Swing into your nearest 7-11, Citgo or Wawa and you’ll probably mistake the gas prices for something else. But it’s true, oil prices have dipped significantly, down to under $70 per barrel at the beginning of the month. This has led to significantly lower prices at the pump, as well as additional spending money in the pockets of millions of Americans, and even drops in airline fares.
So, what’s behind all of this economic magic? In many respects, a revitalized domestic energy production industry.
The growth of that industry over the past few years has been instrumental in the rebuilding of the economy. As Americans felt the crunch from the financial crisis and recession, many people were able to head to the west and Midwest to find work in the booming natural gas and oil production fields, both of which had seen a lull over the past couple of decades. But recent access to shale formations across the country — from the northeast all the way out to North Dakota and Texas — have ushered in a new and prosperous age of energy production.
Traditionally, the U.S. has imported great amounts of its petroleum from foreign sources, namely Canada, Mexico, Venezuela, and the Middle Eastern OPEC countries. This has led to many issues over the years, from international hostilities to terrorist attacks, and continues to be a major problem in terms of using violence to secure American national interests abroad. The fact is, securing access to cheap and plentiful crude oil has been one of the most important items on America’s to-do list for decades, and billions — if not trillions — of dollars have been spent over the years to ensure America keeps its interests intact.
But things seem to be on a different path as of late, particularly when it comes to energy policy. More and more, people are increasingly becoming aware of the negative effects of American energy policy, and public opinion is shifting toward an attitude that wants less waste and more reliance on domestic sources. There’s also been a large push toward renewables and green technologies, including wind and solar, and away from traditional fossil fuels like coal and petroleum.
But the recent boom in natural gas and oil production has put a lot of money in the pockets of energy companies, state and local governments, and has also supplied a lot of jobs to needy Americans, making a big portion of the public sympathetic to the industry.
Some people have grown so optimistic about the current and growing prospects in domestic energy production that there are even comparisons being drawn between the U.S. and the Middle East. Bloomberg reported that the U.S. had, in fact, become the world’s largest oil producer in terms of crude oil and natural gas production this pas summer. The U.S. became the world’s leading producer of natural gas in 2010.
As surprising as that may be to a lot of people, it’s also welcome news. Calls for lessening American dependence on foreign energy sources have never been louder, and the public has grown weary of long wars and geo-political hostilities in the Middle East, which many suspect are driven by securing American energy interests.
Naturally, the bump in domestic production has actually helped alleviate some of the pain consumers would otherwise be feeling in terms of prices, as we noted previously. The most easily recognizable and impactful scale of measure would be to look at the price of gas, which has made significant jumps over the past ten or fifteen years. As Francisco Blanch of Bank of America’s commodities research team told Bloomberg, things could be much uglier for consumers.
“The shale boom is playing a key role in the U.S. recovery. If the U.S. didn’t have this energy supply, prices at the pump would be completely unaffordable,” he said.
It’s expected that U.S. production of crude oil will jump to more than 13 million barrels per day by 2019, and probably be overtaken again after another decade, sometime in the early 2030s. But in the meantime, it should be an excellent time for growth across many segments of the economic spectrum for the U.S., fueled by the uptick in energy production.
“There’s a very strong linkage between oil production growth, economic growth, and wage growth across a range of U.S. states,” Blanch told Bloomberg.
The economic forecast indicates very positive things are on the way for the United States as far as energy goes, but does that really mean that the U.S. is the ‘new Middle East?’ There’s surely some room for skepticism, but if you factor in all aspects of oil production, it seems that many analysts agree.
But there are also those who are pushing back against the optimism, saying that for the U.S. to actual push past countries like Saudi Arabia, growth would need to hit levels over the next couple of years that are simply too far out of reach. According to a CNBC report, the Energy Information Administration says the U.S. churned out 8.1 million barrels of crude oil per day for the first-quarter of 2014, which, if you look at the chart above, is a huge increase from decades prior. But it still lags well behind the OPEC countries.
“If we take the EIA numbers, then for the U.S. to surpass [Saudi Arabia] next year, we’d need to increase production by 1.7 million bpd in a year,” energy analyst Chris Nelder told CNBC. “We won’t add a million barrels per day in 2014. This year we’ll probably have more like a 500-700,000 bpd increase,” he added. “That’s absolutely not going to happen.”
It looks as if many projections are overly aggressive, but that doesn’t take away from the positives of the U.S. production spurt. America is still going to import more energy sources than it produces, which is another issue that will need to be tackled going into the future. As more and more consumers start looking toward electric and hybrid vehicles, or others towards public transit and telecommuting, demand for petroleum could actually go down, and help the U.S. get even more out of what it’s producing domestically.
The uptick in solar, wind, and even tidal energy could also take a hit on the oil and coal industries, as some projections expect the fossil fuel industry to begin to recede overall as the world faces the byproducts of global climate change and increasing levels of pollution.
America might be catching up in terms of energy production, but it still doesn’t have quite the ‘oomph’ needed to catch up to the Middle East. For now, Americans will get to enjoy the spoils of an uptick in employment and increased revenue in tax dollars.
Crude oil and natural gas are what the country needs in the immediate future, but for the long run, investments in developing clean, renewable resources is what will truly set America on the path toward sustainable energy independence.