If someone had suggested even a few years ago that vast amounts of oil in the United States have yet to be tapped and that energy companies could be exporting crude oil to global markets instead of importing it, the idea would have been dismissed as fantasy.
But now it's time to entertain the possibility that U.S. oil reserves are very large — and, with new discoveries continuing to change the energy calculus, they are almost certain to grow larger in the years ahead. Thanks to deep water drilling using advanced seismic imaging and a revolution in shale production that's yielded an abundance of oil and natural gas, the era of domestic energy scarcity is over.
This development has led to decline in U.S. oil imports to their lowest level since 1987, a monumental achievement after years of growing foreign-oil dependence.
Energy independence — a goal announced by President Richard M. Nixon following the 1973 oil embargo and championed by every president since then — seems no longer a pipedream but something that's achievable. Between improvements in the efficiency of energy use and greater domestic oil production, the United States can protect itself against possible oil-supply cutoffs, though it will always remain vulnerable to a sudden jump in world oil prices.
A diversity of sources is contributing to expanding domestic fossil fuel production. In North Dakota and Texas, oil producers are using the same techniques — a combination of hydraulic fracturing and horizontal drilling — that already have been applied to natural gas recovery. Companies are gearing up to drill in oil-bearing shale in Delaware, Wyoming and Colorado. And the U.S. Energy Information Administration says that the Monterey shale formation in California — a 1,750-square-mile area south of San Francisco — could hold an astounding 15.4 billion barrels of oil — more than four times the technically recoverable resources in North Dakota's Bakken shale and the Eagle Ford shale in Texas.
Production of shale oil, along with deep-water drilling and enhanced recovery from "old," supposedly depleted oil fields, is expected to keep rising for many more years to come, adding considerably to the more than 9 million men and women the American Petroleum Institute reports now as being employed directly in oil and gas production as well as in a variety of "support" jobs.
The International Energy Agency says the United States is on track to overtake Saudi Arabia and Russia as the world's largest oil producer. From a strategic geopolitical perspective, the good news is that as U.S. production rises, world oil prices are falling, weakening countries like Iran, Venezuela and Russia that rely heavily on oil income.
Given that markets for crude oil and natural gas are global in scope, energy independence never made much economic sense. U.S. consumers benefit on the whole from maintaining a free and open system for world trade, particularly in energy. Currently, we routinely export petroleum products ranging from gasoline and diesel oil to jet fuel; we export many tons of coal, and we are beginning to use liquefied natural gas (LNG) tankers to ship natural gas overseas. In fact, during the past decade, such exports have nearly tripled.
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Because world energy needs are expected to grow tremendously in the decades ahead and the energy shoe is now on the other foot, the United States should take advantage of its newfound oil and natural gas reserves by expanding exports to markets in Europe, Asia and Latin America.
Such a policy not only would improve our nation's international trade balance, but also would strengthen our economic ties with the rest of the world.
William F. Shughart II, a senior fellow of the Independent Institute, is J. Fish Smith Professor in Public Choice at Utah State University