Is America's Search for Energy Independence Futile?
WHY YOU SHOULD CARE
A couple of decades into the fracking boom, America still consumes more oil than it produces. But is that a vulnerability?
By Olivia Miltner
American prosperity has been built to a large extent by reliable access to cheap energy, both domestic and foreign. So it came as a great shock to the economic system in October 1973 when the Organization of Petroleum Exporting Countries cut off shipments of crude oil to the U.S. and other countries that supported Israel during the Yom Kippur War.
Suddenly, Americans had to adapt to long lines and odd- and even-numbered license plate days at the pumps, as well as an unfamiliar and unsettling sense of vulnerability.
The oil crisis launched the search for a new grail: energy independence — a concept President Richard Nixon latched onto early in the embargo. Six years later, when the Shah of Iran fell and prices skyrocketed in the second “oil shock,” President Jimmy Carter announced an import cap to reduce American reliance on foreign producers. Presidential candidate Barack Obama promised in 2008 to “eliminate the need for oil from the Middle East and Venezuela” within 10 years.
So, how do things look nearly half a century since Nixon’s clarion call for a fortress America of energy and 20-odd years into the fracking era? The advanced recovery technique of hydraulic fracturing and horizontal drilling in shale formations has been transformational, revitalizing old oil fields, creating new ones and nearly doubling production from 2.5 billion barrels per year in 2005 to 4.8 billion barrels in 2017, according to the U.S. Energy Information Agency (EIA).
And yet EIA figures show that:
Despite fracking’s promise to create U.S. energy independence, the gap between U.S. petroleum production and consumption is 5.6 million barrels per day.
That’s an improvement over the gap in 2005, when it stood at 13.9 million barrels per day, but will there ever come a time when the U.S. is both producing and using 100 percent of its own energy? Some experts say no owing to a number of factors, including the global nature of the oil industry and existing domestic infrastructure, says Brian Anderson, director of the West Virginia University Energy Institute. For example, Anderson notes American companies have invested billions in oil refineries that rely on heavier crude found only in other countries.
Plus, the U.S. lacks pipeline capacity for transporting independence-level volumes of oil and gas throughout the country, says Wayne Beninger, chief operating officer at Crudefunders LLC, a Texas-based online investing platform for the oil patch.
As a country, we’d love to be energy independent, but from a commercial point of view, it may not be practical, Beninger notes. Even if the U.S. produced enough for its own needs, it still can be economically beneficial to import out of one hand and export out of the other. “For example,” notes the EIA, “refiners in the U.S. Gulf Coast region frequently find that it makes economic sense to export some of their gasoline to Mexico rather than shipping it to the East Coast of the United States, because lower cost gasoline imports from Europe may be available to the East Coast.” As Beninger notes, “If you want to be a net exporter, or net zero, and call that energy independence, then, yes, it’s possible — just not as we currently sit here.”
But could that change, given the way the oil industry is trending? U.S. imports of crude oil and petroleum products have been decreasing since 2005, and Anderson says if that continues, paired with record-breaking oil exports since the export ban was lifted in 2015, the U.S. could be a net exporter by the early 2020s. That still may not mean energy independence, though — it may only mean the U.S. ships out more oil than it ships in.
U.S. imports of petroleum accounted for about 19 percent of domestic consumption in 2017, and even though that adds up to the 5.6 million barrels per day cited above, it’s still the lowest amount in 50 years, according to the EIA. Forty percent of those imports came from Canada, followed by Saudi Arabia, Mexico, Venezuela and Iraq, all of which contributed 6 to 9 percent.
You look at who we’re importing from — I don’t expect an invasion from the north soon.
Brian Anderson, director, West Virginia University Energy Institute
A 2009 Rand report identified concerns stemming from U.S. dependence on foreign oil, such as economic disruptions from a fall in global oil supply, rogue states using oil revenues to pursue their interests and a 12 to 15 percent in defense budget savings if “all concerns for securing oil from the Persian Gulf were to disappear.”
“There are national security concerns that people will cite,” Anderson says, “but then you look at who we’re importing from — I don’t expect an invasion from the north soon.”
At the same time, Anderson recognizes the advantages of sourcing oil either domestically or from friends. “The more we produce within our borders and [import from] our close allies, it means there’s less reliance on the global market, and that global market has some good actors and bad actors.”
As far as overall energy consumption, oil accounts for about 37 percent — the lion’s share of all sources (natural gas, coal, nuclear, hydro and other renewables). Beninger says if the U.S. truly wants to be a net exporter, the oil industry would need another technological boost to increase oil field recovery rates higher than today’s 65 percent.
Reduced consumption may play an even bigger role in getting to net exporter status than expanding production. The coming electrification of the transportation sector — cars, trucks and buses — presents a prime opportunity to reduce demand for petroleum products, domestic and imported. U.S. electricity consumption hasn’t grown for decades, and normalizing electric vehicles, in tandem with retiring existing coal- and oil-fired power plants, could create the demand needed to boost the role of renewables in the electric grid, Anderson says.
From national security to home printers, the path toward energy independence touches almost every aspect of society. Maybe, as the U.S. moves toward producing more of its own electricity, America’s energy mix will look a little more red, white and blue — and green.
- Olivia Miltner, OZY Author Contact Olivia Miltner