My new novel “The Child Remover” is now available on Amazon as both a paperback and in a Kindle version.
US OIL INDEPENDENCE, IGNORING FURTHER INCREASES IN SHALE OIL
Let’s look at future US oil independence if no further gains are made in shale oil, but US oil production remains at the current level. 2013 YTD, the US produced about 7 million barrels of crude oil per day and imported about 7.4 million barrels per day.
Per http://www.whitehouse.gov/sites/default/files/fuel_economy_report.pdf, the required 2025 CAFÉ standards in cars and light trucks of 54.5 mpg will lower the use of oil in the US by 4 million barrels per day by 2035. Note that this goal is very achievable given that the plug-in Prius and Volt already get 95 and 98 mpg respectively (based on the CAFÉ tests). Even the regular Prius gets 50 mpg. In addition, per the Annual Energy Outlook 2013, the projected conversion of heavy trucks to natural gas will save 0.7 million barrels of oil per day (this is a conservative number, since trucks consume 3 million barrels of oil per day).
In addition to the above, per the Federal Highway Association, people over 65 drive about half as far as the average miles driven by other age groups. In 2009, there were 33 million licensed drivers over 65. That number doubles by 2030. The effect of this change in demographics, which is not included in other studies, will reduce the total miles driven by about 8.5% and reduce oil usage by an additional 0.4 million barrels per day.
The total oil use reduction of all the above changes is 5.1 million barrels per day by 2035. Given that the current oil import rate is 7.4 million gallons per day, these changes alone will reduce total oil imports by almost 70% and completely eliminate the need for oil imports from any country other than Canada.
So, even without additional shale oil, the US is making great headway towards energy independence. And note that I did not include the effects of a growing use of renewables like solar and wind, because their initial effect will be to shut down high polluting and expensive coal powered electric plants, not to save oil or gas. But eventually, the increased use of renewable energy along with the conversion to electric cars will further reduce oil usage. And if the incentives for converting trucks to natural gas were improved, the US could get complete energy independence even without shale oil.
US OIL INDEPENDENCE, INCLUDING PROJECTED INCREASES IN SHALE OIL
The projections for shale oil production are going up almost monthly as drillers are learning new and improved techniques for gettting more oil out of the shale formations. These new techniques include re-fracking, horizontal drilling in multiple directions from the same drilling site, moving the whole drill rig without disassembling it, etc. These improvements have cut costs and cancelled out some of the earlier concerns about decline rates of the fracked sites. U.S. shale oil production, which was 230,000 barrels a day in 2007, is forecast to top 2.3 million barrels this year, a 1,000 percent increase according to the Department of Energy. A team of analysts and economists at Citigroup says U.S. oil production might climb more than a third by 2015, driven by “tight oil” from shale and tar sands. And versus my estimate above that without shale oil North America will achieve energy independence by 2035, Citi says that the U.S., or at least North America, can achieve energy independence by 2020 when additional shale oil is included.
A very recent study, EIA, Annual Energy Outlook, 2013 and Short-Term Energy Outlook, May 2013, gives similar projections. It shows domestic oil production growing to 9.5 millions of barrels a day by 2020. That is 2.5 millions of barrels a day more than current, and when the above oil usage reductions are included, it eliminates the need to import oil completely and makes the US totally oil independent.
US NATURAL GAS INDEPENDENCE
The story on natural gas from shale is even more positive than oil. Per the Annual Energy Outlook 2013, U.S. dry natural gas production continues increasing, outpacing domestic consumption by 2020 and spurring net exports of natural gas. Higher volumes of shale gas production are central to the transition to net exports. U.S. exports of LNG from domestic sources are expected to rise to approximately 1.6 trillion cubic feet in 2027. Not only does the additional supply of natural gas enable the US to become an energy exporter, it also enables US industrial production to grow rapidly due to an extended period of relatively low natural gas prices, which lower the costs of both raw materials and energy.
WHAT WILL ENERGY INDEPENDENCE BUY THE US?
A team of analysts and economists at Citigroup says that more energy independence could mean 3.6 million new jobs, enough to cut unemployment by two percentage points. Per http://dickatlee.com/issues/econ/unemp_deficit.html, each 1% of excess unemployment adds nearly $60 billion to the deficit. The Congressional Budget Office forecasts the annual deficit will be $670 billion when the budget year ends on Sept. 30. So, compared to this year’s budget deficit, if we had the projected energy savings now, we would have a current budget deficit reduced by $120 billion, making the deficit $550 billion. That would still be a large deficit. But as Paul Krugman noted on March 10, the budget doesn’t have to be balanced to put us on a fiscally sustainable path; all we need is a deficit small enough that debt grows more slowly than the economy.…a current sustainable deficit would be around $460 billion. So we would be getting awfully close to a sustainable budget deficit this year if somehow we were already getting the benefits of energy independence. And given that the CBO is projecting that the deficit will fall to $378 billion by 2015, we are getting close to not only having a sustainable deficit, but actually paying down our national debt versus the size of our economy.
Note that the above numbers do not include the other likely benefits we would get from energy independence. For example, Milton R. Copulos, President of the National Defense Council Foundation, estimates that the fixed costs of defending Persian Gulf oil amounts to $138 billion annually. I have no way of verifying these numbers, but we all know that the costs are huge and are likely go down as we no longer need Mid-East oil.
IS FRACKING HURTING THE ENVIRONMENT?
Yes! But how badly is an open question. Fracking is exempt from key federal environmental regulations. The federal Energy Policy Act of 2005 (passed during the Bush/Cheney era) contained a provision that has come to be known as the “Halliburton Loophole,” an exemption for gas drilling and extraction from requirements in the underground injection control program of the Safe Drinking Water Act. This has limited the amount of governmental scrutiny and oversight that fracking would have normally received.
One of the environmental issues is wells leaking methane. This is largely controllable with proper sheathing of the cement casing that surrounds a newly drilled well. A second concern is the potential for the fracking fluid to contaminate water. The third concern is all the wastewater that flows back up the well that has to be properly disposed of.
There is little doubt that industry can reduce all of these environmental concerns somewhat (for example, a new study by scientists at Duke University and the U.S. Geological Survey found no evidence of groundwater contamination from shale gas production in Arkansas), but it seems obvious that some degree of all three problems will continue as long as fracking is used. These concerns have to be balanced against the proven environmental harm of coal (power plants that burn natural gas emit about half the amount of the greenhouse gases as coal-fired power) and the burning of excess oil that natural gas can replace. Since natural gas gives us a viable backup for solar and wind, which are undeniably cleaner sources of energy, it seems like fracking and the resultant increased availability of oil and natural gas will help us get to a higher level of solar/wind usage and an overall improved environment. In the meantime, we should all be pressuring Congress to get more oversight/controls on fracking.
It seems that the US is likely to reach complete energy independence sometime between 2020 and 2035. Although that won’t solve all our budget deficit issues, it will help dramatically. Longer range issues like Medicare costs will have to be addressed separately. But we have so many examples of countries around the world that control healthcare costs without sacrificing quality of healthcare services that once US health costs get so high that we have no choice but to address them, we will reign in the costs. Democracy doesn’t work well until it absolutely has to!
The other thing worth noting is that most of the steps to getting to energy independence have nothing to do with fracking. Projected energy independence is mostly due to changes in our CAFÉ MPG for vehicles. Will this really happen? Well, the technologies are already there, and car companies have bought into this because they have learned that increased MPG sells cars. But there is still some risk that some future government will cancel the MPG requirements due to lobbying pressure by oil companies or unforeseen problems as new technologies are implemented across the board.
Although a lot of the above numbers are estimates, even if they are off substantially it seems that the US is at the start of a potentially huge growth spurt fueled (pun intended) by energy independence. At the end of next year, several pipelines are scheduled to be completed that will ease the transportation of the new energy freed up by fracking, and at that point our economy should start to realize some of the potential benefits in a big way. This, coupled with our already improving economy, may prove to be the catalyst for the start of an exciting new economic period for the US.
MONITORING MY THREE STOCK PICKS
I assumed that someone bought an equal dollar amount of stock of each of these companies at their closing prices on June 14, 2013. I compare their average performance to the S&P 500 (SPY). The three companies and SPY closing share prices are as follows:
CLR 6/14/2013 $86.31 7/12/2013 $92.78
OAS 6/14/2013 $41.37 7/12/2013 $41.90
WLL 6/14/2013 $48.07 7/12/2013 $48.51
Average Gain = 3.23%
SPY 6/14/2013 $162.32 7/12/2013 $167.51 Gain = 3.20%
Note: I own a small amount of one of these three stocks. As always, people should use their own judgment/data to affect their own investment strategies; and they should not blindly use the above information. Intelligent people can, and do, disagree.