The American Interest
Analysis by Walter Russell Mead & Staff
America the Independent: Oil Production Ready to Overtake Imports

The still-young but fast-growing US energy boom is closing in on a big milestone. Thanks to shale, domestic oil production is about to overtake oil imports. CNBC reports:

Andrew Lipow of Lipow Oil Associates expects the government data to show that U.S. production actually surpassed imports in March, when it releases its final March data at the end of the month. [...]

The Energy Information Administration said Wednesday in its Short-Term Outlook that U.S. oil production averaged 7.1 million barrels per day in the first quarter, and that should rise to 8.5 million barrels per day by the fourth quarter of 2014.

It expects average production of 7.4 million barrels per day in 2013, up from 6.5 million barrels per day in 2012. EIA also said it expects liquid fuel net imports, including crude and petroleum products to keep falling, from 7.4 million barrels per day in 2012 to 5.7 million barrels per day by 2014.

This is excellent news for the US. Greater domestic production is a boon to the economy, and fewer imports gives us more flexibility when dealing with the world’s petrostates. (But as Gal Luft and Anne Korin wrote for The American Interest last July, to speak of true “energy independence” is folly.)

Even if North America becomes completely oil self-sufficient—a possibility if you count Canada’s oil supplies in the equation as well—the continent will still be vulnerable to international oil price spikes. That’s because oil is a globally-traded commodity, and a very liquid one at that. The US has gone out of its way to break down the barriers to global oil trade over the past few decades to ensure a robust, multipolar supply chain. The result is that the price of oil drilled in the US is tied to the price of oil abroad. That’s partly why gas prices aren’t coming down as domestic production rises. It’s also why we can’t expect to be able to completely write off troubled or troubling oil-rich regions.

Even if we took the drastic step of insulating ourselves from the global oil market at some point down the road, we would still have to consider the oil needs of our allies. For better or for worse, our energy supply is tied up with the world’s petrostates. That won’t change until we stop consuming oil—an unlikely outcome in the near future.

Having said all that, this is still news to celebrate. It gives the US more flexibility in its Middle East policies and brings the country a new wave of wealth and jobs. That’s yet another reason to be optimistic about America’s future in this still-young century.

[Oil rig image courtesy of Shutterstock]

Published on May 9, 2013 2:30 pm
  • djul21

    have difficulty in language
    but this blog is very nice and helpful thax

    sorry little link sharing
    how wonderful to share

    sory please cek

    MERCUBUANA

  • http://www.facebook.com/alexander.scipio Alexander Scipio

    “Even if we took the drastic step of insulating ourselves from the global oil market at some point down the road, we would still have to consider the oil needs of our allies. ” That’s OK, Dr Mead, Obama is fixing this, too. Soon we won’t HAVE any allies to worry about.

  • http://www.facebook.com/people/Luke-Lea/579129865 Luke Lea

    Even if North America becomes completely oil self-sufficient—a possibility if you count Canada’s oil supplies in the equation as well—the continent will still be vulnerable to international oil price spikes.

    A point that is too rarely made. The strategic importance of the Persian Gulf is not about to go away.

  • Aaron Bernard

    “The result is that the price of oil drilled in the US is tied to the price of oil abroad. That’s partly why gas prices aren’t coming down as domestic production rises.”

    This is just wrong. American and Canadian oil is setting the marginal price per barrel, not overseas markets. It is precisely *because* oil is expensive that America and Canada are producing more of it, despite production costs being multiples of the cost / bbl of Middle Eastern oil. The cost will never drop below the marginal cost, so anyone who is expecting energy independence to majorly reduce prices is confusing cause and effect.

    We are, sadly, becoming energy independent because energy prices are remaining higher than expensively-produced shale.

  • teapartydoc

    Hmm. I wonder where that Thibeaux guy is right now.

  • http://www.facebook.com/profile.php?id=1395595659 R Bruce Beckner

    Of course, the concept of “energy-independent” “island America” makes no sense with crude being a globally-trade commodity. But Prof. Meade should also take note of the economic benefits to the US of not shipping millions of dollars out of the country to import crude oil, and keeping that money in North America, if not the United States. That is no small economic benefit.

    • rsbsail

      Agreed! The impact on the balance of trade is huge. Citibank had a report last year that said we would have a trade surplus in a few years due to the oil boom, and that would do wonders for the value of the dollar.

  • http://www.facebook.com/stuart.tulloss Stuart Tulloss

    The advantage of producing +100% of our own consumption, even if we export at one place and import at another, is not in the price comming down (althought that is always nice), it comes from the fact that the M.E. cannot cut us off and create panics. The Saudis are funding environmental groups, and may try to lower the world price to keep some of our production off line, but they still need to feed their country. The US is also more likely to export refined products which would count as high paying manufacturing jobs.

  • mikegiles

    Aren’t other costs, such as transportation, included in the price of oil? Even if it is marginally more expensive to drill oil in the US, in the US it goes into a pipeline right to the refinery, and right into a tank truck; as opposed to halfway around the world, to be refined, than another trip around the planet to where it will be used. Not to mention the price spike when the Middle Eastern types get seriously into killing each other again.