Will the US Achieve Energy Independence?

I am frequently asked if America can, or will, ever again be energy self-sufficient. The question is more complex than it seems.

For many of those who ask, the question is really about American’s ever-increasing level of oil imports. “Are we likely to develop sufficient production capacity in the US such that we no longer need to import oil from foreign countries?”

Prior to the Arab Embargo of 1973, the US was essentially energy independent. We had sufficient oil production for our own requirements and enough to sell abroad. We were a creditor nation and enjoyed a secure domestic supply, price stability and a favorable balance of trade. However, when our domestic oil demand outstripped production capacity in the early 1970s, the US was forced to buy oil from other countries, some of whom are unstable and/or unfriendly to the US Imports have increased as our population and per-capita usage increased and domestic production decreased.

The lowest level of US production in recent years occurred in 2008, when only 6.7 million barrels per day were produced. Since that time, thanks to the benefits of horizontal drilling and multi-stage hydraulic frac treatments, more than 1.1 million barrels per day have been added, most from shale and tight rock formations in both old and new producing basins. According to the US Energy Information Administration (EIA), the US in 2011 exported more petroleum products, on an annual basis than it imported for the first time since 1949. The increase in foreign purchases of distillate fuel contributed the most to the United States becoming a net exporter of petroleum products. American refiners still imported large amounts of crude oil, some of which is refined and exported as petroleum products, including gasoline.

Admittedly, projections of future production growth are dependent upon many factors and range from 1.5 to 4.0 million additional daily barrels by 2015. This would result in a possible daily total of 9 to 12 million barrels. This is well below our total US petroleum requirements, but constitutes a very beneficial step in reducing our trade deficit.

After 2015, the favorable gap between production and exports is expected to grow, as imports continue to wane. The gap could grow even faster if tight oil plays pan out better than expected. But just because the domestic energy industry is ramping up does not mean the US can stop importing foreign oil tomorrow. Most horizontal wells have steep decline rates, meaning that to increase annual production volumes, new wells must not only overcome declines of existing wells, but add even more new volumes to daily rates. Moreover, it may be unwise to completely eliminate imports from some sources. Each day, the US imports about 2 million barrels from Canada and 1 million barrels from Mexico, two of our most valued and reliable trading partners. To stop deliveries from them could damage relationships and leave us more vulnerable to a catastrophic interruption of supply in our country.

Of course, petroleum is only one segment of the energy budget of the US, comprising about 37% of the total. Of that, about 72% is used in transportation, with most of the remainder allocated to industry, and minor percentages to residential and commercial heating, and electric power generation. At 25% of the energy budget, natural gas is the second most utilized source, divided almost equally among industry, residential and commercial heating, and electric power generation. At 21%, coal is used almost exclusively for electric power generation, as is nuclear (8%) and renewables (9%).

The US is blessed with such an abundance of energy resources that we can logically export some. If total energy is considered, the US is over 70% self-sufficient today. With the world’s largest deposits of coal, estimated by some to be an 800-year supply at current rates of consumption, we are already shipping millions of tons to Europe and Asia. Current and anticipated future development of shale resources is adding natural gas supply in such quantities that prices have been driven down, and natural gas is displacing coal as a cleaner alternative to generating electric power. Even with heavy restrictions on building new refineries or expanding existing ones, we’re still able to export some refined products. Numerous applications to export liquefied natural gas (LNG) overseas are awaiting approval, and more are in the process of being filed. Sometime, in the distant future, we might even have excess oil to export.

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