Mythical Energy Independence
The Limits of the Shale Boom
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  • Andrew Allison

    Admiral Dennis Blair, a former director of
    National Intelligence, and General Mike Hagee, a former commandant of the US Marine Corps have precisely ZERO credentials to pontificate about the future of oil markets! The fact is that “peak oil” has been confidently predicted to be in our near future for at least the past 70 years. Given the track record, there’s no reason to believe this latest nonsense. In fact, as The Telegraph points out today, there’s every chance of a very significant decline in the price of oil in the near future. It’s this simple: US production costs are 40% that of the global market price and falling.

  • Jacksonian_Libertarian

    The US is presently adding more and more oil production every year, in 2013 year it was $1.3 million barrels a day of added production, which was almost double that added the year before. If trends continue (there’s no reason to think they won’t until they do change) and 2014 sees $2 million barrels a day of added production, and 2015 sees even more, then the only thing that will stop the US from energy independence is an oil glut, that forces prices down to where fracking, horizontal drilling, and octopus drilling are no longer profitable (~$40 barrel, which is a long way from $100 per barrel world price of oil). I don’t know why we should take the word of military officials any more than the consistently wrong and underestimating officials at the EIA. I think the people that should be asked are the drillers, as to how much production they plan to add to next year’s, and the year’s after, they’re the only ones that know.

  • Fat_Man

    Sorry, these guys are just plain wrong. Let us say that Iran shuts down the Gulf, and Oil hits $200/bbl. The US now producing as much as it consumes is not harrmed, Our consumption costs $200/bbl, but our revenue goes up by the same amount. Net zero. What is the problem?

    The only one I can see is that the energy producers in flyover country are getting rich and the east coast that abjures energy production (I am looking at you New York) is a net loser. The wailing of the NYTimes and the WaPo can be heard over the din even now. But, to me this is only fair. In the 1992–2008 period the banksters in NY city stole everything that wasn’t nailed down. Since then the money has flowed to the Imperial Capitol. Impoverishing them is condign punishment.

    From an IR viewpoint, the losers are in east Asia, esp. China. If China wants to take over the job of policing the Gulf, I say they are welcome to it. The Chinese don’t care about the hand wringing of the hommes du gauche. The locals will sigh wistfully, and wish the Americans would come back. Not only that, but it will keep the Chinese out of mischief in the South China Sea.

    Looks like a win win to me.

    • Bretzky1

      And what exactly would a price of $200/bbl do to our economy? Nothing nice I can assure you.

    • Andrew Allison

      The US is not producing as much oil as it consumes, and even if it were, why wouldn’t the producers sell their ($40/barrel production cost) oil on the world market for $200, thereby driving up the domestic price to the same level? This would have a catastrophic effect on the US economy.

  • Bretzky1

    Energy dependence isn’t the problem; it’s who we are dependent on that is. If Norway was the world’s swing producer, we’d all be a lot better off than with the current one of Saudi Arabia (well, everyone excepts the Saudis, that is). And even though we don’t import that much oil from the Saudis, they are still the ones who most influence the global price of oil because of their large spare capacity. So long as oil holds the primary position in powering the world’s economy, Saudi Arabia will play an outsized role in US foreign policy and protecting the Al-Saud family will be central to US interests, as much as we’d like that not to be the case.

    • Andrew Allison

      Oil is a commodity, the price of which is set by global supply and demand. What matters is how much is produced, not who produces it. The only leverage the Saudis have is to restrict their output, which they can’t afford to do.

      • Bretzky1

        Only, the Saudis already leave plenty of oil in the ground. They have the capacity to pump about 12.5 million bbl/day, but they actually pump around 10 to 10.2 million bbl/day. They are the only country in the world with that kind of excess capacity (and that doesn’t include the oil in the ground that they haven’t even bothered to tap).

        Also, leaving aside the fact that not all oil is the same (which actually works against Saudi Arabia because they have the less-desired variety), the cost of extracting oil varies greatly depending on the source. The main reason why Saudi Arabia is the producer that determines the world price of oil is that it costs comparatively very little to get Saudi oil out of the ground. It tends to pool much closer to the surface in the Arabian Peninsula than in other places and there isn’t a lot of hard bedrock in between the surface and the oil either. It costs the Saudis no more than $6/bbl to get the stuff out of the ground, which is actually a conservative estimate. I’ve seen other estimates of as little as $1/bbl (though I think those don’t include capital costs). Shale oil, by comparison, comes in at around $80/bbl.

        All that being said, you are right that Saudi Arabia can’t afford to reduce output because the al-Sauds have basically chosen to buy off their subjects with oil money. If the oil money runs low, then the subjects might get uppity. But that’s exactly why Saudi Arabia has such an outsized importance in US foreign policy. What happens to Saudi oil production if the country descends into a period of civil strife even remotely similar to what’s happening in Syria? Even worse would be the overthrow of the al-Sauds by a radical Islamist group determined to use oil as a weapon against the West. Saudi Arabia is the country that makes up for temporary reductions in other producers’ output. There is no producer, though, that could quickly step into the breech if Saudi production were to drop. That is why the US has made its bargain with the al-Sauds: we protect them and they keep pumping oil.

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