It’s easy to get carried away by the optimistic rhetoric that has accompanied the US shale boom. The oil and gas windfall has dramatically changed the global energy landscape and significantly brightened America’s energy future, creating jobs, boosting industry, lowering US emissions, and lessening our dependence on foreign oil.
But one thing it hasn’t done is make us energy independent. As long as we continue to consume oil, it never will. Saudi oil remains particularly important, not just to the US, but to the global market. The FT reports:
[A]rguably Saudi Arabia is more important to future oil market supplies than ever. There are two reasons for this—the kingdom’s commitment to maintain spare capacity and the nature of its contracts with customers, which allows them to ask for more oil when the market is tight. [...]
Even as US output has surged, Saudi spare capacity has proved crucial in meeting supply shortages. The kingdom raised output during the civil war in Libya, and last year raised production to a 30-year high of 10mb/d as US-led sanctions reduced exports from Iran. Saudi officials are also sceptical about how quickly US shale output will increase and reduce demand for their own crude.
Saudi spare capacity and its willingness to ramp up its exports when other sources dwindle help even out the global oil market and protect consumers from price shocks. Because even if the US manages to produce more oil than it consumes, its price of oil will still be vulnerable to international events. Saudi oil gives the global oil market a cushion against these price spikes.
While we look forward to the day when the US becomes a net exporter of black gold, we need to keep in mind that true energy independence is a myth.
[Oil rig image courtesy of Shutterstock]