Through the process of fracking, the US is on its way to energy self sufficiency
June 2014 print edition
The International Energy Agency (IEA) released a report that predicts that over the next five years, the US will account for one-third of new oil supplies globally, and that it’s poised to change from being the world’s top importer of oil, to a net exporter. The IEA isn’t alone in this view. Several months ago, British Petroleum (BP) made a similar call. It said that by the year 2030—which isn’t that far away—America would no longer rely on states like Saudi Arabia…and, oh boy, even Canada…to make up the shortfall between what it produces and what it consumes.
Make no mistake, the US is a huge oil consumer: 320 million Americans use about 19 million barrels a day. China is a distant second: Its 1.4 billion citizens consume about 9.5 million barrels every 24 hours—just half what the US does even while it has four times the population. As of last year, daily production in the US was 8.5 million barrels, which leaves a daily shortfall of 10 million barrels. That’s a river of Texas tea! And at $100 a barrel, it’s also a lot of money—about $1 billion dollars of value, each and every day, flows out of the United States to support its energy habit.
It’s no secret how the US will achieve self-sufficiency: It’s through the procedure known as fracking. This involves drilling into the earth and then shooting at very high speeds a mixture of water, sand and chemicals into rock formations to help free the gas trapped within, allowing it to flow to the head of the well. It’s not a procedure without some surrounding controversy. Environmentalists worry that carcinogenic chemicals may escape and contaminate groundwater and that the fracking process may actually initiate earth tremors.
Yet it seems that, on balance, the benefits far outweigh the costs. The US still suffers from stubbornly high unemployment—it hasn’t been below 6 percent since the summer of 2008. What should be an even greater concern is the participation rate that measures the number of people of working age who are actually participating (or trying to participate) in the labour force. It’s generally understood that 67 percent is what we see in a “healthy” economy. Right now, the participation rate in the States is an anemic 62.8 percent and has been trending down in the past two years, even while the recovery is supposedly taking hold.
The bottom line, it seems to me, is that no mainstream political party can afford to oppose fracking, given the tangible economic benefits.
So what would an energy-independent United States of America mean? Well, for one thing, it would go a long way towards solving the current trade imbalance. In 2013, the US imported $471.5 billion more in goods and services than it exported. This is a huge number, but it is down sharply from the previous year’s $534.7 billion. One of the key contributing factors was the shrinking deficit in energy products—it was $232 billion, which pretty much explained half of the total deficit. If the US could eliminate that—and then become a net exporter of energy products—it could come very close to swinging from a trade deficit to a trade surplus, which would have a calming effect on US-China relations.
Let’s assume the US didn’t need anyone else’s oil. Surely, this would impact its foreign policy. The US—completely contrary to its revolutionary roots—has been a staunch supporter of Saudi Arabia and its royal family for as long as I can remember. Even after the 9/11 attacks (remember, 15 out of the 19 hijackers carried Saudi passports), the US continues to cozy up to the Saudis. There are a lot of men and women—on both sides of the aisle—who find this more than a little bit distasteful. There are currently five American military bases in Saudi Arabia, there to support “American interests”. What’s the rationale for keeping them if the US no longer requires the region’s oil?
Finally, we have to consider how US-Canadian relations might be affected. The US currently takes about 99 percent of our oil exports, which is to say that the US currently takes all of our oil exports. If they no longer needed us, then we’d have to find other trading partners. China is a logical choice. However, it’s far more expensive to float barges to China than it is to run pipelines to the US. It’s likely that in an integrated North American energy market, there would still be a place for Canadian oil in US markets—but it wouldn’t be the same cozy situation that we enjoy today. American energy self-sufficiency has the potential to make many things very interesting.
Toronto-based Michael Hlinka provides business commentary to CBC Radio One and a column syndicated across the CBC network.