The United States and Canada are awash in new oil and gas resources. That doesn't mean we're about to break our foreign-energy habit.
American energy independence makes for great political rhetoric. And not much else.
We can thank President Nixon for the term. During the dark days of the 1973 Arab oil embargo, he publicly vowed to wean the United States off foreign energy sources by the end of the decade, an initiative he dubbed "Project Independence." While things didn't quite pan out the way he imagined, the dream he conjured has lived on with presidents from both parties ever since.
These days, though, it's not just politicians who are dreaming. Over the last year, it's become respectable -- even chic, in a geeky, Washington think-tank sort of way -- to suggest that the United States might indeed be close to kicking its foreign energy habit. Take this Bloomberg headline from Monday: "America Gaining Energy Independence." Or this Financial Times article from October: "Pendulum Swings On American Oil Independence." Daniel Yergin, the renowned oil analyst and Pulitzer Prize winner, now argues that the center of world oil production may be moving from the Middle East to the Western hemisphere.
There are plenty of good reasons for the optimism. With the development of its massive shale deposits, the United States has become the world's single largest producer of natural gas. We're so awash in it that domestic prices have plummeted to historic lows. Advances in drilling technology have also made it possible to access hard-to-tap "tight" oil reserves in states such as North Dakota. Analysts believe those fresh crude sources could yield 2.9 million barrels of oil a day by 2020, up from 900,000 today. Meanwhile, cars are getting more efficient, and fuel use has dropped after soaring during the last decade, which frees up more energy production for export. According to Bloomberg, the U.S. is already getting 81% of its energy from domestic sources, the largest share since 1992, and up 10 percentage points since 2005.
Then, there's Canada, which now claims the world's third largest oil reserves thanks to Alberta's petroleum rich tar sands. That's important because Canada and the U.S. are family when it comes to global trade. They're currently our single largest oil supplier. We sell them 75% of their imports and buy 75% of their exports. The National Petroleum Council, which advises the White House on energy issues, believes that by 2035, the two countries combined could more than double their oil production to 22.5 million barrels a day, enough to satisfy their current total consumption.
If you're not too concerned about how much carbon gets pumped into the atmosphere over the next few decades, these are all great developments. (If you do care about global warming, these are all reasons to have a stiff drink, and perhaps consider moving far from the coasts). But even if we're approaching energy independence, the chances of ever actually getting there are rather slim, especially if our economy is still running on oil in 20 years.
MANAGE YOUR EXPECTATIONS
It may theoretically be possible for the U.S. and Canada to more than double our oil output, as the NPC suggests. To put that in perspective, we'd be adding the rough equivalent of another Saudi Arabia to the world oil market. But to do it, the countries would have to pretty much tap every resource they have, both onshore and off. Obviously, the old "drill baby drill" crowd would love that approach. But it's' still controversial in coastal swing states like Florida. Beyond that, accessing some of the resources would require technology we don't have yet.
In the most likely scenarios, North American oil production will get a big boost in the coming years. It just won't be enough for us to start waving goodbye to OPEC. The U.S. Energy Information Administration forecasts that the American oil production will reach 6.7 million barrels a day by 2020, up from 5.5 million in 2010, then drop back to 6.1 million by 2035. Canada's National Energy Board foresees future production doubling to 6.0 million barrels per day by that year. So we'd end up with about 12.1 million barrels a day, a bit more than half of what the United States currently chugs through on its own.
But let's not be realistic for a moment. Let's assume the U.S. and Canada did manage to drill enough oil that we could tell Saudi Arabia to take it's light sweet crude and shove it. What then? Well, we'd still be exposed to all the ugliness of the global oil market. American and Candadian crude would be priced just like everywhere else -- based on what the world's highest bidders are willing to pay for it. Americans would continue to pain at the pump whenever there was another war in the Middle East or African militants blew up a pipeline.
WHAT WE CAN EXPECT
This isn't to say there wouldn't be benefits to greater energy independence. Because natural gas is so difficult to ship, it's not sold on a truly global market, so a big supply at home means cheaper prices. Our abundance of gas has already started luring manufacturers back to the United States in industries, such as chemicals, that rely on it for production. Domestic oil supplies would also help our trade balance. Crude imports account for 44% of the U.S. current account deficit, and buying oil from North Dakota instead of, say, Nigeria would obviously shrink that figure.
But it would still be wise to moderate our hopes, both about North America's ability to drill its way to energy independence, and about what that would even accomplish. Perhaps we can cut down on what we buy from the Middle East. Perhaps we can cut it down significantly. But believing that will save us from the world's problems? That's still just a dream.
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