The U.S. energy sector has been going through something of a ground shift over the course of the past decade. While they may still account for a fairly small proportion of the country’s total energy consumption, renewables have grown from little more than an afterthought to a legitimate challenge to traditional energy sources in some places. Meanwhile, King Coal seems to be well on his way to being dethroned, with coal’s share of electricity generation steadily declining.
But, if the future of coal in the U.S. is at all in doubt, prospects are still strong and growing stronger for oil and natural gas. While less electricity is coming from coal than a decade ago, natural gas-fired power plants have cropped up all across the nation, growing to account for around one-third of the country’s generation in early 2012.
At the same time, oil continues to dominate transportation around the world, and demand for gasoline is only going up in places like China and India, even if efficiency and alternative fuels are pushing down consumption at home.
This surging demand is at least in part thanks to the drop in natural gas prices the U.S. has seen since beginning to tap its shale gas resources, but continuing the trend will mean massive investment in further oil and gas exploration.
<h2>Oil and gas reserves</h2>
The first question to consider in looking at the future of American energy is whether the country can continue to rely on the resources it is using now. Legislators and regulators might be moving the country away from coal because of the environmental concerns, but probably the biggest concern for the other two fossil fuels is how long existing reserves can last.
The U.S. Energy Information Administration takes the conservative route, noting that the world at least has enough oil the ensure sufficient supply until 2035. With a bit more of an insulated domestic market, the agency projects as long as 92 years for American gas reserves, at least at 2010 consumption levels.
But the EIA reports that 2009 estimates, the latest with complete data, put proved U.S. oil reserves at nearly 20.7 billion barrels, with production reaching only 1.75 billion barrels that year. Proved natural gas reserves, meanwhile, were placed as high as 272.5 trillion cubic feet in 2009, with just more than 26 trillion cubic feet of production.
<h2>Tapping the country’s resources</h2>
To start accessing some of these massive reserves of oil and natural gas, the country will need to continue to add new oil and gas wells. With prospects so strong for continued demand growth, money has flooded into the sector.
According to the EIA, the number of wells drilled in the U.S. has grown dramatically each year since 2009, rising more than 24 percent from 33,047 to 41,118 last year. The number tumbled from a recent peak of 54,347 in 2008 thanks to the financial crisis, but before that the number steadily rose for most of a decade, reaching more than half the peak levels from the early 1980s.
The majority of these wells were primarily intended for crude oil, but more than one-third were dedicated to natural gas, and purely exploratory wells were nearly evenly split between the two fossil fuels.
Actual investments in the industry grew dramatically before the crisis as well. Though EIA data has yet to take the collapse into account, the amount spent per well more than tripled in real terms from 2002 to 2007. Costs reached as high as $3.48 million per well after having sat comfortably below $1 million per well for the entire history of the industry, as strong returns offered by investing in oil seemingly encouraged a higher level of investment.