Expanded Oil Drilling Helps U.S. Wean Itself From Mideast
Comment of the Day

June 28 2012

Commentary by David Fuller

Expanded Oil Drilling Helps U.S. Wean Itself From Mideast

This is an informative article (requires subscription registration, PDF also provided) on a topic often discussed by Fullermoney over the last three years. Here is the opening:
HOUSTON-America will halve its reliance on Middle East oil by the end of this decade and could end it completely by 2035 due to declining demand and the rapid growth of new petroleum sources in the Western Hemisphere, energy analysts now anticipate.

The U.S. will halve its reliance on Middle East oil by the end of this decade and could end it completely by 2035 due to falling demand and growth of new petroleum sources, energy analysts say. Angel Gonzalez has details on Markets Hub. Photo: Bloomberg.

The shift, a result of technological advances that are unlocking new sources of oil in shale-rock formations, oil sands and deep beneath the ocean floor, carries profound consequences for the U.S. economy and energy security. A good portion of this surprising bounty comes from the widespread use of hydraulic fracturing, or fracking, a technique perfected during the last decade in U.S. fields previously deemed not worth tampering with.

By 2020, nearly half of the crude oil America consumes will be produced at home, while 82% will come from this side of the Atlantic, according to the U.S. Energy Information Administration. By 2035, oil shipments from the Middle East to North America "could almost be nonexistent," the Organization of Petroleum Exporting Countries recently predicted, partly because more efficient car engines and a growing supply of renewable fuel will help curb demand.

The change achieves a long-sought goal of U.S. policy-making: to draw more oil from nearby, stable sources and less from a volatile region half a world away. "Whereas at one point there were real and serious concerns about the ability to maintain sustainable access of supplies to the United States if there were disruptions in the Middle East, that has changed," Carlos
Pascual, the top energy official at the State Department, said in an interview.

U.S. officials stress that the Middle East will remain important to American foreign policy partly because of the region's continuing influence on global oil prices. "We need to continue to pay attention to how global markets function, because we have a fundamental interest that those markets are stable," Mr. Pascual said.

That means the U.S. military will keep guarding the region's oil shipping lanes, as it has done for decades. "Nobody else can protect it and if it were no longer available, U.S. oil prices would go up," said Michael O'Hanlon, a national security expert with the Brookings Institution, who says the U.S. spends $50 billion a year protecting oil shipments. But China, a growing consumer of Middle Eastern crude, is seeking a larger presence in the region, with its navy joining antipiracy efforts near Somalia.

Still, growing domestic energy production could allow the U.S. to lessen its focus on the unpredictable region over time. Dependence on Middle East oil has shaped American foreign, national-security and defense policies for most of the last half century. It helped drive the U.S. into active participation in the search for Arab-Israeli peace; drove Washington into close alignments with the monarchies of the Persian Gulf states; compelled it to side with Iraq during its war with Iran; prompted it to then turn against Iraq after its invasion of Kuwait, bringing about the first Persian Gulf war; and prompted Washington to then build up and sustain its military presence in the region.

David Fuller's view People are still underestimating the US oil industry's success in producing unconventional supplies. It is almost as if it is too good to be true, after several decades of forecasts that US oil production was in terminal decline. Fortunately, horizontal drilling and fracking technology have completely reversed the outlook. The USA is now referred to by some as the 'new Saudi Arabia' of oil and gas, and correctly so.

Politics will determine how quickly the US becomes self-sufficient in crude oil. If President Obama is re-elected, as the latest polls suggest, he will not open up Federal lands for drilling to the extent that we would see with Governor Romney in the White House. If the US does not become self-sufficient in oil during the next Republican administration, I think it would be due to tactical political reasons, including trade ties with the Saudis and some other Middle Eastern countries.

The same technologies which are transforming US production of unconventional gas and oil will be utilised by many other countries in the next few decades. Global GDP growth will be the main beneficiary over the longer term.

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