This article first appeared at The McAlvany Intelligence Advisor on Friday, December 6th, 2013:
Back in early February Citigroup apologized for missing the huge explosion of oil and natural gas occurring in Texas, North Dakota, and elsewhere. Its report, entitled “Energy 2020: Independence Day” began:
Momentum toward North American energy independence accelerated last year  well beyond the wildest dream of any analyst and well above the forecast we made in our first [report] entitled: “Energy 2020: North America, the New Middle East?”…
So far, the results have been stunning…. In the decade through last year … natural gas use … grew by a phenomenal 47%, ending coal’s century-long domination….
Starting this year, North American [energy] output should start to have a tangible effect both on global prices and trading patterns, and will eventually turn the global geopolitics of energy on its head.
Apology accepted. Mark Perry, an Austrian economist, has been watching and reporting on this explosion for years which began to show up en mass in 2007. The production curves have gone exponential since then. For instance, in September, Texas produced an average of 2.7 million barrels of crude oil every day, “the highest daily oil output in the Lone Star State in any single month since at least January 1981,” said Perry. Oil production in Texas has more than doubled in less than three years, with the Eagle Ford and the Permian Basin formations each producing more than a million barrels a day. There are only nine other oil fields in history that have ever produced that much.
In mid-2009, Texas was producing less than 20% of America’s domestic crude oil. The recent gusher of unconventional oil being produced in the Eagle Ford Shale and Permian Basin oil fields of Texas, thanks to breakthrough drilling technologies, has recently pushed the Lone Star State’s share of domestic crude oil above 30% in each of the last 17 months, and all the way up to 35% of America’s crude output in both August and September.
This places Texas by itself in the top ten of oil-producing nations in the world, just behind Kuwait. And if the 25% annual increases in production that have been recorded over the last couple of years continue into the future, the state of Texas will soon out-produce Kuwait, the United Arab Emirates, Iraq, Iran, and Canada. Prudhoe Bay, at its peak, only produced 1.5 million barrels a day.
And that’s just Texas. North Dakota’s Bakken formation is producing a million barrels a day as well. And the potential elsewhere in Utah, Colorado, Pennsylvania and California simply boggles the mind.
The ripple effect of such prodigious production reaches from Midland, Texas to Washington, DC, to Riyadh, Moscow, and Beijing. Midland, for instance, now boasts the lowest unemployment rate in the country, and the second-highest per-capital income. A brand new 53-story tower featuring a roof-top bar, luxury hotel and spa, and elegant primo office space has just been announced, which, when completed, will be the tallest building between Houston and Los Angeles. To those who have been rankled for years by OPEC’s excessive influence over the Texas oil business, the building will look like a giant middle finger poking out of the ground in west Texas.
At first, OPEC dismissed the fracking boom by saying just a couple of years ago that it would likely have only a “marginal” impact on its control of oil prices. They have changed their tune, now nervously admitting that it “could cut sharply” into its market.
The boom is changing liberals’ minds as well. Case in point is that of Amy Myers Jaffe, Executive Director of Energy and Sustainability at the University of California, Davis. She has appeared in print and on television for years promoting forced austerity through federal mandates. She was sure that the days of copious energy supplies in the US were over. Following President George Bush’s 2006 State of the Union address, Jaffe appeared on a panel of so-called experts to slice and dice his remarks on PBS Newshour:
You have to remember [that] we could reduce our full dependence on oil from Saudi Arabia just by closing a loophole and requiring light trucks and SUVs to get the same mileage standards as sedans….
We definitely have the power … to reduce the growth of gasoline use in this country. We’re still not making the kinds of sacrifices [necessary] … the kinds of sacrifices that many Americans are not willing to make.
That was then. This is now. Said Jaffe this summer:
Those who might have relied on the fact that we would run out of [oil] and therefore be forced by lack of available resources to switch to something cleaner … this is not going to happen. Not in my lifetime. Maybe not even in my children’s lifetime.
The impact of George Mitchell’s efforts as the “father of fracking” is affecting Nigeria, which, as recently as 2007, was exporting 1.3 million barrels of oil to the US every day. In August, they exported just 77,000 barrels daily.
But it’s not just Nigeria. OPEC itself is suffering, thanks to US fracking. In 1973, that 12-nation cartel (including Nigeria) supplied 54 percent of the world’s supplies of crude oil. Today OPEC is down to 39.8 percent, and falling.
Russia is not a member, but Putin has been behaving like the dictator that he really is, blackmailing nearby states with his monopoly power over natural gas. Those days are coming to an end. With increased supplies in the world market, thanks to the US, those subservient countries now have options. McClatchy reported that Russia’s share of the European Union’s natural gas imports, now at 34 percent, will drop below 15 percent in the next few years. As Charles Ebinger, director of the Energy Security Initiative at the leftist Brookings Institute so aptly put it: “Russia is in big, big trouble.”
This writer, as a diplomat who has over 40 years of experience in the Middle East, believes that the U.S.-initiated shale gas revolution will not only change the global landscape of energy distribution, but will also change the world’s geopolitical layout. The United States will take a more dominant position in global energy distribution.
The US will also have less and less to do with OPEC, said Sike:
The United States will become less and less reliant on Middle Eastern oil until this reliance finally ends…. [US fracking is having] an insurmountable impact on the Middle East, the global economy, and the world’s geopolitical map.
Germany is concerned as well, as America continues to press its advantage with cheaper energy costs making US companies more and more competitive. Natural gas here costs $4 per thousand cubic feet while abroad it is multiples higher.
It’s driving the anti-frackers crazy as well – an added benefit. With coal-fired power plants switching over to cheaper and cleaner natural gas, pollution rates are continuing to fall, and all without federal mandates.
Foreign policy, which has based America’s foreign adventurism on the need to “protect America’s oil supplies in the Middle East,” is coming under increasing scrutiny as well. In a remarkable admission by a liberal professor, Mark Clinton Thurber, associate director of the Program on Energy and Sustainable Development at Stanford University, said that “one thing this [revolution] may do is untangle the obsessiveness about Middle East oil … this whole idea that we have to somehow protect these routes at all costs.”
America’s real advantage isn’t its vast supplies of untapped shale deposits. They exist in abundance elsewhere in the world. What we have here is unique: strong private property rights and modest government interference by the states. As Sean Cockerham, writing for McClatchy, explained:
In Europe, the environmental opposition to fracking is deeply held and widespread. Elsewhere, most countries simply don’t have the technology or the infrastructure to exploit [their] deposits….
America is helped by its [private] property laws, which allow most landowners to hold onto subsoil mineral rights….
So America’s advantage is wide and deep. It also appears to be permanent. Joseph Stanislaw of Cambridge Energy Research Associates said:
We are the only country in the world where individuals own the property rights down to the center of the earth….
It’s an economic advantage that doesn’t exist anywhere else.
As the humble folks at Citigroup wrote in its February report:
The probability of North American energy independence is extremely high….
Burgeoning US energy independence brings with it an opportunity to re-define the parameters of post-Cold War foreign policy … [it also] provides unexpected opportunities for the country’s foreign trade policy….
The United States should see its role in the world as a singular superpower enhanced and prolonged.
PBS Newshour with Jaffe: Facing America’s Dependence on Foreign Energy
Citigroup’s report: Energy 2020: Independence Day
The New American: George Mitchell, the father of fracking, dead at 94