US Leads World in Oil Production – But For How Long?
Fracking boom could go away as fast as it arrived. And then what?
Fracking has transformed the geopolitics of energy, shifting the center of gravity out of the Middle East to America. It has turned America, a nation once reliant on foreign energy sources from some rather unsavory nations, into a net exporter natural gas and refined petroleum products.
In fact, America now leads the world in oil production and is, to a large extent, energy independent. The United States still imports 11 percent of its oil, the lowest its been since 1957.
US Leverages Oil Market Dominance
Energy independence has been a huge advantage for America on a number of fronts. Economically, it has helped keep U.S. gasoline prices relatively low and created thousands of new jobs. On the global scene, leading the world in oil and gas production has largely insulated the United States from the political machinations of the Mideast and OPEC and has granted it more diplomatic power over its adversaries.
For example, market dominance has allowed the United States to successfully put sanctions on Iranian oil exports, exerting economic pressure on the terror-supporting regime without disrupting the global market. Americas world-leading oil productivity has also blunted the impact of other supply shocks, such as the recent attacks on Saudi Arabian oil fields. That attack cut Saudi oil processing capabilities by half, albeit for only a short time. In the past, such an event would have sent oil prices skyrocketing for a long time. And yet this time around, the market barely noticed.
Essentially, Americas global leadership in oil production has weakened the Organization of the Petroleum Exporting Countries (OPEC) grip on global oil prices and supplies that once allowed the oil cartel to hold the rest of the world hostage.
But how long will Americas top position in oil and natural production last? Its not as clear cut at it may appear to be at the moment.
Much of Americas new oil and natural gas production comes from a controversial extraction process known as hydraulic fracking. Hydraulic fracking was first widely used in the 1960s, and yet had been invented a century earlier. Unlike traditional oil production, which involves drilling holes into the earth until reaching enormous underground oceans of oil (the Middle East), fracking extracts oil from shale rock by forcing high-pressure liquid into layers of the shale deep underground. The high pressure fractures the shale, releasing huge amounts of oil and natural gas. Groundwater is pumped into the cavity left behind after all the oil and gas have been taken out.
But hydraulic fracking is controversial for several reasons. Critics say fracking depletes local drinking water supplies, pollutes the air, has toxic impacts on people in the area and contributes to greenhouse gases. But perhaps most well-known is the suspicion that fracking is causing earthquakes where they have not historically occurred. Scores of tremors have been felt in places such as Oklahoma, Texas, Arkansas, Ohio, West Virginia, and other locations that scientists attribute to the fracking process.
But theres another, lesser-known controversy about fracking thats alarming oil and gas industry experts. Fracking wells are drying up much faster than traditional wells. According to industry analyst Alex Beeker, “in the first years of production, there is a rush of oil and gas that declines rapidly.” In order to keep up with demand, more fracking wells have to be drilled quicker because they run dry quicker.
Not a Long-Term Solution
Some analysts think hydraulic fracking may not be the long-term foundation for Americas energy independence. Scott Forbes, an industry analyst and vice president of the Lower 48 for Wood Mackenzie, believes that the current fracking model is unsustainable and therefore, that it may, in fact, be a short-lived phenomenon.
Paradoxically, the fracking industry could actually become a victim of its own success. The political and economic need to keep fuel prices low could actually result in the hydraulic fracking companies crashing and burning, at least under the current operating model. Rapid and continuous drilling is expensive and often doesnt deliver positive results, which is why Wall Street isnt investing in the industry the way it used to. But without sufficient profit margins, those costs may eventually outpace the revenues.