Energy independence: What are the benefits?
For much of the past four decades, American presidents have been calling for energy independence as a solution to the country's economic and military problems.
Today, many energy industry leaders have embraced the concept and have expanded on the potential U.S. and global benefits.
“I don't know that from a policy standpoint it is mandatory that we achieve 100 percent independence, but not being overly dependent is really important,” Oklahoma Energy Secretary Mike Ming said. “For the U.S. to have more options and be more independent, it reduces our national security vulnerability and makes more oil available to the rest of the world, which enhances geopolitical stability to the rest of the world.”
Arguments in favor of a decreased reliance on foreign oil lean mainly toward national security, job generation and wealth creation.
The United States spends $166 billion – or 24 percent of its defense budget – on securing access to oil, according to a 2010 report by Princeton professor Roger J. Stern. The country spent $7.3 trillion keeping U.S. aircraft carriers in the Persian Gulf from 1976 to 2007, Stern found.
“Our past 40-year dependence on OPEC (the Organization of Petroleum Exporting Countries) puts our country's future in peril for all Americans,” said Aubrey McClendon, CEO of Oklahoma City-based Chesapeake Energy Corp. “At our import peak in 2005, we accessed more than 60 percent of our oil from outside our borders, including oil from countries with unstable governments and hostile positions to our democracy.”
For the past decade, the United States has been involved in two wars in the world's most oil-rich region.
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“When you're buying from OPEC, you can count on some of that money getting to the Taliban,” billionaire oilman T. Boone Pickens said. “You're paying for both sides of the war. I think you're stupid to do that.”
Pickens and others say creating more wealth in the U.S. is also closely tied to oil imports and exports.
At the peak in 2005, the U.S. imported more than 3 billion barrels of oil from countries outside of North America at a total cost of more than $300 billion a year, or almost $1,000 for each American.
The country's trade deficit that year was about $700 billion.
By eliminating or reducing imports, proponents argue, the country could reverse its trade deficit. Some say the U.S. could even become a net energy exporter.
“If you look at the natural gas we have, it's not unreasonable that we could start exporting natural gas,” said Larry Nichols, executive chairman of Oklahoma City-based Devon Energy Corp. “Instead of making the United States a huge importer of oil and an exporter of wealth, we could reverse that.”
Wealth creation also would lead to a growing economy throughout the United States, said Harold Hamm, CEO of Oklahoma City-based Continental Resources Inc.
“I'm not talking about the oil company's wealth. I'm talking about the people in Ohio who build our pipe, the manufacturers who make the pickups we're driving,” he said. “Then so what if we have oil and gas companies having profits here and hiring American workers instead of making some Arab sheik rich?”
In Oklahoma, the oil and natural gas industry directly represents 71,000 jobs, which is about 3.5 percent of the state's workforce, and the industry's activity supports nearly 300,000 jobs, according to the Oklahoma First Energy Plan of 2011. Oil and natural gas gross production taxes provided about $1 billion in state tax revenue in 2011.
Increased North American energy production also is leading chemical plants and manufacturers to build and expand their domestic operations. Dow Chemicals recently announced plans for a new $4 billion ethylene plant in Freeport, Texas, to support the plastics industry. The facility is expected to open in 2017 and employ 2,000 people at the peak of construction.
“Ultimately it makes us all wealthier,” said Tom Ward, CEO of Oklahoma City-based SandRidge Energy Corp. “The more oil that we can produce in our own country, the less we have to import and send money to other parts of the world, and the foreign investment we're getting into the country today is only helping the consumer.”
Over the past two years, large state-owned energy companies from China, Japan and France have partnered with Oklahoma City-based energy companies in their efforts to produce oil and natural gas throughout the United States.
Devon in August signed a $1.4 billion joint venture with Japan's Sumitomo Corp. for shale gas drilling in west Texas. Earlier this year, Devon announced a $2.5 billion partnership with China-based Sinopec to help pay for natural gas production in Ohio and Michigan.
French oil giant Total SA in January agreed to pay Chesapeake $2.32 billion for a minority stake in the Oklahoma City company's operations in Ohio's Utica shale. China's CNOOC Ltd. last year announced a $1.3 billion deal to help Chesapeake Energy Corp. develop parts of northeast Colorado and southeast Wyoming, just three months after the two companies announced a $1.1 billion deal in south Texas.
Such investments allowed companies to continue drilling, creating a glut of natural gas and lower prices for consumers. Oklahoma utility customers have seen the benefits from lower natural gas prices, said Matt Skinner, spokesman for the Oklahoma Corporation Commission, the state's utility regulator. Customer bills are separated into a fuel cost and the utility's rates for delivering electricity or natural gas. By law, Oklahoma utilities aren't allowed to make a profit on the fuel portion of customer bills, so lower natural gas prices are passed on more quickly to consumers.
Despite the financial and economic potential of increasing domestic production, Hamm said the greatest benefit might be harder to calculate.
“It's the psychology of not being held to OPEC, of being free of OPEC dominance and knowing that somebody else determines our fate as a nation,” he said.
No free lunches
Still, some industry observers have said that energy independence could weaken the country's influence in the Middle East as China becomes the oil-rich region's largest competitor.
“Certainly you have influence as a customer, but you also have influence as a supplier. It's a question of policy balances,” said Stephen McKeever, vice president for research and technology transfer at Oklahoma State University. “Certainly there have been disadvantages associated with being at the mercy of a supplier over the last several decades. On balance at the moment, I think we should definitely swing toward independence and becoming a supplier ourselves rather than a customer.”
Others, however, are concerned that the country's focus is too much on the short-term potential rather than the long-term risk.
“The biggest problem with the shale gas revolution is that the technology is displacing at least as much renewable energy as it is coal,” said Bill McKibben, an environmentalist author and speaker based in Vermont. “To me, whether there's carbon or not in the energy we're using is far more important than where it comes from.”
Shale is hard, dense rock formations found thousands of feet underground. Improved technologies over the last decade have enabled companies to reach oil and natural gas in such areas.
The International Energy Agency in June released its Energy Technology Perspectives 2012, which stated that inexpensive natural gas could perpetuate reliance on fossil fuels instead of renewables. This, in turn, would cause carbon dioxide levels to rise, damaging the environment irreparably, the report states.
Others say oil and natural gas can be recovered in a way that is complementary to the environment.
“You just have to do it right in how you develop the resources,” said Ming, the Oklahoma energy secretary. “The policies we've implemented here in Oklahoma at the Legislature and Corporation Commission (which regulates utilities and oil and gas drilling) have been successful at regulating the water use and pit impoundments that facilitate the water for hydraulic fracturing.”
Some are more pragmatic.
“There's no such thing as a free lunch in the energy business or anywhere else,” said Robert Bryce, a senior fellow at the Manhattan Institute and author of “Gusher of Lies: The Dangerous Delusions of Energy Independence.”
“When there is coal extraction and natural gas extraction, it comes with a significant impact. The same can be said with wind energy. There are environmental costs. I'm not minimizing those. Now that we have drilling in a lot of areas that haven't had it before, we're seeing friction in Pennsylvania, New York, even Fort Worth. That's not surprising. This happens. Nevertheless, the overall benefits to the U.S. economy of the shale gas revolution is an unequivocal positive.”
Bryce referred to an IHS study released in June that states that shale gas will support 1.5 million American jobs by 2015.
“That is an enormous benefit to the United States,” he said.