Robert J. Samuelson: U.S. poised to be top oil producer
Preoccupied by the election, Americans may be under the delusion that most major social and economic changes proceed from the ballot box. Not so.
The latest reminder of this comes from a surprising source: the annual World Energy Outlook report from the Paris-based International Energy Agency. In the report, the agency comes to the startling conclusion that, by 2020, the United States will displace Saudi Arabia – albeit temporarily – as the world’s largest oil producer. Even more astonishing, the United States is projected by 2035 to be virtually self-sufficient in oil, with modest imports coming from secure suppliers.
Richard Nixon must be cheering from his grave. In 1973, Nixon launched Project Independence; the United States would be energy self-sufficient by 1980. It didn’t happen, and although many politicians later embraced the same popular goal, most energy experts considered it a self-serving fantasy. Oil demand crept steadily upward, while America seemed to be slowly exhausting its once large reserves. “Output had been widely assumed, even as recently as a few years ago, to be in inevitable decline,” notes the IEA.
No more. Geology and technology, it seems, are destiny.
The same technology that has resulted in a vast expansion of natural gas production – so-called “shale gas” – is doing the same for oil. “Fracking” (shooting highly pressurized water into oil formations) and horizontal drilling are steadily increasing production. Meanwhile, the IEA expects that much-improved vehicle fuel efficiency will slowly reduce U.S. oil demand. The Obama administration has adopted rules raising fuel efficiency for new cars to 54.5 miles per gallon by 2025 – roughly double the present standard.
Together, rising oil production and shrinking demand should dramatically reduce U.S. imports, the report says. In 2011, imports had already fallen to 9.5 million barrels a day, roughly half of U.S. consumption. But by 2035, the agency expects net imports of only 3.4 mbd. The decline is split roughly between higher production – including biofuels – and savings from greater fuel efficiency.
The agency sees profound consequences. For starters, the long-standing U.S. trade deficit will narrow and might disappear. In 2011, oil imports represented two-thirds of the deficit in goods. While the United States will use less imported oil, it should also become a substantial exporter of liquefied natural gas; until a few years ago, it “was expected to become a major importer” of natural gas. Abundant and cheap natural gas should support a manufacturing revival by attracting energy-intensive industries such as “aluminum, paper or iron and steel, or … petrochemicals … where feedstock costs can represent over 80 percent of total operating expenses.”
Within a few decades, the United States could attain Nixon’s once-impossible goal. However, the agency warns that growing independence won’t insulate the United States entirely from global markets. “Oil prices are set globally,” the group reminds, “so consumers in the United States will continue to feel the effects of worldwide price fluctuations.”