Sunday, March 10, 2013

America's Greatest Wealth: H2O


By Chriss Street

Voters surveyed in the recent California Field Poll regard the current economy by a 72% to 16% margin as bad times versus good times.  National surveys demonstrate that this pessimistic appraisal that only a small percentage are benefiting from the economy is not confined to the Golden State.

 The Rasmussen Poll reports that over the last four years Americans’ concern about the prospects for their financial future has risen to an all-time high.  Only 27% of Americans still believe it is possible to work hard and get rich, while just 25% believe the economy will be stronger a year from today.  But due to the opportunity to leverage our water resources to dramatically increase oil and gas production, the United States is on the verge of an economic Renaissance that will spread prosperity to a very broad cross-section of our nation.

The U.S. covers the temperate portion of the North American landmass.  The Rocky Mountains dominate the western third of the nation, generating a rain-shadow effect on the eastern slope across the Great Plains and into the Midwest, which is the largest contiguous acreage of arable land on earth.  The wide north-south bands of precipitation also make this zone the most agriculturally productive.    Farther east, the lower and thinner Appalachians create a substantial barrier, but the lower mountain elevation combined with the wide coastal plain of the East Coast does not result in the rain-shadow effect of the Great Plains.  The Sierras create a rain shadow effect for the West Coast.  Consequently, the vast majority of the United States is well-watered.

The dominant features of the United States are the 6 major river system networks in the middle third of the nation.  Unlike most river systems that begin at high elevations, the U.S. central rivers tend to run along flat plains that allow sustained navigable travel for up to 2000 miles.  Since shipping goods via waterways is 10 to 30 times cheaper than by road, America benefits from its prime producing agricultural lands being within 120 miles of a navigable river.  Trucks and railcars may be used for collection, but river ports allow farmers to easily and cheaply transport crops to domestic and foreign markets.

The economic advantage of water traffic explains why the United Kingdom, France, Germany, Japan and the United States have been economically dominant over the last 500 years.  Third world countries without inland navigable waterways; such as Mexico, Brazil, South Africa and now China, can exhibit tremendous rates of growth providing cheap out-sourced labor.  But once wages rise and manufacturers find themselves unable to compete in export markets, the countries enter the middle-income trap and investment in new plant and equipment stagnates causing production fall steadily.

In the 1990s, America adopted an industrial policy that favored personal consumption over industrial production.  For manufacturers, labor is only 8.5% of production cost, whereas energy is a much larger 13.5% of cost.  Public Policy makers believed that since the U.S. was passing its Peak Oil production point and the nation had high wages; the combination of rising energy cost as oil became scarce and high worker wages, doomed domestic manufacturing to decline with the decline in oil production.  As U.S. Field Production of Oil fell 54% from 2.6 million barrels a day in 1978 to a low of 1.2 million barrels in 2007, thenumber of U.S. manufacturing jobs fell 29% from 17.1 to 12.3 million.  During the Great Recession, manufacturing employment fell to 10 million.

But since 2007 there has been a revolution in oil production due to a big increase in fracking of shale deposits.  There are plenty of shale deposits around the world, but only the U.S. has the 3 and 5 million gallons of water to necessary to frack the average  1500 horizontal well fracking site in North Dakota, Texas, Pennsylvania and California.

At the February 5, 2013 U.S. House Subcommittee on Energy and Power met on “American Energy Security.  The Energy Information Agency reported that domestic crude oil production rose by 11% in 2011, 14% in 2012 and is expected to increase by another 24% to 7.9 million barrels a day by 2014.  This huge increase in U.S. supply has resulted in domestic crude in the Midwest selling at a 20% discount to imported oil.

The manufacturing sector responded to cheap oil by hiring 2 million workers since 2010.  U.S. labor productivity still leads the world with a 2.1% gain that generated a 3.3% rise in production last year.  A recent survey reveals that 88% of manufacturing industry decision makers either have hired new employees or have plans to hire this year.

The Obama Administration recently confirmed oil expert Dr. Ernest Moniz as the new Secretary of Energy and has nominated former oil geologist Sally Jewell as Secretary of the Interior.  Senators from both parties had been bickering about the fall in energy royalties as exploration on public lands fell in 2011 by 11% and fell again in 2012 by 26%.  But last week it was all smiles and compliments for the Administration about the potential for booming jobs at good wages and rapidly rising royalty revenues.

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