Presidential CandidateOpinions Both presidential candidates, Mitt Romney and Barack Obama, have vowed to break the United States free of foreign oil, offering a pledge of at least North American “energy independence” in the next four years. No matter who wins the upcoming election in, the United States is already on course to derive much of its oil - and all of its natural gas - from within its own borders, thanks to technologies allowing energy companies to harvest fossil fuels from dense rock formations.
But…. Abundant domestic supplies don’t guarantee a drop in the overall cost of energy. Oil prices are set based on a world market, which is subject to a complex mix of factors outside the control of the United States. And even if net U.S. or North American oil imports plummeted to zero, the United States would still be connected to that global market.
Foreign Influence “So long as you are part of a global oil market, your economy remains vulnerable to unrest in that market – even if you are buying oil from yourself,” said Michael Levi, a senior fellow for energy and the environment at the Council on Foreign Relations. One example of this, a scenario even optimistic analysts foresee occurring, is that OPEC countries could cut their production to offset any spikes in U.S. oil. “There will be times when OPEC may respond and cut production and that will temporarily pop up the price again,” said analyst John Freeman, managing director of Raymond James & Associates.
The Two Candidates’ Plans Romney unveiled his energy plan last month in a 21-page exposition that promises “North American energy independence by 2020.” This would be accomplished largely by expanding offshore drilling, relaxing environmental regulations, and putting states in control of permitting energy projects on federal land within their borders. Conversely, Obama’s energy approach would combine support for renewable fuels and alternative power with domestic oil and gas production. Obama also has broadly touted the promise of newly available natural gas supplies.
What This Means for the U.S. Both Obama and Romney have praised increased energy development as a way to kickstart the U.S. economy and create jobs. Daniel Ahn, chief commodity economist at Citi, predicts that new U.S. oil and gas production could add between $200 billion and $300 billion in revenues, stimulate many hundreds of billions more in economic activity, and create 2 million to 3.5 million new jobs in the next several years.
The Impact of Fracking The surge in drilling in North Dakota, Ohio and south Texas has been made possible by horizontal drilling and hydraulic fracturing techniques that free natural gas and oil from dense rock formations. The crude extracted from the Bakken formation in North Dakota, the Eagle Ford shale in Texas and other unconventional oil plays has enabled the U.S. to reverse a nearly four-decade-long decline in domestic production. “By opening the door to vast resources of unconventional liquids, and, of course, natural gas too, the industry has radically reshaped the trajectory of U.S. oil production,” said Raymond James Analysts in a report that was the foundation for much of Romney’s proposal.
Where We’re Headed Citigroup forecasts that by 2020, the United States will be producing 15 million barrels per day of liquid fuels, up from 5.6 million barrels per day last year. Raymond James predicts net oil imports to essentially reach zero by 2020, based on more biofuel, declines in demand and boosted domestic crude production.