The amazing tale of U.S. energy independence: a leading expert claims the United States within a decade will be an energy exporter. And it's all happening by accident.

• Author: Verleger, Philip K., Jr.

In little more than a decade, the United States will find itself as an energy exporter and this amazing outcome will have happened by accident.

The United States will then have low-cost energy supplies for decades. If oil prices remain high, America will benefit from the difference. Today, South Korea pays around $14 per million Btus for natural gas; the United States will pay less than $4. The situation is, mad will be, the same in China and Europe. They will pay more, and the comparative advantage will make it possible for the United States to remain the global economic leader. I have been studying energy issues for forty years and the data are difficult to believe. But facts are facts. U.S. energy independence, as controversial as it sounds, will lay the groundwork for the New American Century.

Specifically, the United States will be energy-independent by 2023, the fiftieth anniversary of President Richard M. Nixon announcing his "Project Independence." By energy independence, I mean the United States will export more energy than it imports. In 2023, America will be exporting natural gas, petroleum products, coal, and possibly crude oil if the federal government lifts prohibitions on the latter. The United States will also be importing some oil. On balance, though, America will be a net exporter.

The United States will reap enormous economic benefits in achieving energy independence by not following the approach proposed by President Nixon and his advisers. That plan can be described as the high-cost dirty path to energy independence. Nixon advocated an aggressive boost in offshore resource development, pursuit of the extraordinarily expensive fast-breeder reactor, increased coal use, and expanded shale oil development in Colorado using the very expensive techniques now at work on Canada's tar sands. Implementing Nixon's strategy would have saddled the United States with high-cost energy supplies and very high emissions of harmful global warming gases.

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The path actually taken is very different. It might be called the low-cost clean path to energy independence. The United States came upon this course by accident. By luck, in other words, the United States is beginning to reap the benefits of large, low-cost supplies of clean natural gas. By luck, the firms developing these resources were able to take advantage of new financial instruments created by Wall Street, instruments that let them continue expanding even when prices collapsed. By luck, the United States is profiting from dramatic increases in auto fuel economy, a change that came after the 2008 gasoline price surge and GM and Chrysler's subsequent bankruptcies. By luck, the United States is also benefiting from technological advances that make lower-cost shale oil production possible.

No one can claim that our energy independence-achieved thanks to horizontal drilling, fracking, futures markets, and the auto industry's deathbed conversion to fuel economy--was planned. In 2023, the United States will just have to explain, happily, that it blundered into energy independence.

Energy independence could make this the New American Century by creating an economic environment where the United States enjoys access to energy supplies at much lower cost than other parts of the world. Such an advantage, combined with construction of new advanced manufacturing facilities and competitive domestic labor costs, could give the U.S. economy an unprecedented edge over other nations, particularly China and northern Europe. The energy cost advantage was highly visible in January 2012, when U.S. firms paid less than $3 per million Btu for natural gas while South Korean buyers paid $13.50.

Ironically, America's edge will be strengthened by energy exporters such as Russia and OPEC members. Their success in holding up crude oil and, especially, natural gas prices will strengthen the United States' twentyfirst century economy. These exporters demand that buyers in Europe and China pay natural gas prices linked to crude as they work to keep crude prices high. The greater their success in this, the greater the U.S. competitive advantage will be.

The contrast between the path Nixon proposed forty years ago and the path taken is stark. If Nixon had realized his plan, the United States would now be vulnerable to competition from countries with low-cost supplies. Fortunately, just the opposite occurred. The approach America took has left it with low-cost clean energy. This could substantially decrease U.S. vulnerability to global economic cycles, particularly those tied to energy price fluctuations.

Efforts to limit greenhouse gas emissions could further strengthen the U.S. economic hegemony. Those countries now relying on coal, such as China, will be forced to make significant reductions and will seek, among other solutions, to replace coal with natural gas.

The U.S. advantage will be strong, although not permanent or impregnable. Other countries will follow our example and pursue shale oil and gas. Eventually they will succeed in developing these resources. Until then, however, they will be saddled with long-term contracts for high-cost natural gas supplies delivered as liquefied natural gas. Many countries, particularly those in Europe, will also be stuck with long-term pipeline agreements for natural gas with prices tied to crude.

It is wrong, however, to believe the U.S. experience can be replicated just by importing U.S. technologies. The United States' breakthrough came through new technologies, entrepreneurs freed from the multinational oil industry's high-cost yoke, and the development of financial markets. It is not clear that large bureaucratic organizations, such as the multinationals or state-run oil and gas companies, can replicate the success achieved by the smaller, far more agile fit'ms that brought about the U.S. energy revolution. Experience suggests that countries such as China and the major oil companies will not be able to duplicate the success of American entrepreneurs. Yes, shale oil and gas reserves will be developed elsewhere, but the costs involved could be much higher.

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The United States may experience a New American Century because entrepreneurs flourished here first and because no other country has the economic flexibility needed for such a development.

My basic conclusion is that achieving energy independence will revolutionize the U.S. and global economies over the next decade. As a consequence, many firms that have played an important role in the energy sector for the last forty years will diminish in importance or vanish.

Last June, when celebrating its fast century of existence, IBM published an advertisement that read, "Nearly all the companies our grandparents admired have disappeared." Twenty years from now, I expect most large energy firms, which seem so important today, will have disappeared as well. It is even possible that a person born in the United States or Europe in 2020 will never know about Exxon.

THE COMEBACK OF NATURAL GAS

The rebound in natural gas output was the greatest surprise in terms of policy assumptions being wrong. President Carter's energy advisers, led by James R. Schlesinger, were convinced U.S. natural gas output would decline. The National Energy Plan, a study published by the Carter White House just as he announced his "moral equivalent of war" program, explained that natural gas accounted for only 4 percent of U.S. energy reserves but represented 30 percent of U.S. energy consumption in 1973, equivalent to more than eleven million barrels of oil per day. The White House analysts were certain output would decline. Between 1976 and 1985, they predicted, U.S. gas production would decrease from the equivalent of 9.5 million barrels of oil per day to 8.2 million barrels. They noted, though, that they expected consumption to increase, especially if supply was available.

The Carter administration did not expect supply to increase: "By 1985, gas from existing reservoirs will be able to satisfy only 55 percent of natural gas demand. It is doubtful that even substantial price increases could do more than arrest the decline in gas production [emphasis added]."

Carter's advisers noted that additional supplies would have to come from sources such as Alaska, offshore drilling, tight gas formations, synthetic gas from coal, or liquefied natural gas. These sources would not be available.

Carter's counselors were not alone. Harvard Professor Robert Stobaugh and Harvard research associate Daniel Yergin, in the forward to their 1979 book Energy Future: Report of the Energy Project at the Harvard Business School, were sure the United States lacked the resources to satisfy its needs:

In fact, the United States will be fortunate if it finds enough new oil to keep production at its current levels. Entrepreneurs have searched the continental United States for so long (120 years), so thoroughly (over two million wells) that it would be foolish to base a policy on the supposition that the absolute quantity of U.S. production could increase beyond what it is today--ten million barrels daily of oil and gas liquids, and the equivalent of nine million barrels per day of natural gas. Other authorities were equally certain. A group of experts assembled by the nonprofit organization Resources for the Future concluded "conventional oil and gas resources would not last much beyond the year 2000" if consumption grew at 2 percent per year from 1980 to 2000 and imports remained at 40 percent of consumption. The authors, though, had the common sense, unlike the Harvard group, to add the following caveat:

We do not really know the true ultimate dimensions of our resources. Future discoveries, and the economic restraints on resources we now recognize, will be influenced by new geological knowledge, as well as by price and technological developments [emphasis added]. (Energy in America's Future, RFF...