December 18, 2011

Can the US raise oil production enough to make N. America oil independent?

Yes, that's very likely (although the most important factor, by far, is declining consumption) But, that's not good enough. The whole world needs to kick it's addiction to oil:

1) N. American oil independence isn't nearly good enough: imports from Canada and Mexico hurt the balance of trade just as much as Saudi imports.

2) US oil independence isn't nearly good enough:

a) import dependence for many other countries makes their economies vulnerable to oil shocks - that leaves the US almost as vulnerable as it is now.

b) import dependence for many other countries makes them militarily vulnerable - that's unacceptable to the US (that's realpolitik).

c) The US would still be vulnerable to the disruption of oil shocks in the form of high prices.

3) oil is too expensive, even if it's domestic.

4) oil is polluting.


That said, I think intellectual rigor/honesty demands that we acknowledge that US oil production is rising due to price incentives.

The Bakken oil's production peaked in 1992, and reached a low point in 2004. Anyone looking at that and looking no further than 2004 would see a classic peak. It hasn't peaked, like gold mining for instance: the current level is far above the peak, which the gold analogy wouldn't predict.

Just as important, Bakken production is very profitable.

One might ask: "Haven't Bakken production increases only taken up the slack created by declines in Alaskan production? I'd say that it's misleading to pair those two things. It's a way of saying that we can't raise US production, and that's not realistic. Overall US liquids production has risen pretty significantly from it's bottom several years ago.

The lesson here: prices and market responses are still important, even for oil. it's not all geology: if the price rises, supply will respond in a significant way.

Again, we need to transition away from oil ASAP. Recent increases in domestic production don't change that at all.