Not long ago, the majority of the world's petroleum supply was located in regions of the globe that were hostile or potentially hostile to the United States. The Arab Oil Embargo of the 1970s drove that point home to many Americans who were forced to wait in long lines at the gas pump after some of the OPEC nations turned off the spigot due to US support for Israel during one of the several wars between the Jewish nation and its Arab neighbors.
Today, however, that situation is rapidly changing. New technology for extracting hydrocarbons from shale rock has made it economically feasible to produce oil and gas in large volumes from these unconventional resource plays. So much crude oil, GTLs, and natural gas is being pumped from these formations currently that oilmen argue the term "unconventional" is no longer appropriate. Unconventional has become conventional.
There are so many drilling rigs operating in the Bakken shale play in North Dakota and the Eagle Ford shale in South Texas that satellite photos of the earth at night make these remote places look like well-illuminated cities because of the many rig lights and gas flares. An alien approaching our planet from space after a three- or four-year absence might wonder what we humans have built in such a short time. Small wonder there have been numerous reports of UFOs by work crews in South Texas, eh? They've got to be wondering what we're up to.
Although US oil production is surging, with no immediate decline in sight, Canada is enjoying its own energy boom. Although production is declining in Canada's conventional oil fields, oil and gas production from western Canadian shale plays is rising simultaneously with production from Alberta's oil sands. As long as crude oil prices remain sufficiently high, production should continue to climb.
Current production volumes are so great that midstream companies are struggling to keep up with infrastructure demands. New pipelines and processing plants are being constructed, and capacity on existing lines is being expanded.
US and Canadian companies are hopeful that regulatory bodies will approve additional permits for the export of liquefied natural gas, and increasingly it appears the respective governments will oblige. This has already started a construction boom for LNG processing facilities and export terminals that nobody anticipated just a few short years ago.
In part due to the dramatic increase in domestic energy supplies, the economies of the US and Canada are outperforming those in Europe and elsewhere. However, there are reasons not to be overly optimistic, says the Economist Intelligence Unit.
Researchers at the EIU say that US oil imports peaked at around 60% of US oil consumption in 2005. Currently imports account for about 40% of the oil we consume. However, even if the supply of domestic shale oil surpasses expectations over the decade, it is unlikely the US will achieve self-sufficiency by 2020 – just seven years away. The US Energy Information Administration says that net crude oil imports will fall from 8.9 million barrels a day last year to 7.5 million barrels per day in 2035.
The Independent Petroleum Association of America says that diesel fuel is the unsung hero in the current oil boom. Although diesel fuel accounts for about 20% of US petroleum consumption, it jumps to 30% of consumption in the rest of the world.
The revolution in oil and natural gas liquid production from shale has served to replace substantial volumes of imported crude oil with domestically sourced liquids. As a result, beginning sporadically in late 2010 and strengthening since then, the US has had the remarkable experience of becoming self-sufficient in certain petroleum products on a net basis for the first time in more than 60 years. Diesel fuel is one of those products.
In 2012, says the IPAA, the industry was able to fully supply the US market of nearly 4 million barrels of diesel per day and have enough left over to boost US exports to a level of 1 million barrels per day in response to growing demand for diesel in other parts of the world. This increase in international trade adds to US export revenues while supporting the jobs of US refinery workers.
Although the US will continue to see benefits from increased oil production, we should keep in mind that oil prices are set internationally. Even if we were awash in millions of additional barrels of oil, global prices would still be the determinant, say the analysts. Therefore, the US will remain vulnerable to oil price shocks, regardless of a robust domestic supply.
This does not look like "energy independence" to us, says the EIU.
