Property Rights Foundation of America®
Founded 1994

 

Energy Abundance or Poverty: The Choice of a Century

By Bonner R. Cohen, Ph.D.
Senior Fellow, National Center for Public Policy Research &
Senior Policy Analyst, Committee for a Constructive Tomorrow, Washington, D.C.

Sixteenth Annual National Conference on
Private Property Rights
October 20, 2012
The Century House, Latham, N.Y.

Introduction by Carol LaGrasse: I'd like to introduce our speaker for the opening address. You may remember Bonner Cohen. Bonner Cohen is a Senior Fellow at the National Center for the Public Policy Research in Washington, D.C. where he specializes in environmental energy and regulatory affairs. He also serves as the Senior Policy Analyst for the Committee for a Constructive Tomorrow, which is known as CFACT. Articles by Dr. Cohen have appeared in Forbes, The Wall Street Journal, Investor's Business Daily, Philadelphia Inquirer, Miami Herald, Detroit News, Washington Times, Atlantic Journal Constitution, the Cincinnati Inquirer and dozens of other newspapers and periodicals around the country. He has been interviewed on Fox News, BBC, CNN, NBC, Fox Business Channel, CBC, BBC Worldwide Television and N24, which is a German language channel, and scores of radio stations throughout the United States. Dr. Cohen is the author of The Green Wave: Environmentalism and Its Consequences, which I recommend, published by Capital Research Center in 2006. He received his B.A. from the University of Georgia and his Ph.D. summa cum laude from the University of Munich. Please welcome Dr. Bonner Cohen.

Bonner Cohen: Well, thank you very much, Carol. It's a great honor to be here. This conference has become something of an institution and I think I speak publicly for all the speakers here when I say what a privilege and an honor it is to once again have the opportunity to participate in it.

Energy independence has been a declared goal of various American presidents and politicians going all the way back to Richard Nixon. And that pledge to free ourselves from the shackles of foreign sources of energy, mainly oil, has led us down to many roads which turned out to be dead ends, among them: synfuels, which you may remember from the 1980's; our decades-long subsidizing of ethanol, both corn based, and in more recent years, cellulosic ethanol. It has led to all sorts of energy mandates around the country; it has led to massive subsidies or loan guarantees, and what have you; to alternative sources of energy such as wind and solar. What all the efforts that I have just enumerated have in common is that they all haven't worked. They all have been dead ends and they all have entailed enormous waste of money, both on the part of the American taxpayers who have footed the bill for this, as well as on the part of those people who have been subject to alternative energies and the higher prices and the lack of reliability that come with them. That, however, is now beginning to change and it is changing radically. But it is changing not because of any policy that was adopted in Washington. It is changing not because of subsidies or loan guarantees and what have you that flowed to politically favored interests. It is changing because of the gifts of geology, combined with the gifts of human ingenuity which have unlocked the enormous resources that, it turns out, are beneath our feet here in the United States.

As you probably know, what I am talking about is what is known as the "shale revolution" — our ability to extract oil and natural gas from tight rock formations known as shale and to turn that into energy. This energy that will fuel our economy both in turns of heating our homes, providing energy for our manufacturing based industry as well as transportation fuel. At the center of this, of course, has been the combined technologies of hydraulic fracturing and horizontal drilling, which has enabled us, with a remarkably small environmental footprint, to get at these resources to extract them in ways in which we could not have imagined only a few years ago and put those resources at the disposal of the American people. Our shale resources are throughout the United States. They can be found in North Dakota, Montana, Texas, Kansas, Oklahoma, Louisiana, Arkansas, Alabama, the Marcellus Shale right here, very near us here which is part of the Southern Tier of New York, Pennsylvania, Ohio, West Virginia, and slivers of Virginia and Kentucky. Shale formations are also present in Indiana, and the Lower Peninsula of Michigan with one exception, the city of Detroit. For whatever reason the Motor City just can't catch a break. So, what this has done is dramatically transforming the energy picture of the United States as a whole and it is dramatically transforming the lives of the human beings who have been fortunate enough to have been caught up in this.

Take North Dakota, for instance, until very recently, a state losing population, largely dependent upon agriculture. And agriculture, as many of you know, this is dependent upon weather. You either have too much rain or you don't have enough rain or other bad things come along. And the wheat farmers in there eking out a living, not much of a future. That changed once the Bakken Shale Formation came online. This is a gigantic shale formation containing both oil and natural gas but particularly oil. North Dakota, now, has the lowest unemployment rate in the United States which, is 2.7 percent. The official U.S. unemployment rate is now 7.8 percent. Unofficially it's probably more. A more accurate figure would be thirteen to fourteen percent because so many people have given up looking for jobs. Not so in North Dakota, where the people are begging, local people are begging for people to come to North Dakota to fill jobs. In fact, the only reason that the unemployment rate is as high as it is there, is so many people have flocked to the place that they're simply standing around looking. Well, do I do this, do I do that? A truck driver's starting salary: $80,000 a year. McDonald's is paying $15 to $20 an hour to get people to come work there. That's the kind of transformation that is going on there.

It is also happening elsewhere. In Pennsylvania, just to our south, the natural gas resources there have turned the state around dramatically. And the way that works has very much to do with the whole purpose of this conference, of what the Property Rights Foundation of America is all about. Because it turns out that much of the property, much of the shale gas and oil in this country lies beneath private land. It goes without saying that if those resources were beneath government land, specifically federal government land, we would never have gotten to it. It is a whole different ball game. And the secret to this is something that's very unique to American jurisprudence and that is — mineral rights. You not only have the right to farm your land or to run cattle on your land, whatever you want to do with it, if you are a rural, and in some cases, by the way, even urban, landowner, but you also have the right to what lies beneath.

Throughout areas now enjoying the boom of the shale revolution farmers were just eking out a living decade after decade, their children saw no future in farming, no future in being a rural landowner. They left or were preparing to leave. That is no longer the case. In Pennsylvania alone, last year in 2011, rural landowners who lease their property out to oil and gas drillers, took in a total of two billion, that's billion with a 'b' dollars. This money has completely reinvigorated previously dormant economies and that money is reinvested in local communities in the forms of schools, roads, jobs, and jobs of every possible description. We're talking about pipe fitters. We're talking about construction jobs. We're talking about construction jobs for the building of homes and apartments to accommodate all the various workers who have come to those areas to extract those jobs. And all of this has been made possible by both human ingenuity. We have figured out, we've cracked the code. We have figured out how to get at this stuff and how to get it to the consumer, and we have the fact that this is on private land, it is regulated not by the federal government, at least not yet, OK, not by the federal government but by state governments. In all the areas, whether it's North Dakota, Texas, or what have you.

Let me give you one example of how this is changing things. In North Dakota, the oil production there has doubled in the past two years. Last year the revenues that North Dakota brought in from its sale of oil — fifteen billion dollars. That is fifteen billion dollars of oil that was produced in North Dakota that did not go abroad. So, the potential for this is absolutely enormous. But the United States is quite fortunate in other respects. We have resources throughout the country both on land and off. We have been known as the Saudi Arabia of coal and that, of course, is still very much the case. But it turns out that we are also the Saudi Arabia of natural gas and to be perfectly honest with you, we are also the Saudi Arabia of oil. The resources are tremendous.

Picture Alaska. Just to the north of Alaska, Shell Oil Company started drilling this summer in the Chukchi and Beaufort Sea, after God knows how many years of getting permits from an assortment of federal agencies. It is believed that 400,000 barrels of oil a day can be extracted from that area. Traditional oil and natural gas can also be found off both the Atlantic and the Pacific coasts where a moratorium that has been in effect for a long, long time denies us access to most of that oil and gas except where there were some pre-existing leases off the west coast. In the Gulf of Mexico, where the resources are far greater than the geologists believed only a few years ago, we also have access to the enormous resources of oil and natural gas there, although there's a lot more there. Here again, restrictions on that extraction are hampering our ability to make full use of it.

So, summing up just very briefly here, we find ourselves in a totally unique situation. No one in his wildest dreams would have thought only a few years ago that we would be doing this. That we would be using our fossil fuels, putting those to the use to benefit the economy. How does it benefit? Let's go back to Pennsylvania for a moment. Why just to our south, the price of natural gas has dropped so much that the average family in Pennsylvania is paying thirty-five percent less for the electricity to heat their homes. What that means is that the disposable incomes of families throughout Pennsylvania, even in this rough economy, although it's not that rough in Pennsylvania, believe me, but the disposable incomes of those families are actually rising because they're paying less money for their energy. What we're also seeing now, with access to oil and natural gas which will be used, as I said, both for transportation, as well as, to heat homes, as a source of electricity, but we're also providing an affordable source of power to our industry and this has far-reaching implications for our economy as a whole this is because for manufacturing costs one of the biggest considerations is energy. When someone considers that, the question asked is Well, I have a reliable source of affordable energy and, if so, where will I site my plant? Such are the resources that are now coming online in the United States that many companies are already rethinking the advisability of locating so many facilities offshore, specifically in China. We're going to come to China in a few minutes. Rising labor costs in China, combined with our own access to our oil and gas wealth here in the United States, is now beginning to have the effect that companies are, some anyway — in the early stages but there's no doubt is going to continue — are relocating manufacturing facilities from China to the United States. A truly remarkable development predicted by absolutely no one only a few years ago.

Now, let's put the American shale revolution in a global context because it turns out that we're not the only country in the world which has shale. Shale is scattered throughout the world. There are winners and losers in this. Let's go to the winners. Imagine Europe. In Europe, in Britain, France, Poland, Ukraine, the Czech Republic, Bulgaria, going east, you can imagine Europe here, going east through Russia just to the east of the Ural Mountains there are also shale formations. What is very interesting in the case of Europe and in so many shale formations elsewhere, by the way, also in Mexico, also Argentina, what is interesting is they don't have the infrastructure that we have here in the United States to exploit those resources. And when I say infrastructure, I'm talking about not just the nuts and bolts, the institutional knowledge to get at those resources, the ability and the know-how, how to put up the various drilling and the horizontal drilling all the equipment that you use in this. But they also don't have the legal instruments in place because mineral rights are unknown there. Someone in Pennsylvania or North Dakota or Texas or Arkansas or elsewhere who owns private land will derive direct benefits from the exploitation of the oil and gas resources beneath their feet thanks to mineral rights. And, by the way, that does not in any way, shape or form, interfere with what the landowner is otherwise doing with the land. So, you have dairy farms in the U.S., you have lots of cows out there doing what cows do but all over near that you will have a drilling rig that goes beneath the earth. And the interesting thing about the horizontal drilling, how all of this works, is you have one rig. The rig goes down and from that rig, kind of like the spokes in a bicycle, you can have the rig on farmer Brown's land but the spokes, the horizontal drilling goes out. It will go out to farmer Jones's land, farmer Smith's land, farmer Johnson's lands, in other word, the environmental footprint here is very little. The resources go to all the farms and all the land beneath which those resources are extracted by contracts, that these rural landowners have with the oil and gas companies.

No such legal structure exists in Europe. Doesn't mean that over time they couldn't come up with some way to provide landowners incentives to do this but they don't have it in place, now. Not even in Britain. You know our common law, of course, originated in Britain but Britain somehow never developed mineral rights. We did here. So, in exploiting Europe's shale gas and oil, (which, by all appearances, appears to be natural gas in Europe and not oil) a lot is going to have to take place. And rather than a revolution, which has happened here in the United States, I think, if you see anything there at all, it will be more of an evolution. And that evolution is going to have to overcome many obstacles. Not just the infrastructure that I pointed to, the legal infrastructure and the fact that you simply don't have the institutional knowledge in those countries on how to do this. That they can eventually get because technology, like money, like weapons, is fungible. And if a society sophisticated enough has reached a certain level of technological sophistication it can get the new technology, it can adopt it, it can adapt it to local conditions and "Bingo" the kind of wealth can be created there that can be created here — a long way from that.

And, one of the interesting obstacles that Europe is going to have exploiting its shale resources comes from Russia. Why? Russia is a country with enormous resources of oil and natural gas. Traditional oil and natural gas but also, in all likelihood, a very promising-looking shale formation east of the Ural Mountains. Now, because Russia derives so much of its wealth from the sale of its natural resources, oil and gas, elsewhere, particularly to Europe where it's been a fairly reliable supplier of oil and natural gas, the Russians look with great disfavor on the prospect that Europe will have its own natural gas resources. As a result, President Putin and the giant state-owned energy company Gazprom are now financing, in a very large way, green organizations in Western Europe opposed to fracking. Yes, yes. Mr. Putin has now become a dedicated Greenie. He's absolutely determined. He wants to protect the people in Europe from the depredations of oil and natural gas. This is going on. They're financing it through newspaper articles. Public relations firms are now being paid very handsome sums of money every month to disseminate anti-fracking propaganda throughout Europe. So, this is an interesting turn here. The Russians, of course, would eventually like to get a hold of their own shale resources and they probably will. But that, too, is going to take time simply because they're way behind the United States in this.

So, shale formations, by the way, exist also in China. We're going to come to China in a minute. But the United States has a leg up on all of this. We're developing the institutional knowledge to do all of this and this is dramatically changing certain geopolitical realities throughout the world. So what I'm now getting ready to do is take you on an energy tour of the world. It's going to be very short and very superficial. We're not going to get to the detail I would like, but it will provide the global context within which the United States will gradually start achieving its own energy independence.

Energy Independence and Population Shifts

Let me give you some idea of how close we are to coming to that energy independence. The Energy Information Administration predicts that by 2026 nearly half the oil consumed in the United States will be produced here. And eighty-two percent of that will come from this side of the Atlantic. That is, from the United States, from Canada, Mexico and Venezuela. By the year 2035 the United States, according to the Energy Information Administration will be completely free of any dependence of oil from the Middle East. We won't be importing one drop. Those forecasts are being made under the current regulatory regime. That includes all the restrictions on drilling on federal land, all the restrictions on offshore drilling, all the restrictions including, say, ANWR and Alaska and elsewhere. If some or all of those restrictions, all of them as we know — we live in the real world — are not going to be lifted, but if some of them are lifted, the figures that I just gave you and the dates that I just gave you all change. That is, our relative energy independence will come much sooner.

Having said all that, now let's go back and take a quick look the world. Now, I want to do this in a context that doesn't receive the attention that it should, but it's something that's going hand-in-hand with energy development throughout the world. In decades to come you're going to see dramatic changes and the balance of power throughout the world, both with respect energy and the ability of countries to pursue their interests. The driving force behind this, in addition to energy itself, are dramatic demographic changes that are sweeping the planet. Indeed, we find ourselves in the midst of a demographic transformation that is unprecedented in world history. In 1968 a book came out by Paul Ehrlich called The Population Explosion, the premise of which was that we were going to be having so many babies throughout the world, and we had so few resources and our resources were diminishing that eventually we would have an imbalance and we would have too many people chasing too few resources. This, in turn, would lead to famine, wars, every bad thing you could possibly imagine. In that spirit, in 1972, the Club of Rome predicted that in addition to the population explosion, we were, indeed, absolutely running low on natural resources, minerals, oil, gas, all of the above, which, of course, meant that we were going to have to adopt policies to essentially ration those resources so that we don't run out of things. In other words, we were going from a world of abundance, what we thought was abundance, to a world of scarcity. At the center of all that, however, was the belief that there was a population boom.

We now know that Mr. Ehrlich and all of his followers were absolutely wrong. Indeed, the world is not facing a global population explosion, it is in the early phases of a global population implosion. The fertility rate for a country to sustain its population is 2.1 births per woman. 2.1. Just to go to Europe: Stretching from Portugal on the Atlantic coast all the way across Europe, including France, Germany, Eastern Europe, all the way across Russia, there is not a single country, not one, which is anywhere near replacing its population. Indeed, these countries, along with those of Latin America, from the Rio Grande right down to the tip of South America, are what we now call "net mortality societies." That is more people in a given year die than are born with the result that population is declining and it is declining rapidly.

The most dramatic declines are actually being found in Russia. Russia is very interesting both because of its enormous energy resources and the fact that it, although in decline, is still a major power. Russia's official birth rate is something like 1.3 per woman. At 1.3 that includes, by the way, non-Russians, mostly people living in Russia who are Muslims, which is going to obviously create its own set of problems and, indeed, already is. The problems in Russia are exacerbated by the fact that Russia not only has a catastrophically low birth rate but the life expectancy in Russia, males and females, is declining. For males it is down to 63 years and continuing to fall. For females it has now dropped below 70. Alcoholism is a primary source for this. Russians don't drink wine, they drink vodka and lots of it. They also have a catastrophically poor health care system that has never recovered from the Soviet era. And making a bad situation worse is the fact that a lot of Russians are leaving the country. There's one great difference between modern Russia and the old Soviet Union is the old Soviet Union was kind of a giant concentration camp and if you didn't like it, you couldn't leave. Today Russians can leave and they're voting with their feet. Russia has lost three million of its citizens just over the past decade. People leave. And they show up in New York, they show up in Miami, London, and elsewhere. They have no intention of going back. So, if you look at Russia, a declining, catastrophic birth rate, people leaving the country, so you're losing human capital; and you have the declining life expectancy. And, also, interestingly enough, you have capital flight. Last year eighty-three billion dollars left Russia. This was money that was earned primarily from the sale of oil and natural gas by the very powerful oligarchs in the country. What did they do then with that money? They deposit it in Swiss bank accounts, with some hedge fund honchos in New York City, the other usual suspects. It is a vote of "no confidence" in their country's future. Otherwise they would keep that money there. It was eighty-three billion dollars last year. Through the first six months of this year it was forty-eight billion dollars. So what you see is that the capital flight in Russia is actually increasing and it is coinciding with the human capital flight in Russia. All things considered, not a very rosy prospect for Russia even though, as I said, the country has enormous resources. But what it is losing are the human resources that will be able to put that to good use. That's aside for the fact that the political system there is, putting it politely, not exactly what we had hoped once Communism came to that country.

Now, let's go from Russia to its south, to China. Because China is a country which, as I pointed out, also has a substantial shale potential which they have not yet begun to realize. China has an enormous population of roughly 1.4 billion but that population, too, is declining. And it is declining precipitously, primarily as the result of two things. First of all, the one child per family policy that was instituted in China in 1979 and actually very effectively. Normally for every one hundred baby girls born, there are one hundred and five baby boys. For whatever reason more boys are born than girls. In India that figure is one hundred and eleven boys for one hundred girls. In China the figure is one hundred and seventeen. That's the result of the one-child family but that discrepancy is also the result of selective sex abortions which are very, very widespread in China. Boys are simply more prized than girls. Given the extremely low birth rate in China, which is now well below subsistence level, that means that the Chinese population is declining. It is beginning to decline rapidly. In 2005, there were one hundred and twenty-six million Chinese between the ages of fifteen and nineteen. By 2010, the figure had dropped to roughly one hundred and thirteen million. By 2015, that figure will be below ninety-five million. What that tells us is that the size of the Chinese labor force is shrinking and will continue to shrink because people weren't born. With a gradually contracting labor force, and actually it's not even gradually, but a rapidly contracting labor force, the cost of labor, the cost of manufacturing in China will invariably go up. There's no other place for it to go. Indeed, this is already being recognized: The American clothier for men's clothing, Joseph A. Bank, is already shutting down some of its operations in China and moving them to Myranmar and elsewhere simply because the cost of labor in China is growing so much.

Now, we looked at the demographics of China, we looked at the demographics of Russia, let's look at China's energy — how that's going to relate to us. Chinese have a very simple attitude toward natural resources: If they have them, they use them. And if they don't have them, they get them. China has been on a virtual shopping spree for the past decade or so around the world, getting things that they don't have at home or adding to the things they have at home. They have invested huge amounts of resources in Africa, — we're going to come to Africa here in a couple of minutes — South America, and even North America. The Chinese company called CNOOC, which stands for Chinese National Offshore Oil Company, is in the process of purchasing a Canadian Company called Nexen. That Canadian company, it turns out, has oil and gas leases in the Gulf of Mexico, which means that the Chinese, by taking a majority stake in a Canadian company, will then have access to oil and gas in the Gulf of Mexico. A very smart strategic move on the part of the Chinese. Now, that's going to have to meet the approval of both the government in Ottawa, as well as the government in the United States because there's some U.S. ownership of the company. But you can see the way in which the Chinese are viewing this. The Chinese are viewing this knowing one thing about their country's future which disturbs them greatly. China has historically been always the most populous county in the world. But that is going to change. It's going to change very quickly. Some time between the year 2020 and 2025 China will cease being the most populous country in the world and will be overtaken by India. India, unlike China, still has a birth rate well above replacement level although it is coming down and the Chinese see India as their great rival. Indeed, the Chinese leadership, rightly or wrongly, is convinced that the United States is in a terminable decline. Completely irreversible. And they see their great geopolitical rival in the future as being India. Not us. As I said, whether that's true or not that will play itself out. But that's how they see the world and that is how they are acting. So, one of the things we're going to see and, indeed, we're already seeing in the Far East is a Chinese-Indian rivalry.

And at the center of that rivalry, interestingly enough, is energy. Because both India and China need energy to propel their societies. And there are a couple of interesting flash points I want to briefly mention because they could eventually involve the United States.

In the South China Sea, which is obviously south of China, lying between Vietnam to the west and the Philippines to the east, there are islands there called Spratly Islands and the Paracel Islands. Historically they have been rich fishing grounds claimed by all of these countries but as long as it was more or less about clams and calamari nobody became all that upset about it. It is now, however, known that those islands and the sea beneath them contain enormous resources of oil and natural gas. The Chinese have made no bones about it that they consider the South China Sea their reservoir and they are going to extract those minerals and they're not willing to share those resources with anyone else. At least, they say they're not at this stage of the game. That is the reason why the Vietnamese recently welcomed Defense Secretary Leon Panetta with open arms at the old American military base, naval base Cam Ranh Bay. This was seen as a clear signal that the Vietnamese are now snuggling up to the U.S. because the Vietnamese have no navy worthy of the name. The Philippines have a navy that's at best a glorified coast guard and the word glorified may be too generous. China, by contrast, has a serious navy. Given our close ties to the Philippines this is an area where conflict is quite possible.

Let's go now very quickly to the East China Sea. This is the area located between China and Japan and to the north of the island of Taiwan. Just to the northeast of Taiwan there's another bunch of islands, inhabited by absolutely no one, which in Japanese is known as Senkaku Islands and in Chinese is known as Diaoyu Islands. Traditional fishing grounds, now known to contain enormous resources of oil and natural gas, coveted by both the Chinese, as well as by the Japanese. A quick word about Japan. Japan is a declining power. The Japanese know this, the Chinese know this, everybody knows this. Why is it declining? Well, for a whole bunch of reasons. Not the least of which are its own demographic problems. According to the government in Tokyo, Japan is going to lose one million people per year, every year, between now and 2060. Such is the dramatic decline. Japan is going to become a nation of pensioners by mid-century. Such is the decline of Japan that Japanese military thinkers, who have spent a lot of money creating a modern navy, are very worried that they're going to have enough people to actually serve on those ships because of an enormous dearth of young people. Japan, after World War II, had no baby boom. Japan's baby boom actually came in the 1930's. Most of those children survived World War II and it was those children who in the 1960's, 1970's, after they'd gone to university, helped propel Japan to become the modern technological society that it's become. However, they didn't have any children and so, you have a declining Japan facing off against an ascendant China, both of whom covet the same space. A high roller in Tokyo privately owned these islands in the East China Sea until recently. The Japanese government recently purchased those islands in an unmistakable signal that they are not going to give them up. Which makes this touchy for the United States is that we have a mutual defense treaty with Japan. According to the State Department in a 2010 analysis the Senkaku and Diaoyu Islands are covered by that defense treaty. We obviously don't want to get pulled into the middle of this but sometimes you don't have choices. As I say, maybe the Japanese and Chinese will work this out. Who knows? But it's an extremely emotional issue in both countries and it could be a very nasty geopolitical flash point if things get out of hand.

One other little area I want to mention here. Something called the Straits of Malacca. Now, the Straits of Malacca lie between Malaysia and Indonesia. It is the busiest straits in the world. The busiest passage for ships in the world. Fifty thousand ships pass through the straits of Malacca every year. A huge chunk of them bring oil to China. In China's rivalry with India this could become a choke point because, low and behold, it turns out that China and India, in addition to the rivalry they have, they also have a territorial dispute. And that territorial dispute is in the Himalaya Mountains where each side claims roughly 34,000 of square miles. That's roughly the size of the State of South Carolina. We don't know what the oil and gas resources are there. There are probably none, but it's a very emotional issue on both sides. There was already a war there in 1962 over that. The Chinese got the upper hand in that, whether they can do that in the future remains to be seen. The important point is that there are plenty of areas where China and India could come into conflict. And should it come, the growing Indian navy, which is already the fifth largest in the world, is in a position to shut off the Straits of Malacca to the Chinese. The implications of something like that should be lost on no one.

India, by the way, has itself substantial resources. It's still a developing country. Four hundred million Indians have no access to electricity. The recent blackout that I'm sure you all read about there shows what a rickety infrastructure the country has. All that said, India has substantial oil and gas resources in the Indian Ocean. Nobody knows how much yet; they're still looking at that. India also has enormous resources of coal in the eastern part of the country.

Summing up before we leave the Far East and head briefly to the Middle East, you have the following: You have two declining powers, Russia and Japan; you have two ascendant powers, India and China. At the center of a lot of the conflicts that would go on there is energy. The Russians, for instance, in addition to wanting to sell their oil and gas resources, also want to control the distribution of oil and gas through pipelines spiking up from Central Asia that will eventually supply the Middle East, Europe, and Far East. What is now beginning to greatly complicate that is the fact that just to the east of Mongolia, between Mongolia and the Pacific Ocean, in the Soviet Far East, Chinese are coming across the border and they have been doing so for two decades. Sometimes legally, sometimes illegally and that might sound familiar, but flowing across the border they are. How many are there, we don't know. The general estimate is around a half a million. What is interesting about that is that the territory into which the Chinese are now coming and settling, once belonged to China and China lost that territory to Czarist Russia in two so-called "unequal treaties" in 1858 and 1860. The Chinese still claim that land.

Given the catastrophic demographic decline throughout all of Russia but particularly in the far east, what I think you will see in the decades to come is a gradual displacing of the Russian population by the Chinese population, which could actually isolate the Russian Pacific port of Vladivostok. Very interesting. I personally think if you look at Russia, I think the country's going to truncate. I think that by sometime during the second half of the century Russia will probably not extend very far east of the Ural Mountains. It simply is not going to have the population, it's not going to have the human resources to control their area. In the bilateral relationship between Russia and China, China is already the dominant partner. The Russians know this and the Chinese know this. Both are nuclear-armed. It's not in the interest of either country to have any kind of a conflict. So, I think you will gradually see this happen. It's happened before. The Roman Empire both in the east and the west was gradually overrun by non-Romans. I think you will see a similar kind of transformation happen in Russia.

Now, let's come briefly to the Middle East. The Middle East has been synonymous with oil production for decades. Indeed, the oil resources in the Middle East are still substantial. However, given the shale revolution and given the enormous resources that now lie outside the Middle East, you're going to see the Middle East decline as an energy force around the world. There's absolutely no doubt about that. There's still plenty of oil in Saudi Arabia and Kuwait and Iraq and Iran. But their ability to affect the global price of oil is going to decline. And it is going to decline seriously. It's even quite possible that we will see OPEC, the Organization of the Petroleum Exporting Countries, replaced by something else. Nobody knows what's on the other side of the river but OPEC's ability, by producing a lot more oil or producing less oil, is simply going to be reduced by virtue of the fact that there are oil resources outside of OPEC's purview, outside of OPEC's control.

Also very intriguing in the Middle East is something brand spanking new. In the eastern Mediterranean, off the coast of Israel, Lebanon and Syria, there are huge resources of natural gas and probably oil, too, but definitely natural gas. The Israelis are now starting to exploit that. So, to all the mix that's going on in the Middle East, all the turmoil that's sweeping the Islamic World, you will now have Israel emerge as a major energy power. So, as if that part of the world needed more complications, well, it's going to get one whether it wants it or not.

Let's stop briefly in Africa. Africa is vitally important because, for all of the continent's problems, Africa is a storehouse of mineral and oil and natural gas wealth, particularly oil wealth. What I'm specifically talking about here is south of the Sahara. We're not so much interested in the Maghreb, where there's traditional natural gas deposits but in the rest of Africa, where you have, for all practical purposes, with one notable exception, all of the above. That is gold, silver, platinum, rare earths, copper, and enormous amounts of oil both onshore and particularly offshore. Angola has recently created its own sovereign wealth fund. Enormous amounts of the material that's used. The Chinese are very interested in getting their hands on Africa's wealth of resources. International oil companies are investing heavily in Africa. So, what you're going to see in Africa is a continent that has been more or less forgotten by history in terms of the wealth of the local people. That's all going to change, going to change radically. Indeed, there's already a rise in the middle class there, for all the corruption of the sordid African governments, for all the ethnic strife and religious strife between Islamic and Christian populations and that its a huge problem becoming bigger one. But you're also going to see Africa rise as an economic and natural resource powerhouse. It's absolutely going to happen. As I said, you're already seeing the rise of a middle class throughout the African continent. I mean, if you think of Africa in terms of all the potential conflict there, it's kind of, you know, the Balkans on steroids. But don't be surprised to see the map of Africa change. Sudan in eastern Africa has already broken up. We now have South Sudan, predominantly Christian, and that's where most of the oil is. North Sudan, predominantly Muslim, — that's where the pipelines are that take that oil elsewhere. The two couldn't get along so they split. I think the same thing could well happen in Nigeria. The southern third of the country, enormous amount of oil, predominantly Christian, and the northern part of the country, no oil but some mineral resources, overwhelmingly Muslim and with a huge Al-Qaeda-related presence there. Also, some conflicts going on in Nigeria. Don't be surprised to see the country break up.

Briefly to Latin America before we return to the United States. There are shale resources in Argentina which have not yet begun to be exploited. The same is true in Mexico. And off the coast of Brazil there are substantial oil and gas resources which only now are beginning to be exploited, but which will undoubtedly make Brazil an energy powerhouse in the years to come. By the way, the Chinese working very closely with the Brazilians on this, in part, aided by a U.S. export-import bank loan that went to Brazil. But Brazil had partnered with the Chinese. So it's very interesting: The federal government on the one hand denies us access to some of our own natural resources while we, in fact, bankroll oil and gas resources off the coast of Brazil which the Brazilians are doing in conjunction with the Chinese. Go figure.

The Threat to American Energy Independence

Now, let's return to the United States. If you look at the world in which I have briefly described to you all the things that are taking place, I think we can safely say that the biggest threat to American energy independence does not come from Vladimir Putin's Russia, it does not come from China, it does not come from all the turmoil sweeping the Islamic world. No. The biggest threat to American energy independence comes from within the United States itself. It comes from powerful organizations, superbly funded, who are absolutely determined to block or limit our access to our own natural resources. Of course, I'm talking about the environmental movement and the assortment of government agencies with which the environmental movement has been cooperating now for decades. You see, what is a blessing for landowners in the Marcellus Shale area (with the sad exception of New York, but we hope that changes), what has been a blessing for these communities in Pennsylvania and North Dakota and elsewhere is an absolute nightmare for the environmental movement. Indeed for them, the shale revolution has been a black swan. You may be familiar with the term a "black swan." This is a sudden event that comes seemingly from nowhere which changes things radically. Just a few years ago the environmental movement viewed natural gas very benignly. It was seen as a transition fuel between the evil world of fossil fuels and the "Heaven on Earth" of alternative energy. As long as natural gas posed no threat it was viewed favorably. But now natural gas poses an enormous threat to the world view of the environmentalists, simply because there is so much of it. And so much of that natural gas, and as well as the oil in various formations, is on private land, meaning that the ability of the environmental movement to block exploitation of those natural resources is limited.

What you now see is an effort on the part of environmental groups — you see it very much here in New York State but you also see it elsewhere — to demonize fracking, one of the twin technologies that has enabled us to get at those resources. They are claiming preposterously that the process poses a threat to public health through the contamination of water, and numerous other things. They almost have to do this because one of the things that has emerged is the shale revolution has called into question the whole narrative of the environmental movement. That narrative, in no small part, has been the narrative of scarcity. "We are running out of..." and then you fill in the blank. Well, it turns out that we're not running out of those things. Not by a long shot. Indeed, we have probably barely scratched the surface. If your world view is that of scarcity and if you want to use the narrative of scarcity to impose your view of the world on others and to regulate and ration energy around the country, if it turns out that the whole idea of scarcity is wrong and instead of scarcity there is abundance, then you have a major problem. And this is what we're seeing within the environmental movement now. What they would like nothing more is for the U.S. Environmental Protection Agency (EPA) to take control and regulate fracking nationwide. That currently is being done by state environmental agencies, everywhere. And those state agencies have now developed the institutional knowledge with which to regulate fracking. They do a very, very good job with this. They turn permits around in a very, very short amount of time and even though there have been occasional accidents here, there and yonder, on balance it has been an absolutely fabulous experience that has enormously benefitted the communities in which that is taking place.

Yes, there have been problems, you know, congestion because of all the trucks going around, housing shortages and what have you. But these are the problems you really want. Do you really want to live in a place where there are no jobs? Do you really want to live in a place where everybody is leaving? No, you don't want to do that at all. So, what we will see and what we, indeed, are already seeing from the environmental movement, is a frontal assault on the whole notion of fracking. Let me tell you why EPA regulation of fracking would be an unmitigated disaster. The hydrology and geology of the various states with shale formations differs widely not only from state to state but from within the states. The only government institutions with knowledge of that are actually the state environmental agencies. Indeed, to go to the Barnett Shale in North Central Texas, it really lies underneath the city of Fort Worth. It has an entirely different geology from the Three Forks Shale in Southeastern Texas. Therefore, the Texas state environmental officials are acutely aware of this and they regulate one differently from the other. EPA, by contrast, if it imposes a one-size-fits-all regulatory scheme, which is the way it does business, and imposes that scheme throughout the country, the result will be absolute chaos. Because EPA a) doesn't have the institutional knowledge to deal with this and b) to be perfectly honest as an institution it couldn't care less because it's not going to hurt EPA at all. So, that's one of the things that's going to play itself out all over in the years to come and perhaps even in the months to come because I can assure you that EPA is already drafting regulations to regulate fracking nationally, probably to be released sometime early next year. And they will do this working as they historically have done hand-in-glove with the environmental movement.

To the environmentalists, as I said, this is an enormous threat and we will see in their efforts to limit our own access to our natural resources various things which we have seen before. And that includes the deliberate misrepresentation of reality. When I say deliberate misrepresentation of reality that means the demonization of fracking, the demonization of fossil fuels, which we have already seen allegedly the cause of man-made global warming, mercury emissions from coal and all of that sort of thing. Such has been the demonization of fossil fuels already, that the Obama administration has undertaken a concerted effort to attack the coal industry, which still supplies us with thirty-eight percent of our electricity: reliable, affordable and abundant. So, if you look at this, you can see that we're in the midst of an enormous battle. A battle between the entrenched interest of the environmental community and government regulatory agencies in Washington and the people who are primarily benefitting from this, that, is ordinary citizens who are suddenly seeing jobs being created in areas where they were not being created only a few years ago. Where they're seeing in certain areas is that the prices to fuel their homes come down. This will be a remarkable conflict that is going to play its way out one way or the other. If EPA gets its way and it eventually regulates fracking, you won't see the end of fracking. That particular cat is already out of the bag. But you will see that rationed and you will see set up on private land a regime very similar to what we have seen on federal government land. That is, those resources will be rationed and the decisions about whether to drill or to frac or not to drill or to frac will not be made locally but they will be made in Washington. That obviously would be a total disaster for the country because we are on the verge of freeing ourselves from the shackles that we have imposed, both of Middle Eastern oil, as well as, the shackles we have imposed upon ourselves.

Let me ask you this. Does anybody seriously believe that Russia, China, Brazil, or any other country would deliberately deny itself access to its own natural resources? The answer is absolutely "no." Is there any reason why the United States should do that? Of course, the answer is absolutely "no."

So, the fight before us will really be against what the late Milton Friedman referred to as the "tyranny of the status quo." By this he meant the interlocking relationships that exist in government and certain private interests that concentrate the decision-making power in Washington among unelected and unaccountable bureaucrats for the express and sometimes non-express purpose of making decisions that will effect the lives of every American and centralizing that decision-making authority in Washington, D.C. We have an opportunity now, through the gifts of geology and the gifts of our own intellectual ingenuity which has figured out how to get geology and turn it to our own advantage. We have the opportunity now to overcome that. But, as we know from our study of history and, indeed, from our own personal lives, opportunities can be seized but they can also be squandered. So, we should make it our goal, the people in this room, the people with whom we come in contact throughout our daily lives, to make sure that that opportunity is not wasted so that our children and our grandchildren will grow up in a world where their futures will be relatively secure with an abundant source of energy, where they can leave college with the prospect of getting a job, and live prosperous and peaceful lives. Thank you.

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