globally competitive again. This is one factor behind a moderate revival of US manufacturing.

The Banker has pointed out how petrochemical companies, that were planning to put their plants in the Middle East, are now building their them near US gas supplies.

A Boston Consulting Group (BCG) report, Made in America Again (August 2011), says that some US manufacturers are moving part of their production back home from China and elsewhere.[5] For example:

• Caterpillar Inc. has repatriated manufacturing of construction excavators, boosting investment in facilities in Texas, Arkansas and Illinois.

• NCR Corp has brought back production of automatic teller-machines (ATMs) to Georgia, creating 870 jobs.

• Toymaker Wham-O moved production of Frisbees and Hula-Hoops from China and Mexico to the United States.

More such announcements are likely over the next few years, with a major turning-point expected around 2015, according to Hal Sirkin, a senior BCG partner and lead author of the study.

While wages in China are still a fraction of what US workers earn, that difference is expected to narrow, with a Chinese worker earning about 17 per cent as much as his or her US counterpart four years from now. (The Huffington Post, May 5, 2011).[6]

Factoring in higher US productivity rates, the weaker US dollar, shipping costs and protecting intellectual property, the cost difference between producing in the US as opposed to China could narrow further.

What a contrast there is between the US and Australia.

In the US, energy prices are falling and manufacturing is growing, while in Australia the costs of electricity and transport fuels are rising.

The US will be energy-independent in 15 years, whereas Australia will have gone from importing 20 per cent of its liquid fuels in 2000, to importing 80 per cent around 2015, possibly at an annual cost of around $90 billion, according to modelling by Queensland Energy Resources.[7]

Patrick J. Byrne is vice-president of the National Civic Council.


[1] Paul Wallace, “On the road to self-sufficiency? The US’s energy glut”, The Banker (London), September 3, 2012.

[2] Rebecca Smith, “Will truckers ditch diesel?”, Wall Street Journal, May 23, 2012.

[3] Frequently asked question: “How much ethanol is in gasoline and how does it affect fuel economy?”, US Energy Information Administration (EIA), July 20, 2012.

[4] Mark Mardell, “US biofuel production should be suspended, UN says”, BBC Business News, August 10, 2012.

[5] Harold L. Sirkin, Michael Zinser and Douglas Hohner, Made in America, Again: Why Manufacturing Will Return to the US (Boston Consulting Group), August 2011.

[6] Nick Zieminski, “US manufacturing could soon be poised for comeback, study shows”, Huffington Post, May 5, 2011 (updated August 1, 2011).

[7] Keith Orchison, “Australia’s oil deficit blow-out”, Business Spectator (Australia), May 31, 2010.

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