New Frontiers: a debate over the prospect of US energy independence

The notion that the US could become “energy independent,” or at least “energy self-reliant” within a decade or so has taken on new life as crude gushes from North Dakota and cheap natural gas abounds.

But what if that goal, long talked about and now tantalizingly within reach, is achieved?

The almost giddy prospect of a new golden age of US energy production has policy wonks contemplating the ripple effects of energy independence. What are the global consequences if US defense and political decisions are no longer tied to the volatile gyrations of Middle East oil?

“We can have a better value-based foreign policy,” Citibank analyst Ed Morse said at a recent panel discussion in Washington hosted by the New America Foundation. “We’re no longer going to be kowtowing to despotic rulers or fuel monarchs whose oil supply lines are critically important.”

Morse recently co-authored a lengthy report on the topic with the provocative title: “Energy 2020: North America, the New Middle East?” He estimated the volumes of energy North America would soon be producing from five sources: Canadian oil sands; deepwater in the US and Mexico; oil from shale and tight sands; NGLs produced in association with natural gas wells and biofuels.

Adding all that up could result in total liquids production of 27 million b/d by 2020, Morse and his team suggest. With US demand falling to about 17 million b/d, the US would have a surplus of liquids of about 3 million b/d, Morse projects.

The latest forecast from the US Energy Information Administration is less bold, but still optimistic. In its “high production/low demand” scenario, imports fall, but still remain at about 3 million b/d by 2035. The EIA projection was for the US alone, however.

EIA expects 2012 imports of liquids, including crude and products to be 41% and 39% in 2013, down from over 60% in 2005.

What would the US do with a liquids surplus? Would it assume OPEC’s role as a source of spare capacity, exporting or not as global demand and price pressures dictate?

Not so fast. In the current debate over leasing of federal waters for offshore drilling, many in Congress speak of energy independence in terms of a closed market in which oil and gas produced here stays here and results in lower gasoline prices.

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Republicans, notably, urge the opening of vast acres of federal land on the assumption that more supply would mean lower prices. But they resist efforts by Democrats to link expanded access to requirements that oil and gas produced from federal lands not be exported.

“As long as the United States is fully integrated into the world oil market, US fuel prices will rise and fall along with events on the other side of the globe–say, a war with Iran,” Michael Levi, director of the Program on Energy Security and Climate Change at the Council on Foreign Relations, wrote in the July/August issue of Foreign Policy magazine.

So reducing or even eliminating imports would not protect us from the effects of global disruptions.

“We live in a globally integrated oil market,” Levi said at the New America Foundation event. “Even if we are producing as much as we consume…when something goes terribly wrong in the Middle East, the only way to insulate the United States from price spikes, which would be economically damaging, would be to bar exports,” he said.

That’s assuming that the US ever changes its law to allow crude exports in the first place. And analysts ponder how the US would use its newfound power, whether it would use its abundant supply to influence world oil prices or wield spare capacity to ease short-term price swings.

“Nothing about the US oil and gas boom suggests that Washington can or will step into this role,” Levi wrote in his Foreign Policy article. “No US government would–or could–attempt to prop up world prices by restraining US supplies.”

One foreign policy result could be that the US public would no longer support sending thousands of troops to Kuwait, Iraq or other places to protect Middle East oil, suggests Robin West, chairman and CEO of PFC Energy.

West notes that US energy self reliance would change global crude flows, with Middle Eastern and West African oil flowing to Asia.

“As a result, Asian countries are going to be much more focused and influential in that part of the world,” West said, suggesting that US interest in the Middle Eastern energy drama might wane.

Would US energy self reliance insulate the US from foreign entanglements?

“Middle Eastern oil and gas is still important to the rest of the world and our economies are intimately linked to the rest of the world,” Edward Chow, a senior fellow at the Center for Strategic and International Studies, said during the New America Foundation forum. “There is only one global power that can secure that supply today, rightly or wrongly. Are we therefore going to relinquish that role? I’m not so sure.”

—Gary Gentile in Washington
Platts