The Challenge of U.S. Energy Self-Sufficiency

The Challenge of U.S. Energy Self-Sufficiency

by | published March 13th, 2012

Marina and I arrived back in the States on Sunday night, after a week of travels to London, Windsor, and Scotland.

Here’s a photo of me walking the Windsor castle grounds with Russian Ambassador Alexander Yakovenko, and the ever-present Russian security force following closely behind.

One of the ongoing themes during our trip – besides the ominous black car – was the assumption that North America, in general (even including Mexico, in one version), and specifically the U.S., is approaching energy self-sufficiency.

Not tomorrow or next year, this widespread opinion runs, but within the next 10 to 15 years.

According to this line of thinking, imports would be left meeting about 30% of a declining crude oil demand in the American market. And that import flow would be provided by Canada.

U.S. oil production is rising quickly, more than offsetting the prognostications of an accelerating decline in extraction levels. But it is where this volume is coming from that provides the key to where things are heading in the future.

Unconventional sources.

The U.S. is the most developed oil region in the world, at least when it comes to traditional sources of crude. These are the free-standing fields from which oil is extracted by vertical drilling and artificial lifting.

The use of the electric submersible pump, rod lifting apparatus, and the ever-present “walking beam” are staples of well production.
Until last year, approximately 60% or more of total production in the American market came from so-called “stripper” wells – an older well that is close to the end of its economically useful life – each providing less than 10 barrels of oil a day.

High water cut, low pressure, and reservoir problems all contributed to the widespread conclusion that U.S. production would continue to decline, while imported crude would consistently meet a greater percentage of domestic demand.

Then something happened.

Development of unconventional oil accelerated.

Shale oil, tight oil, heavy oil, bitumen, and oil sands became the wave on both sides of the Canadian-U.S. border. Production began increasing, and the prospects of fundamentally revising the sourcing balance emerged right along with it.

Last year marks the first rise in American domestic oil production in almost a decade.

This year is likely to result in the highest overall production figures since the mid 1990s.

This entire largess results from unconventional drilling.

Shale Provides a Production Boost,
But Quality is a Concern

The Bakken, Williston, and Three Forks basins in North Dakota and Montana were the first to receive attention. Then followed discoveries in very deep oil/gas formations in places like the Eagle Ford in southern Texas and the Utica in eastern Ohio.

The huge volumes of shale oil in the Rocky Mountain region and oil sands in northern California have been known for some time. In both cases, environmental concerns have limited production, although shale oil extractions have been on the rise in several states.

See, the potential for self-sufficiency is not without problems.

First up, continued development of shale and tight oil requires considerable horizontal drilling, fracking, and significant environmental impact.

This reintroduces concerns over water quality, land usage, adverse social and infrastructure pressures, as well as a continuing challenge to the industry on what goes into these fracking fluids.

Then, there is the problem of upgrading the heavy oil realized to synthetic crude (syncrude) and providing for sufficient pipeline and refurbished refinery installations to process it.

Another consideration is the energy balance.

Unconventional natural gas (shale and tight gas, coal bed methane) is likely to meet our needs for the next century. But they carry the same problems associated with unconventional oil, in addition to a depressed market price from the excess already produced.

Solar, wind, geothermal, biofuels, and even renewed interest in nuclear have considerably enlarged the conversation and the apparent options.

However, until we figure out how to offset our dependence on oil products for transport purposes, crude will continue to be central.

And you know what that means.

Self Sufficiency Will Be Expensive

Rebalancing the energy mix will be expensive, even if we have a range of reliable alternative sources. Unless there are continuing government subsidies, solar and wind will continue to cost more to produce and transmit.

But even on the oil side, providing for American requirements through domestic or Canadian production will not result in savings.

In fact, the cost to the end user will increase.

It will be more expensive to extract and process the new crude. And transporting Canadian heavy oil all the way to the Gulf will result in the gasoline and diesel processed from it costing more, too.

The latest figures suggest a four-cent rise per gallon; however, with the return of U.S. demand, that estimate is almost certain to increase.

Self-sufficiency, therefore, may be the mantra from a national security standpoint…

But it will not relieve the pressure on pricing.

American consumers may end up being less concerned about higher Brent oil prices in London (since there would be less reliance on non-North American imports). But other cost pressures resulting from the rise in domestic usage will replace that concern.

Even self-sufficiency, it seems, has a rising price tag.




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  1. March 13th, 2012 at 12:57 | #1

    I love the potential of Africa Oil Co. and Afren, do you yousee high growth or any pitfalls.

  2. March 13th, 2012 at 13:08 | #2

    Thanks, yes, stop the oilproduction all over the globe, NOW. Please let us have our earth clean and healthy.

  3. Robert Berke
    March 13th, 2012 at 13:59 | #3

    Congrats on your honest appraisal of the widespread hype surrounding US unconventional energy, a welcome relief from the rising bubble being blown by your competitors. Also appreciated is your focus on the inevitable rising costs for these energy sources, obscured by current focus on low priced shale gas. You may be the only energy analyst that is not touting junior explorers in the Bakken, America’s new gift to get-rich-schemes.

  4. terry
    March 13th, 2012 at 14:23 | #4

    Self sufficiency for defense sounds like a good plan. Self sufficiency for “crusing” on main street seems like unsustanable and even undesirable and immoral. What are our grandchildren going to use to stay warm? To get to work? Stage coaches? Shouldn’t we really be thinking in terms of massive reductions in consumption rather than increasing production to become self sufficient?

    Our insane imports of oil, with subsequent insane exports of dollars is actually digging our own natioanl grave. What do you think these guys do with petro dollars? Invest it in a mall near you? No, iran is able to buy nuclear capability with their dollars, which are probably euro dollars? S Arabia on the other hand builds and funds all these mosques using their petro dollars, and supports unknown islamic activist groups trying to convert America, and europe, to islam. And they are using our money, because of our insane govt policies, or lack of policies, that keeps us hemorraging dollars around the world so the banks here can hold on to the title of ‘reserve currency’!

    We should immediately stop importing oil from SA and let Europe import or share. No doubt this would disrupt the economy, but on the other hand look at all the jobs that would be created as more mass transit, more busses, new houses close to the inner city, etc. would be needed. Is our real choice jobs or self sufficiency? Jobs win in a rout!

  5. Dan
    March 13th, 2012 at 14:31 | #5


    It seems you make a good case for the rise of minor costs associated with fuel price increases, such as transportation and refining. I am not convinced, however, that the US increases in crude production will not drive the marginal prices for crude down. Prices are set at the margin, and marginal increases in supply have disproportionate leverage to overall pricing. This is especially true here because the prices have spiked artificially high due to massive options speculation and political shocks. I would gladly submit to an increase of a few cents per gallon of gas for these production costs if this new production would lower the crude prices to sustained lower levels. Doing so would not only keep more petro-dollars in the US, but would send a message to OPEC that we have options. Lastly, I see a re-examination of risk that will need to be done by oil speculators and hedgers in the aftermath of the Greek debt mess, where bondholders were forced to take a chopping of principal, and then were unable to trigger their options to be made whole. This kind of cr*p, along with the Corzine debacle, should make hedgers and speculators worry about the soundness of their options trades. If they deleveraged even halfway, demand for options would drop like a stone, and take a good deal of the air out of the crude market, IMHO.

  6. eric taylor
    March 13th, 2012 at 15:35 | #6

    Obama’s raising the vehicle fuel economy standard,alone,will knock out
    Saudi Arabia’s oil, but it takes time to refurbish the economy fleet.
    The supply side economists took credit for the Jimmy Carter
    conservation improvements that knocked down the price of oil
    by killing demand longer term, it was not just the tight money
    Paul Volcker induced recession that contributed to the structural
    revaluation of oil prices longer term. I can still remember Reagan
    tearing off the water heating panels from the Capital roof, and the
    move to gas guzzling bull horned Cadillac cars in Texas!

  7. Paul sgutknecht
    March 13th, 2012 at 17:46 | #7

    What is your advice re Icahn takeover offer for CV Energy?? This offer has even more conditions than most of his offers and his record on following through on offers is not good. Mr. Market does not seem to believe that he will follow through.

  8. March 13th, 2012 at 18:30 | #8

    There are thousands of mature oil wells in the US. Much of the oil is still locked up in these oil wells. Could these wells be profitably horizontally drilled with the new techniques to get the remaining oil out that was not obtained by the original vertical drilling. I have heard that only about thirty % of the oil in a vertical drilled well is ever obtained. The rest is still down there. I would really like an answer.

  9. March 13th, 2012 at 20:01 | #9

    here in the USA we need to switch to NAT. GAS in all tranportion and Nat. Gas ports across the USA,WE have so much Nat.Gas and more to be found and not to menchin the Oil in the Bakken Fields witch is as big the Saudi Fields and there is more fields out there and leasing up acres as we speak, We in the USA support Our Nation,and dont say plug the dam well ask what can We do to help Our Nation, North America has more oil and Gas then all the none World, We deed to take of the USA frist and then help others,OK Thank you for letting say this Allen Locke.

  10. Buz Davis
    March 13th, 2012 at 20:16 | #10

    “Then, there is the problem of upgrading the heavy oil realized to synthetic crude (syncrude)”

    Do all these sources produce heavy oil ? Are not some equivalent to WTI ? I have at least one question remaining depending on the response to this.

  11. AL
    March 13th, 2012 at 20:34 | #11

    I like the picture – reminds me of an old joke: Do you ever feel like the world is a tuxedo and you are a pair of brown shoes.

  12. R. Hamrick
    March 13th, 2012 at 21:38 | #12

    I read a book some years back, “The Deep Hot Biosphere – The Myth of Fossil Fuels”, by Dr. Thomas Gold. He made (to me, at any rate) a convincing case that “fossil fuels” are not at all organic substances which were laid down in layers one time eons ago, but rather are INorganic gases (methane, etc.) which are being continuously manufactured within the earth’s mantle. As evidence of this, he referenced oil fields around the world which were believed to have been exhausted, refilling by themselves, apparently from beneath.
    He also referenced the successes of the Russian ultra-deep drilling rigs, which have found oil around the world, almost no matter where they drill.
    Are you familiar with this concept, and if so, what is your opinion of it? The consequences for the world economy and possibilities for world peace, if this were to be implemented as a national policy by the US and other major powers, would be immense in my opinion.

  13. March 13th, 2012 at 21:48 | #13

    we have many grades of weight of crude in North America, did you read or hear the well in Beaumont Texas its was call Lucas Gusher, its was on a salt dome witch was call Spendle Top,this was in 1901 it revolutionize the Nation,at that time we only Pennsylvania Crude witch didnt make much Gasoline and Diesel fuels, look all a around us the things made from Crude almost every thing is made from it and hydro Carbon, so yes in North Amrica or many weight of Crude and this Nation is Bless with all them, Allen Locke

  14. March 14th, 2012 at 09:49 | #14

    R Hamrick frist of all I dont think we will have World Peace because when you have it someone want what you have no matter how much you help them, that what Wars are about,Newton Theory, the core of a mass of magma heat and pressure the mantle is Granite with all this come up throught all the cracks are gass and liquid and they lay in the lower levels of and they migrate up,do you think as much oil that the World has use there must been alot of Dino. and vegetation, I know you can make methane in short order,methane on the bottom of the sea and settlement,this shall gas there drill now is every where in the lower in time it is deep as 10,000 ft that is nature compost,in Norway the Granite mantle close to the surface, they think a asteroid hit there and broke the mantal and crude is migrating up through the fracturs up,some scientist was going to drill to 50,000 ft to prove this theory but that was 25yr. ago but dont know how it came out or if they did,the world is infect a big refinery, you know we are sitting on a ball of fire that is about 4.5 billion yr. old, this is just my thought,Allen

  15. March 14th, 2012 at 12:43 | #15

    Will train transport be much larger in the near futur?what plans are. On he drawing board and what fuel source will be used?

  16. eric taylor
    March 14th, 2012 at 16:40 | #16

    After the coming peak in crude oil prices, I believe all it would take
    would be one more recession, like the one that Ronald Reagen experienced
    in the 1980’s, hoping for the “light at the end of the tunnel,”
    to put oil back down for another decade, or so. The structural reforms
    around the globe are already in place in the more developed markets
    of the world, and only the back wash of the developing world could
    hold oil up as the demand side fuel of first choice, above and beyond.
    Just follow the money of the most developed parts of the global economy.
    Only the most debt ridden parts of the developed world will stay behind!

  17. chris kulpa
    March 18th, 2012 at 08:53 | #17

    I don’t claim to be an expert in any of this but any reply positive or negative is fine as long as it’s useful information.Releasing oil from the strategic reserve is a bad idea,didn’t work before and it won’t help now,it is there in case of a real emergency.How can midlle east countries and other non-western countries sell their gas so cheap to their own people.wouldn’t our domestic oil cost be offset somewhat by the cost of shipping excetera to our shores?High gasoline prices are a very good way for fed. and local raise tax dollars.I believe they get a percentage rather than a set tax on gas which would mean any increase in price would mean an increase in taxes.

  18. chris kulpa
    March 18th, 2012 at 09:04 | #18

    No matter the cost i would sleep alot easier at night knowing that my hard earned money was staying in the U.S. or Canada.It sure would bring a smile to my face to see the Middle Eastern countries lose customers and hopefully reduce the money they take in.We must cut our reliance on their oil so we don’t have to get involved in their politics.If it wasn’t for western companies they would be nothing but a place for tourists to visit.It sure would be nice to hold all of the cards instead of a pair of deuces.

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