Why `energy independence' is the wrong goal for the U.S.

Forty years of scarcity has taught us to think in extremes. That’s why we continue to frame discussions of “energy independence” in absolute terms. For example, the debate in Congress over oil exports seems to center on the notion that energy independence must be achieved before we consider exporting oil. As Bloomberg noted: 

Let’s say Hamm is right and we achieve energy independence in six years. Then what? The companies that use hydraulic fracturing to unlock the new-found domestic reserves that are driving us toward this perceived independence are confronting a difficult reality: unlike past booms, the rise in production isn’t necessarily translating into a big jump in profits.

Bloomberg again:

Companies are showing the strain. Chesapeake Energy CHK +0.04% Corp., the Oklahoma City-based company founded by Aubrey McClendon, reported profit yesterday that missed analysts’ forecasts by the widest margin in almost two years. Shares declined 4.9 percent. Fort Worth, Texas-based Range Resources Corp. fell 2.3 percent after announcing Feb. 25 that fourth-quarter profit dropped 47 percent. QEP Resources Inc., a Denver-based driller, slid 10 percent after fourth-quarter earnings reported Feb. 25 fell short of analysts’ predictions.

 

Shale drilling is far more expensive than conventional drilling methods, and those higher costs are eating into the margins of many producers. Bloomberg notes that independent producers will spend $1.50 in drilling costs this year for every dollar they get back.

Shale output drops faster than production from conventional methods. It will take 2,500 new wells a year just to sustain output of 1 million barrels a day in North Dakota’s Bakken shale, according to the Paris-based International Energy Agency. Iraq could do the same with 60.

Shale critics have dubbed this phenomenon “the Red Queen effect,” a reference to the character from Lewis Carroll’s Through the Looking Glass who says:  “…here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”

To achieve energy independence, in other words, we would have to find more oil in the U.S. than we’ve ever found. And then, to stay ahead of  the decline rates, we would have to keep finding it at a faster pace — and at an ever-increasing cost. The expense and the production rates make the notion of energy independence improbable.

Politicians like to portray “energy independence”  as a milestone, a finite thing that, once achieved, has some sort of permanence. But if we achieve independence, it’s likely to be fleeting – and irrelevant.

Which is why it shouldn’t be our goal. Instead, we should look at what rising production has already achieved. It has changed America’s role in the global oil market, and in the past six months, it has influenced geo-political events from Iran to Syria to Venezuela.

Oil exports allow us to play a larger role in influencing this market. It gives us a seat at the table that we haven’t had in decades. No one expects the shale boom to last forever, but it has loosened the grip of OPEC and other oil producing nations on our economy.

Rather than look at energy independence as a prerequisite for oil exports, we need to look at oil exports as a pathway to a new era of energy interdependence, in which the U.S. plays a crucial role as both a key consumer and supplier in the global energy markets.

And as we develop those international markets, we need to continue developing other fuels, such as natural gas and renewables to diversify our energy portfolio at home, because just as we shouldn’t build policies on the concept of permanent abundance, we also shouldn’t allow our policies to be rooted in the fears of perpetual scarcity.

http://www.forbes.com/sites/lorensteffy/2014/02/28/why-energy-independence-is-the-wrong-goal-for-the-u-s/?ss=business%3Aenergy