Friday, May 31, 2013

New Verse to a Refrain on U.S. Energy Independence

There is a lot of euphoria that America maybe moving towards energy independence with the boost of shale oil production. Latest news headlines say that the U.S. oil boom will render OPEC irrelevant and OPEC loses power as U.S. shale boom keeps prices down. Some observers argue that the U.S. could stop importing energy, particularly from politically unstable countries of the Middle East and Africa, thereby reducing its involvement in these regions.

Taking a longer view, it is not a fact yet that shale oil boom will not meet hurdles along the way. It is a fact that both shale gas and oil wells decline much faster than their conventional counterparts. Drilling new wells will be the only way to keep the anticipated high level of shale oil production. Further, even with the rising domestic oil production and a drop in overall U.S. crude imports, oil supplies from Canada, Saudi Arabia and Iraq increased to a 15-year peak in 2012. These three countries plus Venezuela remain top exporters of oil to the U.S.

Greater energy self-sufficiency is a possibility for the U.S., but the real questions are whether absolute energy independence is ever possible for America given rapid peaks and declines in unconventional oil wells and the nearly bygone era of its conventional oil production; the relatively expensive development of unconventional sources of energy compared to conventional oil and gas; whether the country's transportation sector, which accounts for close to 93% of all petroleum consumption, is able to reduce its addiction to oil; and whether it is ever possible to be immune to fluctuations of global energy prices given the increased financial and physical interconnectedness of major global energy markets. 

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