Ecocentric

America’s Oil Boom Won’t Make It Energy-Independent From Middle East Madness

Thanks to increased domestic oil production and falling demand, energy independence is becoming a realistic goal for the U.S. But that doesn't mean it won't be vulnerable to price shocks if a Syria attack goes bad

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Andrew Burton/Getty Images

New production from unconventional sources in North Dakota has reduced U.S. oil imports

If the U.S. does strike Syria, the price of oil — already at $115 and rising in the Brent index, largely because of political disruptions in Libya, a major producer — is likely to spike. It’s not that Syria is a major oil producer — even before the war its exports were modest by Middle East standards, and now the embattled regime of Syrian President Bashar Assad can manage just 50,000 barrels a day, barely 5% of what tiny Oman can pump. But even limited strikes would raise fears that the civil conflict in Syria could spread, inviting retaliatory action against Israel, moves by Assad’s ally Iran and disruptive protests in Middle Eastern countries that actually do produce a lot of oil. Fear alone would likely be enough to raise the price of oil above $120 a barrel, and if any of those scenarios actually came true, we might see crude beat the record $147 per barrel reached in 2008. Should that come to pass, the International Energy Agency would likely coordinate releases from national petroleum reserves to increase global supply and bring down prices somewhat, just as it did during the Libyan civil conflict in 2011. Nonetheless, U.S. drivers, currently paying an average of $3.61 a gallon, would be hit hard at the pump

But wait a minute. The U.S. is in the midst of a boom in domestic oil production, thanks largely to new unconventional reserves in North Dakota and Texas, even as oil demand has fallen thanks to improving energy efficiency (and a still sluggish economy). The U.S. now imports 36% of the oil it uses, down from 60% in 2006. With U.S. oil production projected to increase by 28% between 2011 and 2014, according to the Energy Information Administration, and tougher CAFE fuel standards forcing more-efficient cars and trucks, oil imports will likely keep dropping in the years to come. The U.S. — or at least larger North America — could finally achieve something that politicians on both sides of the aisle have been chasing for decades: energy independence. Finally Americans would no longer be dependent on oil from countries that don’t like us very much — which would in turn make us that much freer in the Middle East.

(MORE: As Obama Visits Upstate New York, the Fracking Debate Takes Center Stage)

Tom Friedman put it this way in a recent New York Times column:

As that reality has sunk in, so has another reality, which the American public intuits: Our rising energy efficiency, renewable energy, hydraulic fracturing and horizontal drilling are making us much less dependent on the Middle East for oil and gas. The Middle East has gone from an addiction to a distraction.

There’s just one problem — one that, in fairness, Friedman acknowledges: less dependent does not make us independent. It’s easy to forget, but the price of oil is truly global. If something happens to disrupt production in a major oil-exporting nation like Saudi Arabia or Kuwait — or worse, if Iran were to actually close the Persian Gulf as it has threatened to in the past — the supply of crude would contract, the price would skyrocket and all the shale oil in North Dakota’s Bakken formation wouldn’t be enough to shield American drivers from even more expensive gas.

The truth is that domestic oil production in the current market has little impact on the price of gas. In 1995 — which happens to be the last year that U.S. oil production exceeded imports until now — America pumped about 6.5 million barrels of oil a day. That’s less than the 7.2 million barrels a day the U.S. produces now. But gas in 1995 cost $2.07 in current dollars — a little more than half of what it costs today.

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This isn’t to say that the miniboom that American oil producers have experienced over the past few years is meaningless. It has helped reduce U.S. oil imports, which in turn shrinks America’s huge foreign trade deficit. In June the gap between how much petroleum the U.S. imports and exports in dollar terms fell to $17.4 billion, down from a record $42.4 billion five years ago. That means more dollars stay in the U.S. rather than being sent abroad. And the shale-oil boom has been very good to U.S. oil companies and their employees, which is good for the larger economy. The research firm IHS Global Insight estimates in a new report that increased production from unconventional oil and gas has increased disposable income by an average of $1,200 per household, a figure that’s predicted to rise in coming years.

But while the oil boom has been a nice boost, it hasn’t quite been a revolution. Since 2007, U.S. oil production has increased by a little more than 2 million barrels, good for a 44% increase. But those additional 2 million barrels represent just 2% of the 90 million barrels a day the world is consuming now. No wonder it’s had little impact on the price at the pump.

What truly protects American consumers — and what could really make the U.S. functionally energy-independent — is simply using less oil. And we are doing that: U.S. oil demand peaked in 2007 and has dropped in most of the following years, though it has ticked back up recently. Much of that change is due to the slowing economy and higher unemployment — no job means no commute. But better fuel efficiency and, intriguingly, structural changes like a decrease in young people getting driver’s licenses and more Americans moving to cities could indicate long-term reductions in oil use. Alternatives like biofuels, natural gas and electric cars will further cut into oil demand. The less oil the U.S. needs — from both foreign and domestic sources — the less vulnerable it should be if things go wonky in the Middle East and crude skyrockets. That’s real energy independence.

17 comments
bharatji
bharatji

Most editorial or article on oil production and booming oil/gas exploration doesn't count tremendous job creation provided by energy industry. As argued in this article, increase of two million barrel is just 2% of the total world market. But a supply disruption of 500,000 million barrel will increase barrel price by $10-15. We need to account for cost per barrel for US Military presence in Middle East to keep forced peace. Its great news for US Economy, no one should deny.  

GalSitty
GalSitty

So long as we are dependent on oil for transportation, we will suffer from such global woes because oil is an international commodity. Even Canada, who is a large oil exporter suffers from high oil prices with Canadian drivers often paying more than Americans at the pump. The solution is to offset oil consumption with other proven fuels so that when there are price spikes or supply disruptions, drivers could easily choose other readily available, cheap, American-made fuels.

reidh
reidh

if stewpit fewkes like you Bryan, would get up off of my back, and they make it cheaper to get and use solar power, I could guarantee that I couldn't be caring less about any middle eastern madness, than I do right now. YaStewpit Fewkeya

John-AlbertEadie
John-AlbertEadie

Odd that a rag called "Time" should only be centred on the USA.  Odd also that it measures life in `barrels per day'.   There are other energy options !!  And time is getting very short.

RickZ
RickZ

There is more oil in the ground in North America than in the Middle East.  Huge quantities of natural gas, as well.

Fracking provides the technology to extract the vast quantities that were previously inaccessible.  

Your figures on price per barrel are invalid.  You are intermixing prices for West Texas with that of Brent.   They are different commodities, and are priced differently.  


hallofrecord
hallofrecord

The article fails to make one critical distinction: freedom from supply disruption versus freedom from world oil pricing.  Strategically, the former is more important and the internal supply is likely to increase as a percentage of our total consumption and importance as world oil prices are whipsawed by world politics.

To the extent that the U.S. and North America are oil supply independent, our economy will be influenced less by external oil market manipulations.

JKBullis
JKBullis

This was an interesting story, but an additional report should be part of the discussion, this being the growing balance of trade data, which showed the growing deficit jumped a month ago by 13% (a Wall Street Journal story).  This month on month measure of our productivity came in the face of the reduced oil buying here discussed.  Analysis of this seemed bungled by that WSJ writer, but the main thing I take from it is that our real productivity is slipping badly.

Whatever reduction in use of energy that might come from moving to cities should be understood to be a loss of productivity.  People shuffle money in cities, but producing real things does not happen there, at least not much.  Well, perhaps they also wash each others cars and deliver pizza there.

MarkDSwartz2
MarkDSwartz2

There appears to be a fundamental flaw in the logic of this article. The columnist, Brian Walsh, asserts "But those additional 2 million barrels [of American oil] represent just 2% of the 90 million barrels a day the world is consuming now. No wonder it’s had little impact on the price at the pump."

However if America were able to supply and process all of its oil needs internally, it could set its own prices - independent of the "world price" of oil. This is a key result that the article fails to report.


Hotpuppy
Hotpuppy

I think you are also discounting changes in how we work.  For example, I telecommute about 50% of the time.  That reduces my gas consumption by 50%.  Telecommuting underpins better work / life integration, which in turn drives employee retention by reducing work related stress.

BillBacurat
BillBacurat

@hallofrecord ... Well said, but I bet the majority of numbskulls on this board still don't know what you mean

jdyer2
jdyer2

@MarkDSwartz2 Do you really think that US companies would keep all their oil in the US if they could get more money for it by exporting it?  Look at natural gas- we have an abundance of it, and prices are low, so what happens?  The natural gas companies are building LNG piers where the gas can be liquifed and exported for more money.

MarkDSwartz2
MarkDSwartz2

@jdyer2 You make a good point. However look at how far the price of natural gas being charged to U.S. customers has fallen since the peak of 2008 or so (http://www.eia.gov/dnav/ng/hist/n3010us3m.htm). 

Granted a large part of this reduction is due to decreased domestic demand caused by the economic slowdown. Still, if the U.S. were oil independent, it could set its own prices at the pump, then export any excess at world prices. What do you think?

JKBullis
JKBullis

@jdyer2 @MarkDSwartz2  

I think you both realize that America does not really set prices, where as you write, it sounds like there is an American price setting agency.  

The constant tug between car driven demand for gasoline and production seems to be forced upward by insatiable thirst for riding about in cars.  

I strongly prefer a mobile world where people move about as they choose, but come on, is anybody actually taking time to build anything?

jdyer2
jdyer2

@MarkDSwartz2 @jdyer2 My guess is that yes, the US could set it's own prices at the pump, but I don't think they would be drastically different than the world price.