A New Reality: Energy Independence

None of what I’m about to write in this piece will have any relevance during the remainder of the current administration, as we have a president in office who neither values nor employs the strategic advantages a healthy domestic oil and natural gas industry provides to the United States. But, barring the unlikely election of Democratic candidate Bernie Sanders, it is likely the next president will care about international strategic considerations.

In late March, two headlines dominated the oil and gas-related news. The first, a USA Today article titled “Largest U.S. Refinery Now Belongs to Saudi Arabia,” heralded the deal between Saudi Aramco and Shell that awarded sole ownership of the Motiva Refinery near Port Arthur, Texas, in exchange for other assets and considerations. The refinery had previously been owned jointly by the two companies. Not that big a deal in and of itself for the U.S. government and general public. But the second headline was more troubling: “Saudi Aramco Aims to Buy More U.S. Refineries,” Reuters reported. This is a headline that the U.S. government should work to prevent from becoming reality.

I’ll tell you why. For the last 70 years or more, the United States has had a compelling, strategic national interest in ensuring the free flow of oil through the Strait of Hormuz in the Persian Gulf. Our country has been unable during that time to meet its domestic oil consumption demands without importing large quantities of crude from foreign sources, including Middle Eastern nations like Saudi Arabia. As we saw in the 1970s, when the Saudis and other OPEC nations twice created artificial disruptions in the flow of their oil to the U.S., a lack of adequate oil supply invariably creates major shocks to our country’s economic health.

We have reached a true paradigm-shifting moment in our history — if we are smart enough to take advantage of it

Thus, for the better part of the last century, we have remained vulnerable to the whims of the various dictatorial regimes that have ruled over that region of the world. This vulnerability has led in turn to all sorts of inadvisable U.S. involvement in all manner of wars and conflicts that our country would have otherwise stayed out of, all in the interest of protecting the flow of oil through the Strait of Hormuz.

Unfortunately, we had little other choice for many years, as our need for imported oil for many years constituted more than half of our daily consumption, peaking as high as 65 percent from 2006 to 2007. But then, along came shale.

As our domestic industry’s ability to extract crude oil from gigantic shale formations that underlie much of the country has ramped up, U.S. dependence on imports from other countries has diminished dramatically. So dramatically, in fact, that the U.S. Energy Information Administration (EIA) issued a report in February indicating that imports amounted to just 24 percent of U.S. oil consumption during the 2015 calendar year, the lowest level in many decades.

Given that the country’s overall crude consumption hovers at around 20 million barrels per day, this means that the U.S. imported a bit less than 5 million barrels of oil per day last year. This new reality has received scant attention in the mainstream news media, since the Obama administration has essentially ignored it outside of the EIA report; but this means that the country has crossed a critical new threshold in recent years, thanks to the new abundance that shale oil provides us.

That threshold is this: The United States no longer needs, as a strategic matter, to import crude oil from Middle Eastern nations, like Saudi Arabia. Given the right set of policy decisions in a new presidential administration, this country could easily import 5 million barrels of oil per day from Canada, Mexico, Venezuela, Brazil and other oil-producing countries in the Western Hemisphere. We have reached a true paradigm-shifting moment in our history — if we are smart enough to take advantage of it.
Again, our current president obviously doesn’t care about this reality — indeed, he seems to relish involving the U.S. in more and more entanglements in the Middle East, as evidenced by his needless and feckless interference in a civil war in Syria. But a new president will hopefully have the presence of mind and seriousness as a leader to grasp this new reality and take advantage of it.

For the better part of the last century, we have remained vulnerable to the whims of the various dictatorial regimes that have ruled over the Middle East

A new president could begin to take advantage by immediately approving the Keystone XL pipeline, which would enhance our ability to import more crude from Canada. This is a decision that any serious president would have taken long ago.

A good next step would be to place a hold on the EPA’s onslaught of new regulations and conduct a review of everything it has issued over the last two years, as the bureaucracy there has engaged in a mad dash to cram as much economy-killing regulation as possible through the system before their time runs out. This hold and review should include, but not be limited to the Waters of the United States rule, the new ozone standards and the agency’s insane focus on methane emissions from the upstream segment of the industry, which constitutes no more than a trace element in overall greenhouse gas emissions. It should also include a look at similar kinds of limiting regulations that have been issued by the Department of the Interior in recent years.
Finally, a new administration should immediately undertake a review of whether it is in the U.S. national interest to allow ownership of a growing proportion of this country’s refining capacity by countries, like Saudi Arabia, whose governments regularly perpetrate human rights atrocities on their own people, and whose strategic interests are increasingly misaligned with our own.

It is a form of slow-motion national suicide to allow such countries to gain control of an increasing share of a segment of any industry that plays such a vital role in our national security. Ownership of Motiva alone gives Saudi Aramco control of about 3.5 percent of overall U.S. refining capacity today. There is no good reason why the government should ever allow that share to increase.

The ability to extract oil from shale has provided the United States with a once-in-a-generation opportunity. Protecting the flow of oil through the Strait of Hormuz, if taken advantage of by a new administration, could mean stopping the unrest back from that part of the world. A serious and thoughtful president would have been taking advantage of this new reality already.

Hopefully, the voters will elect such a president in November.

About the author: David Blackmon has spent 35 years in the oil and natural gas industry, in a variety of roles. He has spent the last 20 years engaged in public policy issues at the state and national levels. Contact David Blackmon at david.blackmon@shalemag.com.

Photo credit: mario beauregard/Adobestock

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