US ‘fuels’ self-reliance dream
PUMPING UP from Texas to Dakota, oil & gas industry is vastly increasing production, reversing two decades of decline
Clifford Krauss and Eric Lipton, New York Times
March 25, 2012: The desolate stretch of West Texas desert known as the Permian Basin is still the lonely domain of scurrying roadrunners by day and howling coyotes by night. But the roar of scores of new oil rigs and the distinctive acrid fumes of drilling equipment are unmistakable signs that crude is gushing again.
And not just here. Across the country, the oil and gas industry is vastly increasing production, reversing two decades of decline. Using new technology and spurred by rising oil prices since the mid-2000s, the industry is extracting millions of barrels more a week, from the deepest waters of the Gulf of Mexico to the prairies of North Dakota.
At the same time, Americans are pumping significantly less gasoline. While that is partly a result of the recession and higher gasoline prices, people are also driving fewer miles and replacing older cars with more fuel-efficient vehicles at a greater clip, federal data show.
Taken together, the increasing production and declining consumption have unexpectedly brought the United States markedly closer to a goal that has tantalized presidents since Richard Nixon: independence from foreign energy sources, a milestone that could reconfigure American foreign policy, the economy and more. In 2011, the country imported just 45 percent of the liquid fuels it used, down from a record high of 60 percent in 2005.
"There is no question that many national security policy makers will believe they have much more flexibility and will think about the world differently if the United States is importing a lot less oil," said Michael A. Levi, an energy and environmental senior fellow at the Council on Foreign Relations. "For decades, consumption rose, production fell and imports increased, and now every one of those trends is going the other way."
How the country made this turnabout is a story of industry-friendly policies started by President Bush and largely continued by President Obama – many over the objections of environmental advocates – as well as technological advances that have allowed the extraction of oil and gas once considered too difficult and too expensive to reach. But mainly it is a story of the complex economics of energy, which sometimes seems to operate by its own rules of supply and demand.
With gasoline prices now approaching record highs and politicians mud-wrestling about the causes and solutions, the effects of the longer-term rise in production can be difficult to see.
Simple economics suggests that if the nation is producing more energy, prices should be falling. But crude oil – and gasoline and diesel made from it – are global commodities whose prices are affected by factors around the world. Supply disruptions in Africa, the political standoff with Iran and rising demand from a recovering world economy all are contributing to the current spike in global oil prices, offsetting the impact of the increased domestic supply.
But the domestic trends are unmistakable. Not only has the US reduced oil imports from members of the Organization of the Petroleum Exporting Countries by more than 20% in the last three years, it has become a net exporter of refined petroleum products like gasoline for the first time since the Truman presidency. The natural gas industry, which less than a decade ago feared running out of domestic gas, is suddenly dealing with a glut so vast that import facilities are applying for licenses to export gas to Europe and Asia.
National oil production, which declined steadily to 4.95 million barrels a day in 2008 from 9.6 million in 1970, has risen over the last four years to nearly 5.7 million barrels a day. The Energy Department projects that daily output could reach nearly seven million barrels by 2020. Some experts think it could eventually hit 10 million barrels – which would put the US in the same league as Saudi Arabia.
This surge is hardly without consequences. Some areas of intense drilling activity, including northeastern Utah and central Wyoming, have experienced air quality problems. The drilling technique called hydraulic fracturing, or fracking, which uses highly pressurized water, sand and chemical lubricants that help force more oil and gas from rock formations, has also been blamed for wastewater problems. Wildlife experts also warn that expanded drilling is threatening habitats of rare or endangered species.
Greater energy independence is "a prize that has long been eyed by oil insiders and policy strategists that can bring many economic and national security benefits," said Jay Hakes, a senior official at the Energy Department during the Clinton administration. "But we will have to work through the environmental issues, which are a definite challenge."
The increased production of fossil fuels is a far cry from the energy plans President Obama articulated as a candidate in 2008. Then, he promoted policies to help combat global warming, including vast investments in renewable energy and a cap-and-trade system for carbon emissions that would have discouraged the use of fossil fuels.
More recently, with gasoline prices rising and another election looming, Obama has struck a different chord. He has opened new federal lands and waters to drilling, trumpeted increases in oil and gas production and de-emphasized the challenges of climate change.
The foundation is laid
For as long as roughnecks have worked the Permian Basin – made famous during World War II as the fuel pump that powered the Allies – they have mostly focused on relatively shallow zones of easily accessible, oil-soaked sandstone and silt. But after 80 years of pumping, those regions were running dry.
So in 2003, Jim Henry, a West Texas oilman, tried a bold experiment. Borrowing an idea from a fellow engineer, his team at Henry Petroleum drilled deep into a hard limestone formation using a refinement of fracking. By blasting millions of gallons of water into the limestone, they created tiny fissures that allowed oil to break free, a technique that had previously been successful in extracting gas from shale.
The test produced 150 barrels of oil a day, three times more than normal. "We knew we had the biggest discovery in over 50 years in the Permian Basin," Mr. Henry recalled.
The measures primed the pump for the burst in drilling that began once oil prices started rising sharply in 2005 and 2006. With the world economy humming – and China, India and other developing nations posting astonishing growth – demand for oil began outpacing the easily accessible supplies.
An American oil boom
The last time the Permian Basin oil fields enjoyed a boom – nearly three decades ago – Rolls-Royce opened a showroom in the desert, Champagne was poured from cowboy boots, and the local airport could not accommodate all the Learjets taking off for Las Vegas on weekends.
A turn toward efficiency
As Americans replace their older cars – they have bought an average of 1.25 million new cars and light trucks a month this year – new technologies mean they usually end up with a more efficient vehicle, even if they buy a model of similar size and power.
Longer-term social and economic factors are also reducing miles driven – like the rise in Internet shopping and telecommuting and the tendency of baby boomers to drive less as they age.