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Know the West

Boom or bust for the West's fossil fuel economy?


How big will the American West's current fossil-fuel boom become, and how long will it last? Any answer involves as much art as science, but according to the International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA), which each year calculate outlooks for future energy production in the United States and around the globe, there are three primary scenarios for fossil fuel demand: business as usual; business tempered by a global effort to reduce greenhouse gases; and business more or less scrambled by a range of wildcards.

Under current world policies, the IEA predicts that global energy consumption will grow at 1.4 percent between now and 2035, which is a high rate, but still lower than the torrid 2 percent rate of the previous 25 years. Asia will be responsible for almost all the growth, with China accounting for half. On the other hand, if the world starts taking climate change seriously and follows through on policies to combat it, energy demand will grow much more slowly, between a projected 0.7 percent and 1.2 percent.

Some things likely won't change no matter what happens. The nation itself will consume the vast majority of the coal, natural gas and oil produced in the West -- currently, the U.S. consumes virtually all of the roughly 1 billion tons of coal, 20 billion cubic feet of natural gas and 2 billion barrels of oil produced domestically every year. In addition, developing Asian countries, particularly China, will drive the lion's share of growth in worldwide consumption, pushing up fossil fuel prices, especially for oil and coal, and spurring continued Western production.

Less clear is to what degree Western resources will be sent abroad. Under a business-as-usual scenario, China's coal-fired electricity boom will drive an increasingly busy export market in the West. (See coal sidebar, page 17.) However, if greenhouse gases are reduced, coal production will flatten, as cleaner natural gas becomes more important both domestically and abroad.

Under any scenario, global natural gas production and consumption are likely to grow, but this growth will probably not lead to increased exports from the U.S., which currently imports 3 billion cubic feet a year. With Russia, Australia and the Middle East awash in natural gas supplies, prices will likely stay low, perhaps even chilling the current enthusiasm for domestic shale-gas development using "fracking" technology.

As for oil, global demand is likely to push up against supply for years to come, whether the world gets serious about climate change or not. This will guarantee high oil prices for as long as the next 30 years, spurring development in the U.S. but not exports abroad, since the United States consumes more than twice the amount of oil it produces domestically each day. Even under the most extravagant predictions from the EIA, the United States will never come close to becoming a net exporter of oil.

And what about wildcards? The three most likely are a European debt crisis, an American debt crisis, or the overheating of the Chinese economy.  Each of these would have a major dampening effect on the U.S. economy and depress fossil fuel prices and production in the American West, similar to what happened as result of the financial crisis of 2007-2008.

An overheating Chinese economy could have the greatest impact. A Chinese economy that grew only 5 percent a year, instead of the projected 10 percent a year, would lead not only to short-term pain for fossil fuel producers, but also depressed global fossil fuel prices for many years, according to the IEA. This would bust the Western boom -- out of all the projected scenarios, probably the most familiar for the region.

The author is a research assistant with the Bill Lane Center's Rural West Initiative and a graduate student in Stanford's Public Policy Program.

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