US Leads World in Oil Production—But for How Long?

Fracking boom could go away as fast as it arrived. And then what?

An oil field near Lost Hills, Calif., on March 24, 2014. David McNew/Getty Images

Fracking has transformed the geopolitics of energy, shifting the center of gravity out of the Middle East to America.

It has turned the United States, a nation once reliant on foreign energy sources from some rather unsavory nations, into a net exporter of natural gas and refined petroleum products.

In fact, the United States now leads the world in oil production and is, to a large extent, energy independent. The United States still imports 11 percent of its oil, the lowest percentage since 1957.

US Leverages Oil Market Dominance

Energy independence has been a huge advantage for the United States on a number of fronts. Economically, it has helped keep U.S. gasoline prices relatively low and created thousands of new jobs. On the global scene, leading the world in oil and gas production has largely insulated the United States from the political machinations of the Middle East and OPEC and has granted it more diplomatic power over its adversaries.

For example, market dominance has allowed the United States to successfully put sanctions on Iranian oil exports, exerting economic pressure on the terror-supporting regime without disrupting the global market. The United States’ world-leading oil productivity has also blunted the impact of other supply shocks, such as the recent attacks on Saudi Arabian oil fields. That attack cut Saudi oil processing capabilities by half, albeit for only a short time. In the past, such an event would have sent oil prices skyrocketing for a long time. And yet this time around, the market barely noticed.

Essentially, the United States’ global leadership in oil production has weakened OPEC’s grip on global oil prices and supplies that once allowed the oil cartel to hold the rest of the world hostage.

Controversial Technology

But how long will the United States’ top position in oil and natural production last? It’s not as clear cut as it may appear to be at the moment.

Much of the United States’ new oil and natural gas production comes from a controversial extraction process known as hydraulic fracking. Hydraulic fracking was first widely used in the 1960s, and yet had been invented a century earlier. Unlike traditional oil production, which involves drilling holes into the earth until reaching enormous underground oceans of oil (the Middle East), fracking extracts oil from shale rock by forcing high-pressure liquid into layers of the shale deep underground.

The high pressure fractures the shale, releasing huge amounts of oil and natural gas. Groundwater is pumped into the cavity left behind after all the oil and gas have been taken out.

But hydraulic fracking is controversial for several reasons. Critics say fracking depletes local drinking water supplies, pollutes the air, has toxic impacts on people in the area, and contributes to greenhouse gases. But perhaps most well-known is the suspicion that fracking is causing earthquakes where they haven’t historically occurred. Scores of tremors have been felt in places such as Oklahoma, Texas, Arkansas, Ohio, West Virginia, and other locations that scientists attribute to the fracking process.

But there’s another, lesser-known controversy about fracking that’s alarming oil and gas industry experts. Fracking wells are drying up much faster than traditional wells. According to industry analyst Alex Beeker, “In the first years of production, there is a rush of oil and gas that declines rapidly.” In order to keep up with demand, more fracking wells have to be drilled quicker because they run dry quicker.

Not a Long-Term Solution

Some analysts think hydraulic fracking may not be the long-term foundation for the United States’ energy independence. Scott Forbes, an industry analyst and vice president of the Lower 48 for Wood Mackenzie, believes the current fracking model is unsustainable and, therefore, may be a short-lived phenomenon.

Paradoxically, the fracking industry could actually become a victim of its own success. The political and economic need to keep fuel prices low could actually result in hydraulic fracking companies crashing and burning, at least under the current operating model. Rapid and continuous drilling is expensive and often doesn’t deliver positive results, which is why Wall Street isn’t investing in the industry the way it used to. But without sufficient profit margins, those costs may eventually outpace the revenues.

Steve Schlotterbeck, a veteran of the natural gas industry, has said the fracking investments are an “unmitigated disaster for the buy/hold investor.”

The fracking business model doesn’t seem as stable and predictable as one would want for the extraction of a strategically critical resource. In fact, the “shale oil boom,” as it’s been called, may have already peaked. According to The Wall Street Journal, production is slowing dramatically, down to 1 percent in 2019, compared to 7 percent in 2018. Other estimates predict that production will peak by 2030 at 14.5 million barrels per day (BPD), up from 8 million BPD of today. Much will depend on the price for a barrel of oil and new innovations in hydraulic fracking.

However, the aftermath of fracking may present much longer-lived problems. For example, the long-term environmental impact from despoiled groundwater and a rise in earthquakes are formidable. Also, the growing number of spent hydraulic fracking wells that aren’t being remediated by the fracking companies present a significant environmental and economic challenge that isn’t being met by fracking companies.

There is also a strategic context to the uncertain future of the hydraulic fracking industry. If fracking was no longer a profitable process, or is deemed too environmentally risky, then the United States’ global energy dominance could be jeopardized.

It’s even possible the United States could find itself once again a hostage to foreign sources of oil. Given the current tensions in the oil-rich Middle East, U.S. dependence on such potential hostile and unreliable suppliers would be both economically and geopolitically inconvenient.

As of right now, there is no plan B in sight.

James Gorrie is a writer and speaker based in Southern California. He is the author of “The China Crisis.”

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.