- - Monday, January 22, 2018


The Senate Energy and Natural Resources Committee got some very good news last week. Fatih Birol, executive director of the International Energy Agency, testified that the U.S. is becoming the “undisputed” global leader in oil and gas production.

Chalk it up to American ingenuity. Mr. Birol predicted that, given “the remarkable ability of producers to unlock new resources cost-effectively,” the U.S. by 2040 might well push its combined oil and gas output to “a level 50 percent higher than any other country has ever managed.”

To keep these positive trends going, however, the Trump administration will need to commit more fully to free markets and free trade.

American energy producers remain unduly restrained by excessive regulation. The Obama administration piled regulations on conventional fuels to tip the playing field in favor of more expensive, politically favored renewable power sources. It further biased investment and production by propping up less-competitive energy projects with government subsidies.

In addition to rolling back unnecessary regulation, Washington should roll back the subsidies it lavishes on all energy sources and technologies. When Washington stops using taxpayer money to pick winners and losers in the energy sector, the free market will force companies to become more cost-efficient — either innovate to become more competitive or exit the market. Consumers win out.

We’ve already seen this process work in the oil and gas industry. For years, U.S. producers couldn’t compete against the lower production costs of the Middle East. But the development of hydraulic fracturing and horizontal drilling technologies changed market dynamics. And because of that, Americans have reaped huge benefits.

Since 2014, we’ve paid less for energy. For several years, the resurgent oil and gas sector was almost the sole truly bright spot of the economy. Ultimately, it opened up wider economic opportunity, as businesses were able to plow their energy savings into greater investments in workers and equipment.

Free markets go hand in hand with free trade. The North American Free Trade Agreement has helped bolster both the energy industry and the individual prosperity that results from less-restrictive commerce.

To further capitalize on America’s energy renaissance, the Trump administration should reconsider and look to strengthen free trade — particularly with Canada and Mexico, our two largest energy trading partners.

U.S. oil and gas exports are booming. Last year, for the first time in over half a century, we exported more natural gas than we imported. Net petroleum imports fell to the lowest level since 1970.

This did not come about by accident. The U.S. has strategically developed refinery capabilities in both the Midwest and Texas. Refineries along the Gulf Coast have made America the largest importer of Mexican crude oil — and the largest producer of refined fuels for Mexico. Similarly, Canada is now a major importer of U.S. refined fuel, as well as a major exporter of both crude oil and the natural gas northern U.S. consumers get more affordably thanks to convenient geography and the Canadian pipeline network.

These trade relationships will pay even greater dividends in the future. Notably, as Canadian oil extraction grows over the next 10 years, the Canadian Energy Research Institute projects that the U.S. will gain more than $45 billion in added gross domestic product, as well as the preservation or creation of more than 400,000 jobs.

Because energy is so intertwined in the American economy, these benefits will be felt far beyond the oil and gas industry. Each job created or sustained in the energy sector is projected to support two additional jobs elsewhere in the economy.

Preserving and expanding NAFTA’s free market policies, while decreasing regulations and subsidies that distort market efficiencies, will help the expanding energy industry continue to innovate and continue to provide hundreds of millions of Americans — as well as citizens of neighboring countries — with low-cost, reliable energy needed to power their lives.

Nicolas Loris is The Heritage Foundation’s Herbert and Joyce Morgan fellow, specializing in energy, environmental and regulatory policy analysis.

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