Can the U.S. Be Energy Independent?

Can the U.S. Be Energy Independent?

As the United States finds itself with abundant natural gas supply and growing domestic oil production, the phrase 'energy independence' has become the new buzzword of politicians and oil and gas industry officials.

According to a recent Raymond James report, the United States could achieve energy independence by the end of the decade, Dow Jones reported in early April.

But can the United States truly become energy independent?

In the short to medium term outlook for oil, the United States effectively has no chance of becoming energy independent, said Dr. Michael Noel, senior vice president of Edgeworth Economics.

"Right now, we import so much oil because it's cheaper to do so," Noel said. "To forego a cheaper source of oil and replace it with a necessarily more expensive source generally does not make economic sense."

The argument for energy independence implies that the Unites States should always pay a premium on energy to avoid Middle East oil instead of just a premium when price shocks coming from the Middle East cause price spikes in the United States.

"It's an expensive insurance policy and that's why we still use Middle East oil," Dr. Noel commented, adding that, as long as the United States uses oil to a certain degree, the United States will always be subject to global oil shocks.

Currently, 20 percent of oil imported by the United States comes from the Middle East and 40 percent from OPEC member countries. Canadian oil comprises 20 percent of U.S. imports and is expected to keep growing. Ten percent of U.S. oil imports come from Mexico; the amount of oil imported continues to fall.

Even if the United States imported all of its oil from friendly countries such as Canada, a supply cut in the Middle East would mean customers in this region would need to source oil from somewhere else, bidding up the price of oil and drawing supply from Canada and other friendly countries. As a result, U.S. customers would be impacted with higher prices.

"The domestic price of oil will reflect the world price of oil, so thinking that more domestic drilling will bring domestic oil prices down is a bit naïve," said John Z. Wetmore, producer for "Perils for Pedestrians" Television, a television series that examines the issues affecting people who walk.

Additionally, the faster the United States pumps its domestic reserves out of the ground, the sooner it will exhaust them and be even more dependent on foreign supplies, Wetmore commented in a statement.

Assertions by some politicians that U.S. energy independence means the U.S. will not have to send its troops over to the Middle East are not accurate, given the United States support of Israel.

"There is still going to be some involvement, given that a number of Muslim countries don't like its existence," Noel said.

"Energy independence doesn't mean we'll abandon our friends and allies around the world," said Mike Amman, a Florida-based business finance and technology consultant. "Isolationism isn't the answer, we're joined at the hip (or at the wellhead) to the rest of the world, like it or not."

The outlook is not good for cheap gasoline, given worldwide demand for oil. Wetmore noted that China is now a larger automobile market than the United States and India.

Other countries are trying hard to catch up with United States' driving habits, Wetmore commented.

"Four dollars will look cheap when the world economy recovers," said Wetmore. "It would all be more tolerable if we designed our cities and towns with more transportation choices, so we didn't have to burn gasoline every time we made any trip for any purpose."

Chris Nelder, an energy expert who has written numerous articles in the topic of Peak Oil, said that existing data doesn't support the idea of the United States being energy independent.

Nelder questions whether production forecasts for unconventional oil plays such as the Bakken are feasible, and notes that Mexico's production has been in long term decline.

While tight oil wells have huge initial production rates, they decline sharply in six months times. Tight oil production will also not work with lower oil prices.

"To be energy independent, we would have to produce about 9 million barrels of oil per day (bopd) from wells that give you 100 bopd," Nelder noted, adding that oil prices need to stay above at least $85 per barrel to sustain production.

However, higher oil prices have also bolstered gasoline prices, and as U.S. consumers struggle with $4/gallon prices, they start to drive less, which kills demand. Oil production needs to remain on a narrow ledge to keep production flowing, and the incredible price swings to above $100 and below $85 impact supply.

"In that narrow band, do we really think it's possible that for another decade we can drill thousands and thousands of wells?" said Nelder.

To keep output flat, the U.S. would have to draw down its oil resources more quickly, Nelder commented.. By 2030 and 2040, over two-thirds of the world's oil fields will be in terminal decline. At that time, the United States will face difficulties in importing oil from anywhere.

"From that point, we're going to need our domestic resources," said Nelder. "We could actually be shooting ourselves by trying to achieve energy independence."

Promise of Natural Gas?

The United States already is energy independent in natural gas, said ConocoPhillips Chairman and CEO James Mulva at a recent conference.

Energy industry leaders such as T. Boone Pickens and Robert Hefner are calling for greater use of natural gas in the United States in transportation.

Nelder thinks that T. Boone Picken's plan to convert fleet vehicles to run on compressed natural gas makes a lot of sense, but worries that the deluge of natural gas that as resulted from the shale gas rush means that no companies can make money on natural gas.

The land rush mentality that ensued since late 2010 resulted in companies buying up a number of properties and drilling. A lot of gas is being flared, and plans have been proposed to convert liquefied natural gas import terminals constructed in the United States into export terminals.

Nelder said he thinks that the United States shouldn't get crazy about exporting LNG until the United States really knows what it has in terms of supply, noting that the 100 years of natural gas supply in the United States hasn't been proven and is highly speculative.

The United States already uses gas that is the equivalent of 11 million barrels of oil per day and faces the serious risk of finding itself faced with very expensive gas if gas use increases and LNG is exported.

A number of shale gas producers such as Chesapeake Energy have taken on a lot debt to acquire shale gas properties, thinking they can flip the leases. But these companies face the real possibility of going bankrupt when buyers start to question whether the can profitably produce gas, Nelder noted.


Click on the button below to add a comment.
Post a Comment
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
Arnold E. Baron | May. 8, 2012
This article has been read by me with much interest. Having been in the oil and gas industry for over 60 years (since 1950),as a Petroleum and Mechanical Engineer I do feel that my knowledge of oil and gas production is a bit more than yours. Had you put more time in researching this subject, I feel that with your analytical expertise, you would have redirected your article to reach a different conclusion. A lot of your information is based on assumptions of supply and demand, that may be too channelized. I do remember 20 or 30 so years ago, the prognostications by "knowledgeable" experts stated that soon we would be approaching the end of producible hydrocarbons as we knew and understood. Technology has proven this wrong. With the supply of natural gas from tight formations (shales) being developed, one wonders why we are so worried. We have only begun to scratch the surface of worldwide gas production. Basically, we need to invest in development of reasonably priced vehicles that will run on LNG. Then we would establish the distribution of LNG through our present "gas" stations. Dr. Michael Noel - "Its an expensive insurance policy and thats why we still use Middle East oil," Dr. Noel commented, adding that, as long as the United States uses oil to a certain degree, the United States will always be subject to global oil shocks. With our "integrated world" the US will always be confronted with global oil shocks. John Z. Wetmore - "Additionally, the faster the United States pumps its domestic reserves out of the ground, the sooner it will exhaust them and be even more dependent on foreign supplies, Wetmore commented in a statement." This is total balderdash. The outlook is not good for cheap gasoline, given worldwide demand for oil. Wetmore noted that China is now a larger automobile market than the United States and India." I do not remember gasoline being cheap since 1950, when it was around 25 cents per gallon. Price of gasoline is only "cheap" when one determines what is "cheap or expensive." Nelder thinks - that T. Boone Pickens plan to convert fleet vehicles to run on compressed natural gas makes a lot of sense, but worries that the deluge of natural gas that as resulted from the shale gas rush means that no companies can make money on natural gas." Again "Balderdash". Drilling for natural gas has declined dramatically in the past year. Low demand and too much supply available presently created the artificially low gas pr To my simple mind, a lot of vehicles produced to run on natural gas use would increase demand for our natural gas wells. "Voila", demand for natural gas would go up sharply and so would the price.

ruben | May. 8, 2012
With friends like these who needs enemies?

John T | May. 8, 2012
If we stop using foreign oil and started producing our own, the World Oil price would drop. Even the threat of us producing our own will make OPEC and the Arabs cr@p their pants and drop the price.

allen | May. 8, 2012
Nationalize the oil fields, and send me a check the resources belong to the People not the Oil Co. The hell with Pickens and the rest of these multi-millioners, The people can rent any rig, Send us a check just like Alaska.

allen | May. 8, 2012
with all the resources we have we can, This year half of the Air Force Mac fleet will be on synfuels? Why is the media holding this story? One of these days if the Oil Companies, OPEC, and others keep staping the middle class there will be a generation that will have a candidate that will run on the platform of Naturalizing all FUEL." Let the Gov send you a check, Just like in Alaska" You dont think this will not fly? This is in the whisper stage, However when it breaks good- by Oil Co.

Rafael Sandrea | May. 8, 2012
Your article provides a very balanced view of reality versus the hype we read and hear about tight oil reserves. The resources (oil in the ground) are vast but how much we can get out (reserves) is in reality still very low, 1-2%. It will get better but will take a lot of time. We are still feeling our way around the existing tight oil deposits to get an understanding of their potential. Every play is very different!

Tom Gandolfo | May. 8, 2012
Like every egg-head Ph.D. professor Ive ever known, Dr. Michael Noel ignores facts which do not coincidence with his agenda or viewpoint. For example, in his prognostication, he ignores the "game changer" called GTL technology. GTL stands for "Gas to Liquid". This technology uses cheap domestic Natural Gas and converts it to super clean Diesel fuel and Fuel Oil @ under $2.50 per gallon RETAIL! These fuels are "liquids" which means this exciting technology will replace Oil used for transportation which is imported from unstable, radicalized Middle East countries. Whos interest is Dr. Noel serving? His own or his political cronies? Certainly not those of this country. With GTL technology, CNG, and other new technologies along with more fuel efficient vehicles AMERICA CAN BECOME ENERGY INDEPENDENT. And THAT is the reality of the matter, Dr. Noel. "Yes we can", yall!! TG

David Cole | May. 8, 2012
Nelder should think about picking another career if he believes his arm chair theorizing can contribute to the topic of energy independence. First he cites no facts as to the shipping and tankering cost in the equation of converting crude to gasoline, jet fuel, oils etc. etc. Oil supplies and cost of conversion will always be a factor. No intelligent energy policy that fails to include oil company forecasts and cost analysis is futile. The idea of running out of oil has been around for 50 years and has failed to materialize except as one more myth since we make it more difficult for oil companies by tomes of regulations and drilling permitting. We need a policy designed by business people, practical minded and experienced citizens, and oil company economists as well as broader trained people with environmental concerns to form a think tank to draw an energy policy. The first requirement would and should be the recognition that the task is ongoing. Being wrong is a necessary recognition and work must be a continual process. Making the most of our resources is important to the underlying economics to keep people working, revenues flowing and doing extensive research and testing of newer energy technologies.

george ruby | May. 8, 2012
Our only Problem right now is the Corrupt Politicians and our greedy Corporate Officers, We can be energy Independent within about 10 Years and we can wean our selfs of foreign oil and create hundreds of thousands of JOBS FOR AMERICANS, its ours, our Jobs, Our Money. We Need Honest Politicians, Honest Leaders, Non Corrupt Banking Officials, it can be done, Americans get of your (You Know What and Change The Way America Does Business).

John Hoopingarner | May. 7, 2012
I am wondering why the opinion of a "pedestrian" expert would merit mention in this article. Secondly, it isn't just about how much oil the US imports but the cost of it. The massive flow of dollars out of the US is crippling our economy. The Pickens Plan (converting all long haul diesel burning trucks to "home grown" natural gas) is a great idea and would soak up a lot of inexpensive gas. Why not convert all diesel burning engines in buses too. Natural gas powered cars in Dallas, for instance are more fuel efficient, environmentally friendly, and cost 40% less to fuel. Converting vehicles to CNG or even LNG is a much better "export option" than exporting LNG.

PD | May. 7, 2012
Summary: "It might not be easy or simple, so lets not try."

THOMAS JONES | May. 7, 2012
YES WE CAN! First as T-BOONE says convert large trucks to Natural gas. Secondly, set a goal of expanding our Strategic Reserves to 4 Billion barrels of oil by using the oil sands from Canada to expand our reserves. There are many old fields starting with the Teapot Dome that should be used for new storage. The Gulf Coast states also have many salt deposits that can be used. The Spindle Top near Port Arthur, Texas can be used also.


Our Privacy Pledge

Most Popular Articles

From the Career Center
Jobs that may interest you
Principal Financial Analyst-DIRECT
Expertise: Accounting|Financial Analyst
Location: Houston, TX
Sr. Project Manager
Expertise: Project Engineer|Project Management
Location: Odessa, 
Administrative Assistant IV
Expertise: Executive|Secretarial or Administrative
Location: Houston, TX
search for more jobs

Brent Crude Oil : $50.97/BBL 1.53%
Light Crude Oil : $48.75/BBL 1.79%
Natural Gas : $2.92/MMBtu 0.68%
Updated in last 24 hours