When we talk about American exceptionalism, we think of examples like Apple, a bevy of Internet companies, biotech, Hollywood, medicine and space flight. American creativity gave birth to all of these things and much more. But while the glamorously inventive intellectual property ventures capture headlines and kudos, breakthrough innovations in drilling have been quietly transforming our nation’s economic, manufacturing, and even foreign policy prospects.
The revolution in shale drilling is transforming the U.S. from a major fuel importer to a major exporter of oil and natural gas. In fact, the Wall Street Journal recently reported that the U.S. is about to overtake Russia as the number one producer of oil and gas in the world. Last fall, the International Energy Agency estimated that by 2020, the U.S. will surpass Saudi Arabia as the world’s largest oil supplier. By 2030, we will be virtually self-sufficient for our fuel needs.
The rapid geopolitical ramifications of this change are huge. Five years ago, Goldman Sachs issued a report projecting that oil would eventually cost Americans between $150 and $200 a barrel, which would mean Americans paying more than $5 a gallon for gas, mostly to unfriendly and oppressive countries. In more recent years, though, things have taken a drastic turn for the better with the rise of shale oil drilling. The Wall Street Journal estimates that innovation in shale drilling saved American families roughly $32.5 billion in 2012. Thanks to shale drilling, natural gas prices dropped from $8 in 2008, to around $3.50 today, and oil hovers around $100 a barrel.
The innovation in shale drilling didn’t happen in America because of the big oil companies. They had already pretty much abandoned America to drill elsewhere in the world. Instead, smaller, private companies have led the charge to extract natural gas from shale rock formations across the U.S.
The breakthroughs in drilling innovation could have happened only in America, according to Floyd Wilson, who started Petrohawk Energy in 2004 and sold it for more than $12 billion in 2011. Wilson was an early shale driller. Wilson and I were both speakers at a UN-related symposium hosted by the International Economic Alliance in New York on September 25.
In his remarks, Wilson explained that shale drilling innovation could only have occurred in the U.S., as we are the only nation that views property rights as both horizontal and vertical, to the center of the earth. By negotiating directly with property owners – not foreign governments, which may be bureaucratic and less willing to experiment, or even our own government, which controls more than 70 percent of shale oil lands nationwide – independent U.S. companies can buy drilling and extraction rights from American property owners. Wilson said he and others were able to aggregate these rights and share information about the location of gas and oil and effective techniques for extraction.
Shale drilling benefits more than just the independent businesses that strike oil. Property owners in Ohio, Pennsylvania and other states have become wealthy as they shared hefty percentages of the revenue of the extracted gas and oil.
More, these operations are producing high-tech, high-paying jobs, many of which didn’t exist a generation ago, aided by service providers like Halliburton. Wilson and other independent operators rely on sophisticated technology, computer programs, real-time information and engineers, and highly skilled people who can react and respond to the nuances and challenges of each project.
Historians debate the success of various stimulus packages, taxes and government economic policies, but it’s our innovative spirit that has boosted our economy these past two challenge-laden decades and kept the dollar and our stock market relatively healthy. One of the main drivers boosting the U.S. economy in recent years has been America’s shift toward fuel independence.
Gary Shapiro is president and CEO of the Consumer Electronics Association (CEA)®, the U.S. trade association representing more than 2,000 consumer electronics companies, and author of the New York Times best-selling books Ninja Innovation: The Ten Killer Strategies of the World’s Most Successful Businesses and The Comeback: How Innovation Will Restore the American Dream. His views are his own.