Energy 'Independence', After All?
Call it Richard Nixon's revenge.
Amid election-year furor over high gasoline prices, something significant has happened to America's energy outlook. We are steadily reducing our dependence on imported oil - a long-ago Nixon goal. In 1973, he proposed being free of imports by 1980. It didn't happen, and although politicians of both parties frequently echoed Nixon's popular call for "energy independence," most experts considered it a joke.
Production from mature U.S. fields was declining, while Americans' energy thirst increased. Oil imports went from 35 percent of use in 1973 to 60 percent in 2005. As for natural gas, companies prepared to import liquefied natural gas (LNG).
No more. The LNG isn't needed; the United States is approaching self-sufficiency in gas. And in 2011, oil imports fell to 45 percent of consumption, the sixth year of decline. Behind these developments lies a new reality: America's oil and gas reserves are far larger than previously thought.
The real issue - for the election and victor - is how aggressively we exploit these reserves. President Obama is right about today's gasoline prices. They're set in world markets subject to upsets (for example, erratic production from Libya and Sudan) over which we have little control. But the longer term is different. By encouraging production, we can enhance our energy security and help stabilize global markets - and prices - through greater supply.
First, some background on U.S. oil and natural gas resources: Start with gas. In 2000, U.S. supplies were estimated at about 1,000 trillion cubic feet (annual consumption: 22 trillion to 24 trillion cubic feet); now, estimates cluster around 2,000 trillion cubic feet, with some even higher. The increases mostly reflect shale gas, which was once believed too expensive to produce because it was packed tightly in formations. "Fracking" (injecting water into the formations to free the gas) and horizontal drilling (extending one pipe along the formation instead of drilling many vertical wells) lowered costs.
Oil is trickier. In 2009, U.S. "proved reserves" were 22 billion barrels. That's less than 2 percent of world reserves, a figure often cited by Obama; it's tiny considering that Americans use almost 7 billion barrels annually. But proved reserves is a narrow concept, including only fields where drilling confirms that recovery is economically feasible. By contrast, "resources" are estimates of economically recoverable oil based on general geology and production technology. These estimates, though less certain, are much higher.
The National Petroleum Council - a group of industry officials, consultants and academics that advises the government - puts oil resources at 274 billion barrels, including 100 billion in the Arctic and 60 billion in the waters off the lower 48 states. Onshore, applying fracking and horizontal drilling to shale oil already has already stimulated a boom in North Dakota; Texas and California have similar formations. Meanwhile, U.S. oil use - reflecting high prices, more fuel-efficient cars and a weak economy - is falling. Finally, oil from Canadian "tar sands" (whose natural market is the United States) is estimated at 300 billion barrels.
Here are the ingredients for greater security. Getting to Nixon's no net imports is not necessary if most imports come from Canada and other friendly countries. The true foolishness of Obama's rejection of the Keystone XL pipeline was to encourage Canada to look elsewhere to sell its surplus oil.
Promoting production also involves jobs. Aside from hiring more geologists and roustabouts, energy investment creates demand for ancillary manufacturers. Low natural gas prices will promote "the re-industrialization of America" by favoring U.S. locations for petrochemical plants (gas is a feedstock) and industries with high-energy costs, says a study by Citigroup. A Wall Street Journal headline about the steel industry affirms the point: "Natural-Gas Boom Begets Low Prices for Fuel, Strong Demand for Piping."
Until now, greater production has resulted mainly from private decisions. To continue, it needs more public support because many fields are on public lands and other projects require government permits. Obama has spent much of his first term attacking oil companies and praising wind and solar energy, which supply 1.2 percent and 0.1 percent of America's primary energy and have almost nothing to do with oil use.
Obama counters we can't drill our way out of dependence. True. We also need to restrain demand; the administration's higher vehicle fuel-efficiency standards are one possibility.
The administration is relaxing its hostility toward oil, says Frank Verrastro of the Center for Strategic and International Studies. Maybe. But environmental purity and energy practicality are at odds. Fracking is controversial. Even with safeguards, more drilling will mean more environmental side effects. Deepwater Horizon was one reminder; a recent gas leak on a North Sea platform is another. How Obama and his opponent balance these goals will be a major campaign focus. It should be.
