National Security

US Shale Continues Breaking Records

US Shale Continues Breaking Records
US Shale Continues Breaking Records
US Shale Continues Breaking Records
US Shale Continues Breaking Records - Energy Independence Means A New World Order - For the last 40 years, since the arab oil embargo, we've had a mindset of energy scarcity, but as a result of the shale revolution, the US has emerged as an energy superpower. | Photo: James Faddis | Energy, Shale, Production, Middle, Geopolitical,

Energy Independence Means A New World Order

According to the International Energy Agency (IEA), the United States (US) will surpass Saudi Arabia and Russia with record oil production topping over 10 million barrels a day (mbp) while approaching 11mbp faster than analysts expected. These are figures that haven't been seen since the Nixon administration when fracking wasn't used on the wide scale that it is now.

Daniel Yergin, economic historian and author of The Prize: The Epic Quest for Oil, Money and Power, states:

"This is a 180-degree turn for the United States and the impacts are being felt around the world. This not only contributes to U.S. energy security but also contributes to world energy security by bringing new supplies to the world."
New technologies like artificial intelligence (AI) and machine learning (ML) from companies like Sensoleak in Houston, Texas that are using data analysis to detect and prevent pipeline leaks and ruptures in aging pipelines across the US are helping deliver oil that was once unrecoverable. This energy renaissance is causing US pipeline construction to boom. According to a recent ICF (NASDAQ: ICFI) study, "private section investment in energy infrastructure could total $1.34 trillion by 2035, supporting 1 million jobs each year." ensuring energy affordability across the US and globally for decades; causing domestic energy dominance that seemed unimaginable ten years ago.

Shockingly, the US Census Bureau in early February reported that the US exported roughly 700,000 barrels of light domestic crude in December 2017 to the United Arab Emirates (UAE). The EIA iterated the significance by pointing out the U.A.E. is the fourth-largest OPEC producer and a first time importer of US oil. The US net oil imports hover close to or under 3 mbp, whereas in 2006 the US imported over 12 mbp. The EIA reports that by 2029 the US "could become a net petroleum exporter from rising crude exports and overseas sales of refined petroleum products such as gasoline.

US oil production has now reached roughly 10.900 million barrels per day (bpd). The 11 million bpd mark will likely be reached before Labor Day upsetting oil and geopolitical markets.

With energy policy following President Trump's controversial, "America First Energy Plan," this will be the first time the US will take concrete steps towards energy independence. The Energy Information Administration (EIA) Annual Energy Outlook 2018 believes the US will be the world's leader in exploration and production by the end of this year. The potential to upend geopolitics from Russia to the Middle East into China's industrial landscape will be good for America, but will it be good for the planet?

Many critics like the Post Carbon Institute's (PCC) new report, "Shale Reality Check," question the sustainability, long-term production prospects and viability of US shale; but are critics like the PCC missing an opportunity to diminish the force of the modern petro-state led by OPEC? With trade wars between the US, European Union (EU) and China heating up this will increase OPEC's ability to set prices. OPEC's cartel status is what's upsetting markets globally instead of trade wars. What PCC also doesn't understand is the US has the proven oil and natural gas reserves to finally counter and even break OPEC's global status. Fracking has unlocked this potential beyond analysts and policymakers expectations.

For decades American, Western and Asian diplomats have tiptoed around Middle Eastern nations – particularly, Saudi Arabia – since they needed vital oil and natural gas for continued economic growth. What environmentalists miss about shale's resurgence is it allows the US to no longer rely as heavily on Middle Eastern oil and gives the Trump administration the ability to sanction Vladimir Putin's Russia that relies on the weaponization of state-run oil giants to fund Russian geopolitical adventures.

Trump, however, desires energy dominance by opening US coastlines to oil and natural gas drilling, including the politically sensitive, though lucrative Arctic National Wildlife Refuge, "which has an estimated 11.8 billion barrels of technically recoverable crude." Critics counter that the US could run into problems with more supply hitting the market, thus lowering prices and discouraging renewable energy – although renewables have significant problems to overcome – before reaching large-scale viability.

Ted Nordhaus of The Breakthrough Institute believes shale's output has downside since carbon emissions rose in 2017, "after the previous three years saw near zero growth." During the George W. Bush administration domestic oil output was on the decline, causing him to set a course that looked to replace oil with biofuels like ethanol. Environmentalists argue:

"That by increasing oil and gas supplies and lowering prices for consumers, shale drilling is extending the life of fossil fuels to the detriment of the environment and the development of cleaner energy.

What Mr. Nordhaus and environmentalists don't understand is in late 2014 it seemed America's oil independence was a pipedream and the Saudi's would force America into renewable energy when they targeted shale drillers for elimination by flooding world markets with new supply. Throughout this Saudi-led war on US shale, bankruptcies overtook the Texas Permian Basin and Bakken Formation in North Dakota; production also fell in the US from 9.6 mbp to 8.5 mbp. Shale companies though never declared defeat; instead, they slashed costs, employed automation and adopted cutting edge technology (robotics, sensors, smart phones) to keep drilling. By 2016 OPEC and the Russians agreed to production cuts and US shale was driving this new geopolitical landscape.

The US is now supplying China and India while "slashing imports from the Middle East and Africa," causing the Saudis to now try and invest in US shale properties. This new oil boom according to The New York Times, "gives the U.S. a new edge in energy and diplomacy. It also allows the US to undercut Russian energy dominance over Eastern Europe." This energy dominance now allows the US and its allies to withstand political turmoil in Venezuela, Libya, Nigeria and Iran – all major OPEC suppliers – when historically supply disruptions cause prices to skyrocket and slow global growth. These geopolitical impacts from increased US shale production allow Washington to apply sanctions on Russia, Iran and Venezuela with zero energy repercussions.

However, geopolitical darkness arises when a scenario of Iran and Saudi Arabia going to war or Iran-Hezbollah-Syrian-Israeli tensions spilling into a conflict engulfing the entire Middle East no longer has to involve the US. Increasingly, the US doesn't need the Middle East, but the Middle East still needs the US diplomatically for political and military stability.

Jason Bordoff, founding director of the Center on Global Energy Policy at Columbia University speaks about this new geopolitical reality:

"For the last 40 years, since the Arab oil embargo, we've had a mindset of energy scarcity, but as a result of the shale revolution, the U.S. has emerged as an energy superpower."

With the US as the new emergent superpower, OPEC is presented with an unprecedented challenge; if they cut production shale drillers boost output, which undermines OPEC's market share and impacts OPEC and inherently dependent on higher oil prices. This new reality also means China, Japan and Southeast Asia have become more dependent on US oil than on the Middle East. Depending on your vantage point that is either positive or negative, but the US can now argue the global order they have ensured since World War II should become a shared burden financially and militarily for global shipping lanes and economic access.

These are possibly good problems to have, but geopolitics is never that linear or clear; riches for Americans can mean heartache on multiple continents. In the 1970's during the Arab oil embargo energy independence was only a dream. Now that it is reality it will bring with it a host of ripple effects. Energy accomplishments that bring economic freedom should be celebrated but don't forget about the geopolitical backlash that waits for America and the world from shale drillers superior advantages reshaping global energy markets.

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Updated Jan 2, 2019 12:26 PM EST | More details


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