Four years beyond the onset of recession, and what do we have to show for it? No conclusive recovery, deterioration in structural indicators, unprecedented pessimism and lots of volatility. In an environment like this, can we really be surprised any more? Perhaps the great surprise of 2012 is our growing immunity to shocks, a melancholy diffidence wrought in multiple aborted economic rebounds.
It's a compelling, if not entirely convincing posit. We entered 2012 facing a lot of things that could have gone wrong, but Europe is still bumping along, with its biggest problems still confined to the peripheral economies; worst fears about the spread of the Arab Spring were not realized; Iran-Israel tensions have eased somewhat; stumbling emerging market giants seem more sure-footed; and political transitions (in the U.S., Russia, Japan and China, among others) have been reasonably smooth and free of negative surprises. In light of this, perhaps we could call 2012 proof of how little difference a year can make, a sort of triumph of the status quo. Was it really that dull?
Not exactly. Humdrum was jolted in May by the collapse of the Greek election. For the first time in this turbulent odyssey, it looked like politicians had been booted out of the drivers' seat, and that in spite of huge will to the contrary, the mechanisms for preventing financial and economic collapse had themselves collapsed. Nascent worry froze markets for a spell -- but the fact that this is now a distant, cloudy memory speaks well of the remedy. Another one for the almost a catastrophe file. Yawn.
But wait...something did happen in the latter months of the year -- surprising not so much because it occurred, but where. World oil production is rising more than was forecast. A shock? No, that's what happens when prices spike. What is surprising is that it's occurring right in our backyard -- in the good ol' USA, where West Texas, Midwest and Alaska crude have been in decline for years, Gulf oil approvals were threatened by the BP disaster, and the West Coast moratorium shut down hopes of ever again attaining energy self-sufficiency. During the fall, analysts sharpened their pencils, and heralded the return of continental self-sufficiency in oil and gas by 2035, and overtaking Saudi Arabia as top producer by 2020. This would have been laughable in 2008. Can it really be true?
Thanks to fracking technology, the U.S. is now able to viably tap into shale oil and gas deposits. The rich Bakken field has gone from zero to 50-million barrels of production between 2005 and 2009, with lots of upside; in the U.S. portion of the field, there are over two-billion barrels of proven reserves. Moreover, Bakken is just one of at least five key shale producing areas, with more to be explored. Regulation may hinder development, but the potential of this new resource will be tough to resist.
The implications of this key development are manifold. First, greater self-sufficiency reduces U.S. dependence on "politically risky" oil. At the same time, it reduces U.S. incentive to play global peace broker. World prices are likely to drop. Revenues will stanch America's nagging twin deficits. It also reduces U.S. dependence on Canadian oil, but frees up the latter for thirsty emerging markets.
The bottom line? How quickly we have gone from running out of oil to being awash in the stuff. Maybe the surprise is that we are surprised that history is merely repeating itself! Merry Christmas, Happy Holidays and best wishes for a splendid New Year.