America’s New Energy Security from Tight Oil

Every president since Richard Nixon has called for energy independence. Nevertheless, U.S. reliance on imported oil long seemed to be headed in only one direction—up—and that pointed to inevitably increasing dependence on the huge resources of the Middle East.

No longer. U.S. petroleum imports, on a net basis, reached their peak—60%—of domestic consumption in 2005. Since then, they have been going in the other direction. They are now down to 45.6% (see chart above, data here).

The big surprise is onshore [production], where the United States is experiencing an oil boom. The reason is the sudden appearance of a new source, “tight oil,” which is extracted from dense rocks. For years, tight oil has been a very marginal business. In 2000, it was only about 200,000 barrels per day, 3% of total output. Today it is about a million barrels per day. By the end of the decade it could reach three million barrels per day, over half of current domestic crude oil production.

The dramatic increase in tight oil has been made possible by the same technology combo, hydraulic fracturing and horizontal drilling, that created the “shale gale”—the explosive growth in natural gas production from shale rock.

Just a few years ago the expectation was that the U.S. would be importing large volumes of natural gas and becoming heavily dependent on world markets—and spending upward of $100 billion a year for those imports. Now people, including President Obama, talk about a hundred-year supply of domestic natural gas. Shale gas has also proved to be a job creator—over 600,000 jobs.

Oil extracted from shale also means lower imports, a lower bill for these imports, and substantial job creation. Thanks to tight oil, North Dakota is now America’s fourth largest oil-producing state after Texas, Alaska and California. It may well move up to third or even second place (MP: This will likely happen within the next few months).

The shift in oil sources means the global supply system will become more resilient, our energy supplies will become more secure, and the nation will have more flexibility in dealing with crises. It would also mean that economic benefits—in terms of jobs, manufacturing and services—would register on the ground in North America.

The most recent United Nations report on Iran’s nuclear program, along with the call by French President Nicolas Sarkozy for an embargo on oil imports from Iran and possible sanctions on Iran’s central bank, have raised the stakes. The Iranians have responded by again brandishing the threat to close the Strait of Hormuz, and by ransacking the British Embassy in Tehran.

Thus, over the next few years, new supply in North America becomes all the more important as a potential offset to rising tensions with Iran in the global oil balance. This gives new urgency to assuring that North America’s oil resources are developed to what is now their much-greater potential.”

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About the Author: Mark J Perry


  1. Yet in the net assessment, while I share the hope that the Obama administration will follow the best of the lessons from Eisenhower, thus far the disparities between the two presidencies are more substantial. And if the Obama administration does change course and start following more of an Eisenhower model, perhaps as Peter suggests the parallels between Truman and Bush will further sharpen as well.

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