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Page added on September 26, 2020

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Forget peak oil: America’s booming oil industry has allowed the US to achieve a type of energy independence

Consumption
  • As recently as 2008, Americans were paying high costs for gas and there was handwringing over the need for US “energy independence.”
  • But quietly America has achieved a form of energy independence, with net energy exports eclipsing net imports.
  • The shift was driven primarily by the rise of shale oil extraction, with renewables also playing a part.
  • George Pearkes is the Global Macro Strategist for Bespoke Investment Group.
  • This is an opinion column. The thoughts expressed are those of the author.
  • Visit Business Insider’s homepage for more stories.

The first summer I could drive was 2008, and it was a real summer to remember. WTI crude oil, the US benchmark, would peak at a record $145 per barrel and filling up my hand-me-down Chrysler Intrepid cost an unthinkable chunk of my short-order cook paycheck.

During the mid-2000s, Americans were gripped by the unthinkable (but widely-predicted) collapse of conventional oil extraction. High oil prices arguably helped to pop the housing bubble, were held up as a reason for a disastrous and tragic war in Iraq, and were the focus of numerous foreign policy and environmental debates. .

Mainstream politics largely gravitated to the concept of “energy independence” as a way to combat the concern over Americans’ massive consumption of energy relative to its production. Basically, politicians advocated increasing domestic oil exploitation instead of relying on overseas supplies. Vice Presidential nominee Sarah Palin would have served as John McCain’s effort to stoke American domestic energy production if he had been elected.

Of course, the “energy independence” approach was centered on stoking domestic production, rather than reducing consumption or altering energy source mix. On the right, nationalism plus deregulation was the answer to being down costs for Americans’ gas guzzlers. By contrast, the Obama Administration would ultimately focus more on renewables and higher fuel efficiency standards.

But more than a decade removed from $140 WTI prices and the 2008 election, the US has actually achieved one measure of energy independence. Over the 10 months ended May of 2020, the United States exported more energy than it imported: about 2.6 quadrillion British Thermal Units more, per EIA data and my seasonal adjustment. That’s equivalent to about 20.8 billion gallons of gasoline.

The shift to net exports

energy balance

George Pearkes

As a country, we have gone from net imports of about 30% of our energy needs to exporting more than we import over the last 14 years. This is a truly remarkable shift and begs the question: where did it come from?

Historically, American energy consumption rose as the economy and population expanded, but over the last two decades that hasn’t been true. Total American energy consumption has been basically flat since the late 1990s, despite economic and population expansions.

It’s production where things have really shifted.

energy production surge

George Pearkes

As shown in the chart below, energy exports have risen by about 2.0 quadrillion BTU since the mid-2000s versus about 2.6 quadrillion in new production. Instead of being eaten up at home, about three-quarters of new US production has been sent abroad.

export surge

George Pearkes

In short, the shale revolution has created US energy independence. As shown below, America had been a net exporter of coal for a long time, and natural gas is now a net export, but the real scale in terms of available energy has come from a collapse in petroleum imports and a surge in petroleum exports.

Put another way, shale companies are cranking out so much American crude oil that — given the slow growth of internal demand — the only option has been to send it abroad.

petroleum

George Pearkes

The big caveat to US energy “independence” is that while the US now exports more energy than it imports, it still imports a lot of energy. Those imports are the feedstock for refineries or fill specific roles that US primary production of energy can’t quite manage, and they will always be there…even if the overall picture is one of US net exports.

For instance, not all blends of crude produced in the shale patch are useful for all types of refining; it can also be cheaper to import crude or refined products to specific parts of the country depending on a variety of temporary factors which are constantly changing.

independent on net

George Pearkes

This may come off as a depressing read for environmentalists. While there has been some progress made slowing demand for energy, the shift in America’s dependence on foreign sources of energy has all come from a huge exploitation of domestic fossil fuels.

What about green power?

So far, solar and wind power haven’t played a big role in the story. But there is strong evidence that they will in coming years. As shown below almost 5% of US energy production comes from solar and wind. Solar power in particular is booming in 2020: at annual rates the first five months of the year saw output rise at 140% pace.

solar wind production

George Pearkes

With booming solar and wind output and massive exports of petroleum, the concern over energy independence has faded. This is also an excellent lesson in how badly our discussion of major issues tends to lag actual events.

The chart below shows a normalized reading for net energy imports, the frequency people search Google for “energy independence”, and the frequency “energy independence” shows up in books. As shown, the surge in concern over energy independence in the late 2000s only came after net imports had peaked….and not during the decades-long buildup of huge import bills.

Now that we’re actually seeing a version of energy independence, there’s no mention to be found…much like the way the term faded from view the last time US net imports of energy slowed down.

energy independence trends

George Pearkes

The US is now selling more energy abroad than it consumes at home, thanks to a surge in domestic oil production and to an increasing extent the production of solar and wind electricity.

While true energy independence was always a fool’s errand, the version achieved so far is a remarkable reversal of the framework many Americans are used to. And it continues to fly under the radar.

This is an opinion column. The thoughts expressed are those of the author(s).

Business Insider



4 Comments on "Forget peak oil: America’s booming oil industry has allowed the US to achieve a type of energy independence"

  1. Anonymouse on Sat, 26th Sep 2020 8:13 pm 

    This is an opinion column. And opinions are like assholes. The thoughts expressed are those of the asshole(s) @ Business Insider.

    Even if they happen to claim otherwise.

  2. DT on Sat, 26th Sep 2020 11:04 pm 

    Whee now the U$ can stop all crude and its products being imported. The U$ being independent. This of course has already happened.

  3. why whitey supertard president Biden love muzzies he didn't tell sharon stone put on panties but we have to wear face panties on Sat, 26th Sep 2020 11:46 pm 

    Doesn’t make sense

  4. shell shockers on Sun, 4th Oct 2020 5:02 am 

    The first summer I could drive was 2008, and it was a real summer to remember. WTI crude oil, the US benchmark, would peak at a record $145 per barrel and filling up my hand-me-down Chrysler Intrepid cost an unthinkable chunk of my short-order cook paycheck.

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