The North American Gusher: We’re just beginning to tap the continent’s vast hydrocarbon resources


President Obama has promised to get the anemic U.S. economy going again by boosting exports. Besides the export of billions of freshly printed U.S. dollars from the Federal Reserve, it is not clear exactly what the president has in mind.

The obvious export opportunity on the horizon for the U.S. is hydrocarbons—oil, gas and coal. But the economic benefits of American competitiveness in energy haven’t been obvious to this administration.

Since becoming president, Mr. Obama has treated hydrocarbon production like an infectious disease to be eradicated. His administration had to commission a study to learn, as announced last week, that allowing American companies to export liquefied natural gas would be beneficial to the U.S. economy. Still, the Department of Energy says it can’t make “final determinations” on export applications until it hears from those who object. So much for property rights.

If Mr. Obama is serious about exports, he will need to lose his stale ideas on energy, which date back to the 1970s. In a recent paper titled “Unleashing the North American Energy Colossus,” Mark Mills, a resident scholar at the Manhattan Institute, describes the continent as “awash in hydrocarbon resources . . . more than four times greater than all the resources extant in the Middle East.”

To tap that wealth, Washington should throw off the regulatory status quo “anchored in the idea of shortages and import dependence,” Mr. Mills writes. “A complete reversal of thinking is needed to orient North America around hydrocarbon abundance—and exports.”

Among the world’s oil and gas producers, the U.S. is now growing the fastest. Even though the growth in U.S. demand for energy is slowing, the decline is offset by rising world demand. If North America’s total productive capacity in hydrocarbons increases by just 3% per year over the next 20 years, Mr. Mills says, the continent will become the largest supplier to burgeoning world markets.

Canadian production also is expanding, thanks to smart government policies. Prime Minister Stephen Harper has made resource development a key cog in the Canadian growth wheel. If the Obama administration continues to deny a permit for Trans-Canada’s Keystone XL pipeline to U.S. refineries, Mr. Harper has said that Canadian product will be sold elsewhere. He has also warned American environmentalists that he won’t allow them to treat Canada like a national park where development is verboten.

At a Manhattan Institute symposium last week, Canada’s New York Consul-General John Prato cited estimates by the province of Alberta of an incredible 175 billion barrels of recoverable oil in its oil sands. He also noted that natural gas exploration is now migrating to surprising places like New Brunswick, where gas producer Southwest Energy owns 2.5 million acres of undeveloped land.

Mr. Mills’s paper points out that the Carter administration put restrictions on the use of natural gas because it believed there was so little to be had. Today’s bountiful oil and gas reserves, he notes, are “a function of technology, not of geology,” which is why it is revolutionary. “Technology unleashes resources, resource wealth creates capital, and capital is reinvested in new technology that in turn unleashes resources.” Market prices and the ability of investors to respond to supply and demand are crucial to this process.

A Mexican revolution in energy might be brewing too. Geologically the country is likely to have reserves similar to those of its North American neighbors. But it risks being left behind because of resource nationalism, enshrined in the constitution, which keeps private investment out. Without plentiful, cheap energy, Mexico will find it increasingly difficult to compete with its Nafta neighbors in manufacturing.

The state-owned oil company Pemex doesn’t have the resources to drill in shale. One solution would be to open shale-gas development to private drillers. While the need for a constitutional amendment is a barrier, Mexican economist Luis de la Calle argues that resistance to the change might be overcome by making a case for treating shale exploration as mining, in which private investment is allowed. “The key is to establish a market that will provide the price signals necessary to guarantee the availability of natural gas in the country at the same terms (price, volume, reliability and length of contract) as in Texas,” Mr. de la Calle wrote in Mexico’s El Universal last week.

Three democracies, sitting on vast resources, each have their own comparative advantages to offer an integrated continental market that could lead the world. Greater North American energy supplies imply millions of new jobs, higher tax revenues, plentiful energy for continental manufacturing and the end of reliance on hostile producers like Venezuela. But to reach optimum potential, investors need the freedom to explore, exploit and refine hydrocarbons and move output at every stage of production throughout the continent. In other words, governments need to get out of the way.

A version of this article appeared December 10, 2012, on page A19 in the U.S. edition of The Wall Street Journal, with the headline: The North American Gusher.

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