By James Clad
Here we go again. Oil markets are edging up as Iraqi fighting follows on the heels of other disruptions crimping Libyan, Nigerian and Iranian output. The specter of deeper sanctions on Russia prompts more supply worries, while even Egypt – a negligible producer – occasionally spooks the spot markets with anxiety about Suez Canal operations.
As if we needed it, fighting this week around Iraq’s Bayji refinery has given us another reminder of Middle East supply risk. Prices for Brent crude, the global measuring stick, have swung well north of $110 per barrel since the ferocious Sunni pushback against the ragtag Iraqi ‘national army’ began a few weeks ago.
But here’s the thing: the uptick in prices, despite all of these cumulative disruptions, isn’t extreme. Global oil markets have found an unexpected cushion – the U.S. shale revolution.
With global oil prices once again albeit modestly rising, American and Canadian production has played a vital part in restraining even higher prices. New U.S. crude production from shale, moving towards three million barrels per day, has simply replaced much of what has been lost on the global marketplace due to the aforementioned disruptions.
Thanks to our shale revolution, domestic oil production is now at its highest level since 1970. Our dependence on foreign oil is evaporating almost as fast as support for the Iraqi national government. As recently as 2005, imports met 60 percent of U.S. oil demand. By 2016, imports will account for just 25 percent of our consumption.
New U.S. oil production has even outpaced domestic refining capacity. For the first time since enacting the crude oil export ban in 1975, the U.S. has been forced out of necessity to relax it. Already a major exporter of refined petroleum products like gasoline and diesel fuel, the U.S. is once again becoming a crude oil exporter.
It’s a remarkable turn of events. U.S. oil production had been in seemingly terminal decline for decades. The combination of horizontal drilling, hydraulic fracturing and the data revolution has changed all that.
But despite the good news about U.S. oil and natural gas production – remember the U.S. has also become the world’s largest natural gas producer – questions about the future of the shale revolution remain. Environmental and safety concerns – some real but many fueled by misinformation and fear – continue to dog the oil and gas industry and hold back energy production.
Shortchanging one of the few bits of comparatively unalloyed good news for our country since the end of the cold war would be very unwise. And yet that seems to be happening. New York State maintains a moratorium on all shale production, despite sitting on top of nearly a third of all the natural gas trapped in the prolific Marcellus shale. Colorado and California, though both states have long histories of energy production, now flirt with the possibility of pulling the rug out from under their part of the shale revolution. It seems a strange result – especially as we watch Sunni combatants jeopardize critical energy production: The International Energy Agency had recently forecast that Iraq would provide 45 percent of the all new global oil production growth by 2035.
In this type of environment, the U.S. and the rest of the world both need shale production to move forward. While simplistic, the choice sometimes looks like the difference between a Rock (Iraq?) and a Hard Place, a choice between renewed reliance on petro dictators and the eternal turmoil of the Middle East, or embracing new oil and gas production from within North America. For most of us, the choice would seem clear.
Clad, a former deputy assistant secretary of Defense, is an international energy consultant based in Washington D.C.