Ecocentric

The U.S. Will Be an Oil Giant Again. But It Won’t Be Energy Independent

The IEA predicts that the U.S. will soon become the world's biggest supplier of crude, thanks to a homegrown boom in production from shale oil. But while more domestic production will help the economy, it won't ensure that the U.S. will become energy independent.

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Daniel Acker / Bloomberg via Getty Images

Nabors Industries Ltd. floor hand Tyler Iszler monitors the level of salt water in a tank near a Nabors crude oil drill rig contracted by Fidelity Exploration and Production Company, a subsidiary of MDU Resources Group Inc., outside New Town, North Dakota, on Feb. 11, 2012.

U.S. Presidents since Richard Nixon have obsessed about American dependence on foreign oil—and have proven unable to do much about it. U.S. domestic oil production was on a long slope downwards, while the American thirst for crude—and the size of our automobiles—kept increasing. As a result, despite all the bipartisan hand wringing about imports, the U.S. just kept getting more and more dependent on foreign oil—and especially foreign oil from the Middle East, which happens to be home to a number of countries that aren’t exactly fond of us.

But now, quite unexpectedly, that’s changing. Thanks to a burst of new shale oil production in states like North Dakota and Texas—as well as conservation measures like increased auto fuel efficiency—U.S. oil imports have been falling, with the country now bringing in just 20% of its energy from beyond its borders. And if the International Energy Agency’s (IEA) new World Energy Outlook is to be believed, the U.S. may be on its way to becoming the single biggest player in the global oil market. By around 2020, the IEA projects, the U.S. will be the world’s largest global oil producer, overtaking both Russia and Saudi Arabia. U.S. oil imports will keep falling, and by around 2030 North America as a whole will become a net oil exporter. From being the world’s biggest customer for oil, the U.S. could become the world’s biggest salesman.

That’s good news for the American economy and especially its trade deficit, which would benefit significantly from wiping away the $460 billion the country spent on foreign oil last year. The burst in domestic oil will also help create well-paying jobs, especially in states like North Dakota, Wyoming and Texas, where the oil boom is centered. The continued growth of shale natural gas—along with existing supplies of coal and increasing renewables like wind and solar—means that the U.S. may well be able to meet nearly all of its energy needs itself. And so many domestic resources mean that electricity prices are likely to be much cheaper in the U.S. than in Europe, which will aid industry. But the one thing politicians most want is the one thing the U.S. still won’t be: energy independent.

(MORE: The Truth About Oil)

That’s because no matter how much additional oil the U.S. is able to pump in the years to come, the global oil market is just that—global. Oil is the ultimate fungible commodity, able to be shipped and piped around the world. (In fact, this portability is part of what makes oil so valuable—electricity, however it’s produced, can’t easily be transported long distances or stored for very long.) That means the price of oil is set on the global market, and—government subsidies or taxes aside—consumers in oil-exporting nations will pay about as much for crude as consumers in oil-importing nations.

That’s why crude prices—and the price at the pump for gasoline—has remained so high for U.S. consumers over the past couple of years, despite the fact that we’re in the middle of a real domestic oil boom. External events like the 2011 crisis in Libya—which took a major oil-exporting nation offline—and the tightening sanctions squeezing Iran easily outweighed the additional million or so barrels a day that shale has been able to add to U.S. supplies. Even a U.S. that can out-drill Saudi Arabia will remain subject to the global oil market—which increasingly will include the oil appetites of consumers in fast growing countries like India and China. As long as we remain utterly dependent on oil to make our cars and planes go, we won’t be able to declare ourselves free from global oil markets.

That means that one way or another we’ll still be entangled with the economics of the Middle East oil market, since even as the U.S. imports less Persian Gulf oil, other regions, like East Asia and most of Europe, will still be hooked on the stuff. Certainly, a healthier domestic oil industry means the U.S. will be better cushioned in the event of a major supply disruption from the Middle East—the energy analyst David Goldwyn notes that reduced imports mean that the Strategic Petroleum Reserve could last weeks longer than it does now—but the price of oil would still skyrocket, hurting American consumers. And in a globalized economy, we won’t be spared if painfully high oil prices cripple the Chinese or Indian economies.

(MORE: How Countries Like Iraq—Not the U.S.—Will Help Determine Gas Prices to Come)

Of course, like all long-term forecasts, the World Energy Outlook should be taken with a shaker full of salt. The IEA’s models assume that shale oil will keep producing well into the future, even though shale wells tend to dry out much more rapidly than conventional wells. That means oil companies need to keep drilling more and more wells to sustain output—and no one knows how sustainable that strategy is. There are also environmental concerns about the hydrofracking done to extract shale that could lead to regulations that eventually curb production. The IEA also assumes that the U.S. will keep tightening energy efficiency standards, actions that are nearly as important as increased domestic oil production to reducing total imports. President Obama’s re-election makes that more likely, but don’t forget that one major political party—that would be the Republicans—seems to be opposed on principle to conservation standards.

The IEA report is full of other useful predictions—some of them rather frightening, like the possibility that by 2017, the world’s existing energy infrastructure will likely “lock in” the world to a 3.6º F (2º C ) temperature rise. That’s the red line that many scientists have set for global warming—anything above that and we could be setting ourselves up for a world of hurt. There’s good news too—renewable energy, including hydro, is predicted to become the world’s second-biggest form of energy generation within three years, and could be threatening coal’s supremacy by 2035. But as the out-of-nowhere burst in U.S. oil production shows, new technologies and new politics can shake up even the most trusted predictions. Given how dire the forecasts for climate change look, we’d better hope there’s something out there that we can’t predict.

MORE: Why Climate Change Has Become the Missing Issue in the Presidential Campaign

64 comments
HazeAndDrizzle
HazeAndDrizzle

Why or why do we allow the oil companies to blackmail and betray us over and over. Oil is NOT a fungible global commodity, except we stupidly treat out own oil that way. There is no law of the universe or economics that says we have to suffer to the lowest common denominator around the world in order to boost the obscene, disloyal interest of oil companies. This is a self imposed helplessness and need not be. It does show very clearly just who is at fault and who will never serve the national interest without tight regulation. These people are nothing short of unpatriotic traitors and should be treated as such.

donc314
donc314

Probably a view that the petroleum companies won't like: We should never allow one drop of North American crude or it's end products to be exported. If we eventually reach a point where the US and Canada produce enough oil to meet our needs it will be the first time since 1970 that we were not held hostage by people who hate us.

Some were not born and some may not remember the depression of 1974  caused  by OPEC. I was twenty four, trying to support a family and remember it well.

If we reach the point of self sufficiency we should not surrender our security in order to make international oil companies any  wealthier than they are today.

aboutbebout
aboutbebout

Let's "borrow" a priority from the top of Mitt Romney's campaign goals: Energy.   And Ivan, we are not into making the U.S. a less global or economic power.  That was the  thrust of the message in the "Obama2016" documentary.  Although It might seem that way.  Life has the potential to "suck" more in the future, than anytime in the past.

IvanReyes
IvanReyes

Really do not understand why America wants to be an Economic power again. When America was the world's leading Economy only a small minority gained the benefit, life in average still sucked for example: health care, social inequities. What's the point yo? Shit even funded the Iraq War, Agent Orange... Very pessimistic there sorry but don't worry about Economics theres bigger fish to fry =)

MuhammadKhizirFarooqi
MuhammadKhizirFarooqi

Solar powered Engines are not inevitable in future. What we see andexperiencing  today, the PHYSICS has not visioned just 100 yearsbefore.It should be taken for granted that dependency on fuel energyreduced to half at least in due course of time.

AllanAshby
AllanAshby

It's very interesting to see the US now faced with the situation that Canada found itself looking at a decade ago, when the oil sands suddenly became economically viable. The question arose: should this resource be left undeveloped to please onlookers in other countries? While some Canadians wanted to shut the industry down, a slim majority decided not to do so. 

The silence of US environmentalists, now that the US seems about to become the world's leading oil producer, only confirms what people in other countries have long suspected. The US environmentalists are there to talk a good game, while they alternately frighten and cajole their American backers to donate funds. Of course, you never want to offend the people you want to donate to you. This means that the US donors will never be asked to make the sacrifices it demands of others. In fact, they'll never be faced with anything like the criticism directed against other countries. It explains why the oil sands have been demonized as the greatest threat to the earth's future - because they're in Canada. Meanwhile coal-fired power plants, which produce 400 times the CO2 of the oil sands, are completely ignored - because they're in the US.

kolagunta
kolagunta

Now this is some good news. It also makes way for the US to disengage from the Muslim world. This will save wasteful cost of various aid in cash and kind. It can reduce arms production, another wasteful expenditure hardly contributing to the quality of life. This will be a good move to stifle terrorism. Today almost 30% of the working population is engaged in a non wealth generating terror related activities- abetting terror, controlling it, enhanced security and surveillance. If the situation continues we may find 50 % of world population engaged in these wasteful activities. The balance 50 % will continue to be under stress, not devoting enough time towards progress of the human race. Let the US lead the way towards a peaceful world. Let it allow the Muslim world, whose core problem is the historical sectarian animosity between Shia and Sunni,( which has unfortunately spread all across continents, thanks to interventions by the West), settle it on its own. After all it is akin to a family feud and needs settlement within the house. There is every chance of widespread uprising like the Arab Spring across the Muslim world, which could facilitate quicker settlement.Read more: http://science.time.com/2012/11/13/the-u-s-will-be-an-oil-giant-again-but-it-wont-be-energy-independent/#ixzz2CD3XNM7O

MuhammadKhizirFarooqi
MuhammadKhizirFarooqi

The US or any other country  may become independent of OIL  if they use abundantly available wind & Solar Energy around the world. free of cost and  maintenance. Of course the initial installation cost would be a bit high which could easily maintained by subsidizing and providing loan on easy terms to consumers through Banks.

ByronAlexander
ByronAlexander

Drill Here, Drill Now, Pay....Yipes ...More.

What happened? I like my politics simple!

AdamRussell
AdamRussell

Even if we drilled more oil than we use we still would not be energy independant.  WE dont drill.  We allow the Oil Corp to drill and then its their oil.  Then we are dependent on the Corporation.  They can sell it to us or they can sell it to whoever offers them the highest price.  So how can we become truly energy independent?  We cant.  We would have to own the oil that comes out of our ground.  And we cant do that because that's socialism.

rocketgrrl
rocketgrrl

this article and the entire concept of energy independence is myopic at best, and an outright lie at worst.  because people won't look at the truth.

the truth is, america is #13 on the list of proven oil reserves.  the top six countries on the proven oil reserves list have at least five and in some cases more than ten times our reserves.   

if we become self sufficient for oil, we will burn through our entire reserve fairly quickly, and then be at the complete mercy of those countries with huge reserved.   and i say we will be at their mercy because nobody has figured out how to run tanks and airplanes on non-petroleum fuels.  armies and navies REQUIRE petroleum to run.  and lots of it.

the bottom line is:  the last guy with oil in the ground wins.   and the U.S. is NOT going to be that guy.

the only people who are receiving benefit from reducing our imports of oil are the oil companies looking for short term gains and the politicians trying to curry the favor of the people who own those companies.

what do you think we are going to be paying for oil when OPEC or venezuela are our only sources?   

THE LAST GUY WITH OIL IN THE GROUND WINS.

MarkInMilwaukee
MarkInMilwaukee

Mr. Walsh's headline is based on a misconception.  The term "Energy Independence" was never, before this article, used to mean that our energy prices would be set independently of global markets.  Rather, the term meant only that we were not dependent on imports.  If the IEA projections prove true, we would be "energy independent" by the common understanding of that term.  Mr. Walshis correct that, absent government action prohibiting exports and imports, our energy prices would still be tied to global market prices determined by global supply and demand.  But those are two different things and confusing them does not aid the analysis or the discussion

jdyer2
jdyer2

One only has to look at Canada to see the benefits(?) of energy self sufficiency.  Canada is a net exporter of oil, yet they pay the same amount at the pump as we do.  Canadian oil companies will sell in Canada or export, wherever they can get the most money.  Same here.  Another example is look at US food production.  We are of course self sufficient, but prices are going up because farmers will export their crops if they can get more money overseas.

Mace
Mace

Condoms.

pkd603
pkd603

The answer would lie in lower dependence upon shale gas with fracking methods which would make future generations more vulnerable to earthquakes. The way forward is to embrace low energy and holistic lifestyles as outlined @ pradeepkdas

akpat
akpat

Well drilling and obtaining oil and making the US self sufficient are two separate things. As an example the Keystone XL pipeline is intended to ship Canadian oil to the overseas market through the Houston area. Just last summer therer was a glut of crude in this country and no where to store it.

Not that you will see a reduction at the pump.

DibyaDutta
DibyaDutta

We were expecting that USA to develop alternative to petroleum energy which would help the rest of the world due to ever increasing price of Petroleum. But this development may not be good for the world.