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March 5, 2018
The U.S. Shale Oil Boom Has Led To Big Payoffs, But Energy Independence Is Not One Of Them -- Nor Should It Be
The U.S. is producing more oil than ever before and starting to export it abroad, all thanks to the shale oil boom. This boost in production has led to greater economic payoffs for the United States than energy independence ever would.
By Ryan Kelloggvia Forbes
Fueled by the shale oil boom, U.S. oil production in November, 2017, was 10.057 million barrels per day (bpd), making it the first time U.S. production exceeded 10 million bpd since 1970 (and breaking 1970's record). This rate of crude oil production also surpasses that of Saudi Arabia, leaving the U.S. behind only Russia in terms of total crude production.
This impressive shale-led production growth has attracted considerable attention and discussion of what it means for the U.S. going forward. Much is made of growing U.S. exports of oil (especially to China), declining imports from Saudi Arabia, and the possibility of U.S. "energy independence" - typically defined as no longer being a net importer of crude. Energy independence has been a U.S. energy policy unicorn ever since the oil crises of the 1970s. However, true energy independence is not economically feasible or even desirable, owing to the globalization of crude oil markets. The U.S. shale surge does have economic and policy payoffs for the United States. But energy independence is not one of them.
First, some facts. While the United States is indeed exporting 1.5 million barrels per day of crude oil overseas (9% of U.S. crude oil consumption), a development enabled by the lifting of the crude oil export ban in late 2015, we are still importing 7.6 million bpd (47% of U.S. crude consumption). This makes the United States still a net importer of crude oil. Even accounting for U.S. net exports of petroleum products (3.5 million bpd in November, 2017), the United States remains a net importer of crude oil and petroleum products overall. And we will continue to be so for at least the next several years, even under the most optimistic production forecasts.
So, the United States is not yet "energy independent"- we're still a net importer. But even if we did export more than we imported, being part of the global oil market still exposes us to shocks to oil supply and demand elsewhere in the world. Because it is really cheap to move vast quantities of oil around the world on super tankers, oil prices in the United States can never vary far from prices elsewhere. If that happened, ships would rapidly arbitrage away the price gap. Thus, a supply disruption in, say, the Middle East that substantially increased the oil price there would force up oil prices everywhere, including in the United States, even if we were net exporters. We wouldn't truly be independent at all.