For the first time since the beginning of the global financial crisis in 2008, OPEC’s members have agreed to cut supplies. The cartel of oil-exporting nations will cut 1.2 million barrels from its daily output starting in January. Oil (and gasoline) prices rose in response, but the market’s reaction was nothing like past OPEC-induced gyrations. The reason: there’s a new oil-producing power on the scene.
What was once considered unthinkable has come to pass: With 264 billion barrels of oil (and climbing), the United States is the world’s new energy superpower, leapfrogging Russia (256 billion barrels) and Saudi Arabia (212 billion barrels) this past summer.
Just how vast is America’s newfound energy wealth? Here’s a brief tally.
• The U.S. Geological Survey (USGS) estimates the Arctic holds some 90 billion barrels of oil—about a third of the oil is in Alaskan territory. Another USGS study concludes that North Dakota and Montana hold 3 to 4.3 billion barrels of recoverable oil.
• In the U.S. swath of the Gulf of Mexico, British Petroleum estimates a new reserve could yield 6 billion barrels of oil, and Chevron has found an oil field with some 15 billion barrels of oil. In fact, the American Petroleum Institute (API) reports that opening up new offshore areas in the outer continental shelf “could lift domestic crude production by nearly 1 million barrels per day,” and if the U.S. fully developed all of its onshore fields, “output could rise by as much as 2 million barrels a day by 2030.”
• Geologists call the Rocky Mountain states “the Persian Gulf of gas,” thanks to discoveries of between 165 trillion and 260 trillion cubic-feet of natural gas.
• But conventional reserves are just a tiny part of the picture. The U.S. sits atop an ocean of oil-shale (rock that can be converted into oil when heated) and oil-sands (a mixture of oil, sand and clay that when injected with water yields bitumen and ultimately synthetic oil). The Government Accountability Office (GAO) reports that oil-shale deposits in Colorado, Utah and Wyoming “contain up to 3 trillion barrels of oil, half of which may be recoverable.” Utah alone holds between 12 and 19 billion barrels in its oil-sands. As RAND’s James Bartis has observed, “We’ve got more oil in this very compact area than the entire Middle East.” Plus, the Permian Basin in Texas holds an estimated 75 billion barrels of oil-shale.
Just three years ago, the U.S. trailed Russia, Saudi Arabia and Canada in the oil-reserves rankings. So what changed? America’s “newfound” oil and gas deposits were always there. But as the price of oil increased, the cost of exploring, extracting and converting less-conventional and less-accessible sources of hydrocarbon energy into petroleum became more economical.
Given America’s vast and largely-untapped reserves, one oil economist recently quipped that the United States may need to join OPEC. What’s more likely is that the United States and its neighbors may soon break OPEC’s back. Ed Morse, head of the global commodities division at Citi, reports that total production from the U.S., Canada and Mexico “could rise by 11.2 million barrels per day by 2020…North America is becoming the new Middle East.”
America’s reemergence as an energy superpower offers far-reaching (and positive) implications for U.S. national security and foreign policy. But don’t take my word for it. As Gen. Martin Dempsey observed before leaving his post as chairman of the Joint Chiefs of Staff, “an energy-independent” America “has the potential to change the security environment around the world.” He urged policymakers to view “energy as an instrument of national power.”
According to API, taking full advantage of domestic oil reserves could decrease foreign oil imports by 79.7 percent. Yet the goal of building a thriving oil sector would not be autarky, but rather independence and security from over-reliance on undependable suppliers. An extra 11 million barrels per day—produced in North America—would send a signal to the global oil market, enable the law of supply and demand to steady the price of oil and gasoline, and thus deprive unsavory regimes (Russia, Venezuela, Iran) of revenue and power. For instance:
• Pumping more U.S. oil into the global market will weaken Russia’s one-dimensional economy and deprive the Russian military of resources. “If we increase our supply of oil, especially into Eastern Europe,” Dempsey observed, “we will dent Russia’s leverage on other countries and reduce the revenues that fund Russia’s aggression.”
• China recently became the world’s largest net importer of oil. Imports account for 60 percent of China’s oil, and that figure is rapidly rising, even as U.S. reliance on non-North American oil falls. China depends on Saudi Arabia, Iraq, Iran, Russia, Angola and Venezuela—all at risk of revolution, instability or outright collapse—for 64 percent of its oil. So perhaps, in a reversal of the past quarter-century, the years ahead will see an energy-hungry China forced to expend its wealth to protect, prop up and bail out oil-cartel regimes.
• The security costs associated with maintaining the energy status quo have been enormous for America. Dependence on Middle Eastern oil has forced the United States to prop up regimes that flout American values (Saudi Arabia); to avoid directly challenging them (Iran); and to wage war for them (Kuwait) or against them (Iraq). Building an energy-supply base in this hemisphere will recalibrate America’s relationship with the Middle East from that of pusher and user—each dependent on the other just to make it through another day—to a more-normalized state.
Then there are the domestic benefits of America’s “newfound” energy reserves. What Morse calls a “supply-and-demand revolution” in oil could add 3.6 million new U.S. jobs and increase GDP by as much as 3.3 percent by 2020. In 2012 alone, the U.S. energy boom added $283 billion to GDP. As these numbers rise, Washington will have the fiscal flexibility to reverse sequestration’s disastrous cuts and make smart investments in defense.
The International Energy Agency projects that the United States could be nearly energy self-sufficient by 2035. But Washington has to have the will to tap America’s vast energy reserves—or at least the good sense to get out of the way so that industry can meet market demands. Regrettably, the Obama administration has “actively blocked, hindered and delayed American energy production,” as the House Committee on Natural Resources reports. Thus, the advances and finds detailed above have come in spite of the federal government.
To see a genuine commitment to oil exploration and production, look no further than this hemisphere. Quite unlike Washington’s recent approach to oil-shale development, Canadian government agencies are encouraging oil-sands development. The Alberta government estimates capital investment of $218 billion over the next 25 years to fully develop the region’s oil-sands.
Likewise, after discovering huge caverns of offshore oil buried under miles of ocean and rock, Brazil began lining up investment pledges of some $224 billion to fund development and extraction. Eyeing an estimated 70 billion barrels of oil, Brazil is prepared to raise $1 trillion over the next 10 years to support the project. The payoff: Brazil is positioned to become a top-five oil producer by 2020.
It all comes down to will.