In 1973, Arab members of OPEC imposed an oil embargo against US and its allies for supporting Israel in Yom Kippur war. As a result, US president Richard Nixon, on 7 November 1973, announced project of “Energy Independence” to reduce the dependence on foreign oil and in 1975 US started building Strategic Petroleum Reserve.
After the current shale revolution many termed North America as new “Middle East” and US as new “Saudi Arabia”. Current U.S. crude oil production has been the highest since 1991. In 2012 crude oil production was 6.5 million barrels per day; it will reach to 8.2 million barrels per day in 2014. If all kind of fuels are put together then total oil production in 2012 was 11.2 million barrels per day but it won’t be enough to wave goodbye to OPEC. EIA forecasts in its Annual Energy Outlook 2013 that oil production could reach to 13 million barrels per day before starts declining to 11 million barrels per day in 2040.
What surprises me most when people use energy independence phrase as shorthand for self-sufficiency.
Let’s assume for a moment that US have drilled plenty of oil and they don’t need to import single drop of oil from Middle East especially Saudi Arabia. Then what? US will have to pay higher prices to buy oil. And even if U.S. produces as much oil as Saudi Arabia, it won’t have that power to influence the price over the world market.
Crude oil and petroleum import in 2006 was 13.7 million barrels per day but in 2012 it was down to 10.5 million barrels per day. Interestingly, Saudi oil imports have increased over the last two years despite the America’s Department of Energy Officials claiming U.S. won’t need Saudi oil in future. EIA data shows oil imports increased from 1.039 million barrels per day in 2010 to 1.359 million barrels per day in 2012, which means the US will still need Saudi oil many years from now because U.S. refiners upgraded themselves to process heavy crude oil long before the local oil boom unleashed. Saudis know that U.S. needs their oil and that’s why Saudi Oil Minister Ali Al-Naimi said in his speech in Washington, the concept of U.S. energy independence is “naïve”.
EIA states in its Annual Energy Outlook 2013 U.S. will still be importing 37% of their oil and petroleum requirements in 2040 due to decline in domestic tight oil production. Since oil is a global commodity, U.S. has to pay global oil prices.
Despite the oil glut, USA won’t have any impact on global oil price and they will still be dependent on countries which are not stable. In 2011, due to war in Libya their light sweet crude oil production halted driving the US gas prices higher by 33% per gallon in two weeks even though Bakken Shale was producing nearly half a million barrel of oil. United States can’t shut off its borders and isolate themself from the world and it can’t protect themself from foreign events.
After the Shale revolution, US is awash in oil and gas but American motorists are still paying high prices for gasoline ($3.65 per gallon) and diesel ($3.95 per gallon) then what’s the benefit of this independence if end users are still paying higher prices.
United States has 811 cars per 1000 inhabitants, a decline from 834 in 2006, which is highest in the world. U.S. daily consumes 21% of the total oil produced in the world. Out of that 70% goes to transportation sector. Now Americans have the habit of driving long distances and automobile is the primary source of transportation. On average an American travels, 49 minutes a day, more than an average OECD countries traveler, 23 minutes a day. If U.S. really wants to get energy independence then they need to reduce the consumption of oil in transport sector which I don’t see it happening because Americans love to drive long distances and they love gas guzzlers rather than fuel efficient cars. Despite all the efforts to improve fuel efficiency standards by U.S. government, little progress has been made. According to University of Michigan Transportation Research Institute, fuel efficiency in United States was 16.9 miles per gallon and in 2006 it increased slightly to 17.2 mpg. North American region also lags far behind Asia and Europe in switching their car fuel to natural gas.
The repercussions of high oil production would be more domestic jobs, better energy security, more investment in U.S. and less dependence on oil imports.
U.S. may get self-sufficient for some time but will not get energy independent so U.S. energy independence was a failed project right from the beginning. America should get out of the illusion of being energy independent.
by Moin Inaam