By Paolo von Schirach
April 2, 2012
WASHINGTON – TIME magazine latest cover story, The Truth About Oil, (April 2, 2012), gives a pretty good picture of what lies ahead regarding US oil supply and prices. Contrary to “peak oil” projections believed to be true until recently, we are not running out of oil. A combination of tight oil, (oil trapped in shale formations in North Dakota, Texas and possibly other states), presalt deep water, (oil way below the Ocean floor, mostly in Brazilian waters), oil sands, (bitumen mixed with sand from which oil can be extracted, mostly in Alberta, Canada), the US supply outlook looks much more promising. In fact, so promising that we may be able to forecast North American energy independence within a decade or so.
Oil from Canada and Brazil, not from OPEC
This means that the US, while still a net oil importer notwithstanding increased domestic production, would be able to meet demand by relying almost entirely on increased imports from Canada and Brazil, in addition to the oil we are still getting from Mexico. In a few years, no more oil from the Persian Gulf or Nigeria.
So, good news? Well, yes and no. Certainly good news from a geo-political and energy security perspective. If you need to rely on imports for a vital commodity, it is certainly a lot better to have the source close by, controlled by reliable allies and stable neighbors. Better to import from Alberta than from Saudi Arabia.
Better US energy security, but prices will stay high
Still, proximity of suppliers would not mean that this oil will be cheaper. Unlike natural gas, there is no regional price for oil. So, given growing global demand, mostly from China and the rest of Asia, we can rest assured that oil prices will stay high, even if our imports will come mostly from friendly Canada and Brazil.
US natural gas to the rescue
That said, we can do more to diminish total US demand and thus the cost of oil to our economy. The TIME story surprisingly does not mention this, but it is quite possible to switch to US produced, abundant and cheap natural gas as transportation fuel. Thanks to shale gas, the US is now the largest natural gas producers in the world. Domestic prices have fallen by almost 80% since 2008. The obvious advantage would be much lower fuel prices , (1/3 to 50% less, possibly more, if oil keeps going higher), with the extra bonus of reduced emissions, as natural gas is cleaner than diesel or gasoline.
It would make sense to start with heavy trucks, as they consume more fuel, while fleet operators rely on centralized refueling stations. Little by little, the US will have an “American Natural Gas Highway” made out of natural gas refueling stations across America (work has already began on this project) that will make it possible for the general public to refuel natural gas powered vehicles. America has domestic natural gas for at least another 100 years.
Use natural gas to power trucks
If it is indeed true that domestic oil from North Dakota (yes, North Dakota now produces 500,00 barrels a day), or Canadian oil will not cost less than oil from Kuwait or Nigeria, US produced natural gas does cost much less than diesel or gasoline made from oil. At some point this fact will compel heavy users to switch.
Last year the US spent $ 331 billion to buy oil from abroad. Even as the US imported less, (thanks to increased domestic production), higher prices meant a bigger oil bill. Well, if we manage to cut down our imports by another 1 or 2 million barrels a day by switching over to natural gas for our heavy trucks, a chunk of that oil money will not go to Nigeria or Saudi Arabia. It will stay at home, to be invested and spent here.
To put all this together, more domestic and regional oil supplies will vastly improve US energy security. In addition to that, switching over to natural gas for at least part of our transportation fuel needs will further improve energy security by reducing imports even more, while it would significantly reduce America’s trade deficit. America’s energy future is looking a lot brighter.