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Amazingly, an era of energy abundance is upon us, unless politicians and environmentalists get their way.

When Andrew Liveris took over as CEO of Dow Chemical at the end of 2004, the company was in the midst of a wrenching reorganization that saw it shed 7,000 jobs​—​14 percent of its workforce​—​and close 23 older chemical plants in this country. Looking ahead to a new product cycle in a fast-growing global marketplace, Liveris faced a stark choice: Should Dow invest in new capacity in the United States, or should he locate more facilities in emerging markets? One factor made expanding overseas much more attractive​—​not labor costs but the price of natural gas.

Dow and several other industrial manufacturing sectors use natural gas as a basic feedstock for much of their product line, not primarily as an energy source. As such there are few substitutes or efficiency strategies the company could use. As Liveris told the Senate Energy and Natural Resources Committee in the fall of 2005, “This [natural gas] price of $14, simply put, renders the entire U.S. chemical industry uncompetitive. .  .  . We simply cannot compete with the rest of the world at these prices. .  .  . When faced with a choice of investing in the United States at $14 gas versus $2 to $3 elsewhere, how can I recommend investing here?” Not long after, Dow Chemical announced plans for a major expansion in Kuwait and Oman, both of which were able to guarantee long-term rock-bottom natural gas prices. Other chemical companies followed suit, and a sector that was once among the nation’s strongest export industries became a net importer. Between 1997 and 2005, overall industrial consumption of natural gas in the United States fell 22.4 percent.

One of the less appreciated facts of the U.S. energy marketplace is that the price of natural gas has been much more volatile than the price of oil over the last 15 years. Unlike oil, which trades at globally uniform prices, natural gas has always been a more locally traded commodity, with wide price differences from region to region. And in the middle years of the last decade, when the U.S. natural gas price spiked to $14 per thousand cubic feet, up from $2 or less for most of the 1990s, both Middle Eastern and Russian gas could be had much more cheaply​—​if you were located in their neighborhood.

Like domestic production of oil, U.S. production of natural gas had been relatively flat for years. All of the official public and private forecasts expected domestic gas production to decline, with the result that the United States, hitherto nearly self-sufficient in natural gas (we have been importing about 10 percent of our gas from Canada and Mexico), would have to import as much as 20 percent of our needs by the year 2020. Most of the new gas imports were expected to come from the Persian Gulf, extending American dependency on that politically sketchy region. The oil and gas industry argued that the only way to turn around our gas fortunes was to open up more areas for exploration and production, especially offshore on the continental shelf, but this ran into the same buzzsaw of political opposition that has hobbled domestic oil production.

Now, within an astonishingly short time, the entire picture has changed. In mid-December the Energy Information Administration released new estimates of U.S. natural gas showing proved reserves at their highest level since 1967, up 33 percent in the last three years and 62 percent over the last 10 years. Natural gas production in the United States in 2009 (21.6 trillion cubic feet) was the highest since 1973, even though demand was down on account of the recession. The Department of Energy now predicts gas reserves will grow by at least another 20 percent over the next decade, though a number of energy forecasters think reserves will grow by much more, securing a 100-year supply for our needs. Even as oil and gasoline prices rise again to uncomfortable levels, the price of natural gas has declined 80 percent from its mid-recession level in the summer of 2008, to about $4 per thousand cubic feet, and it is likely to stay at this level or perhaps fall further. Although price volatility may not be a thing of the past, it is unlikely we’ll see spikes to $14 again for a very, very long time.

How did this startling turnabout occur? The phrase suddenly in every newsroom copybook (the cover of Time magazine last week, a series in the New York Times last month) is “unconventional gas,” chiefly shale gas and coal-bed methane, produced through a technique known as hydraulic fracturing or “fracking.” Fracking involves sending high pressure fluid deep into wells to force cracks in the surrounding rock formations, which releases gas (and also oil where oil deposits are mixed in rock).

From the recent news reports you’d think shale gas and fracking had just been discovered, but neither is brand new. It has been known for decades that deep shale rock formations contain lots of natural gas, and oil drillers have employed fracking for years to enhance oil recovery. But fracking for shale gas was not economical until a second technology achieved major breakthroughs in the last decade and a half: directional drilling. It is possible today to drill several wells from a single platform in many different directions, often for several miles laterally, and navigational advances enable drillers to know their exact position down to a few inches from thousands of feet away. Combined with advances in underground geological surveying, directional drilling and fracking over the last decade have allowed us to tap into previously uneconomic shale gas deposits. At the present time shale gas accounts for about 20 percent of total U.S. gas production (up from 1 percent in 2000), but it is projected to account for nearly half of U.S. gas production by the year 2035.

One remarkable aspect of the shale gas revolution is that it was not the product of an energy policy edict from Washington, or the result of a bruising political battle to open up public lands and offshore waters for new exploration. Although the Halliburtons of the world are now big in the field, its pioneers were mostly smaller risk-taking entrepreneurs and technological innovators. George P. Mitchell, an independent producer based in Houston, is widely credited as being the prime mover in shale gas, pushing the idea against skeptics. The technology was mainly deployed on existing oil and gas leaseholds or on private land beyond the reach of bureaucrats (for the time being, anyway). That is why shale gas seemed to sneak up unannounced to the media and Beltway elites, even though people inside the gas industry realized several years ago what was rapidly taking place. Mitchell worked the Barnett shale formation near Dallas, but the biggest shale gas “play” is the Marcellus​—​a massive deep shale formation stretching from West Virginia through upstate New York.

Now that shale gas is front-page news, everyone wants a piece of the action. Environmentalists, who have supported natural gas as a “bridge fuel” to kill coal, are starting to turn against gas now that it looks more abundant. Regulators want to regulate it; state legislators want to tax it more. And politicians are eager to “help” the market decide how best to use this newfound bounty, which is music to the gas industry’s ears, as they fear a glut might collapse prices and do to their industry what the collapse in oil prices in 1986 did to the small producers in the oil patch. In other words, the one thing that might disrupt this amazing success story has arrived on the scene: politics.

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