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As of mid-2020, the price of oil has more than doubled. As of late, oil has hovered around $100 a barrel, and consumers are feeling at the pump. In light of this, one might assume that the U.S. was unable to produce the amount of oil it needs. But amazingly, that’s not the case. In 2020, the U.S. produced roughly 18.4 million barrels of oil per day. At the same time, U.S. consumptions rates were only 18.1 million barrels per day. Despite this, the country still imported nearly 8 million barrels from abroad that year. Since 2018, the U.S. has been the world’s largest oil and natural gas producer in the world. But by the looks of things today, you might have never guessed that based on current energy issues in the U.S.

Since 1973, America has had the goal of attaining energy independence. President Nixon launched Project Independence that year with the objective of solving energy issues in the U.S. by 1980. But that objective was not achieved, and every administration since has been similarly unsuccessful. This obviously begs the question as to why. In short, three major issues can be identified that prevent us from being energy self-sufficient today. These include failed policy planning, a risk-averse oil industry, and misguided green directives. If the U.S. wishes to become truly energy independent, each of these need to be addressed.

Poor Energy Policy Planning Spanning Decades

While several national energy policies have contributed to energy issues in the U.S., two major ones are of primary important. The first policy issue is one of neglect, with several administrations failing to prepare the country for energy independence. In the U.S. today, most of the crude oil produced is described as light and sweet. Light crude is generally easier to refine, and sweet has less sulfur content, which also requires less processing.

However, that was not always the case. Previously, U.S. crude was heavy and non-sweet, as is the oil that comes from Saudi Arabia today. As such, refineries were constructed to handle this type of crude and were never updated along the way. That means refining U.S. crude is more expensive and takes longer that crude imported from elsewhere. Thus, despite adequate domestic oil production, the U.S. finds itself still importing it because of related refinery costs.

The second policy that has contributed significantly to energy issues in the U.S. involves import and export policies. In 2015, Congress lifted the ban on oil exports from domestic oil producers. The same was true for U.S. companies wanting to export natural gas. (Bold has discussed how the exporting of natural gas could revolutionize the future of energy–read it here.)  While this invites incentives for greater energy production, it also exposed domestic producers to international markets. On the one hand, this allowed U.S. oil companies to target countries that had higher oil prices. But at the same time, foreign producers gained greater access to U.S. markets. Because “lifting costs,” costs associated with getting oil out of the ground, were less in other nations, imports grew. In essence, it became cheaper to import oil than it was to produce it. This has greatly contributed to our continued lack of energy independence and exposed us to international market volatilities.

A Risk-Averse Oil Industry

America’s recent leadership in oil production in recent years has been the result of one major development: fracking. Short for hydrofracturing, fracking refers to the ability to extract oil and natural gas from rock formations. U.S. oil producers enjoyed a tremendous boom as fracking grew substantially over the last decade. But unlike typical drilling, fracking is a process that’s more expensive and requires longer times of production. Indeed, this helped the U.S. gain ground in its energy independence efforts. However, the inability for fracking rigs and production to adjust production quickly has contributed to current energy issues in the U.S. Repeated busts related to fracking investments have made oil producers leery of aggressively investing in these pursuits.

Someone making a budget infographic
Energy independence is within our grasp, but we’re ignoring the solutions that are right in front of us.

In past years, as international oil prices would rise, oil producers would invest heavily in fracking enterprises. But once completed, overproduction of oil would create global world surpluses that would drive oil prices down. As such, many oil companies never realized a return on their investments. That resulted in a consolidation of the domestic U.S. fracking industry. It also caused major financial losses that took investors with them. Understanding this, domestic oil companies today are risk-averse when it comes to investments to ramp up production. Most are content keeping their shareholders happy rather than risking another financial setback. This, too, has contributed greatly to the energy issues in the U.S.

Misdirected Green Initiatives

There’s little question that the future depends on the development of renewable energy sources. Investments in green energy is certainly needed, and efforts to combat climate change pursued. But these issues are global issues, not national ones alone. If countries around the globe are producing and consuming oil, there’s no advantage to energy policies that suppress domestic production. Roughly 35% of the energy consumption in the U.S. today comes from oil. This cannot be suddenly replaced with renewable energy options. These are long-term objectives that require us to meet our own energy needs in the short-term. In fact, being energy independent now would provide valuable resources to invest in green directives for the future. But instead, we’re allowing green directives today create energy issues in the U.S. that could hurt us later.

Other green initiatives are also hurting our capacity to be energy independent today. Environmental, social, and governance (ESG) investing is an increasing trend that encourages investments in green companies. Again, this is a positive aspect of companies that respect corporate social responsibility. But it is also taking investments away from companies in oil and natural gas that need financial supports currently. If these green directives are to continue, then additional safeguards must be established to guarantee energy independence today. Failing to appreciate these impacts and allowing green movements too much influence will only worsen energy issues.

Realizing Energy Independence

Other nations treat energy independence as a national security issue. To solve its own energy issues, the U.S. will need to do the same.

In the short term, that means supporting the oil industry while dialing back some of the more aggressive green directives. It also means stockpiling oil supplies so market volatilities can be better managed. And it requires establishing oil industry supports and incentives to boost oil production domestically. National policies can be established that make it easier and less risky for fracking projects to advance. Access to land, equipment leases, and supplies can also be improved through government subsidy proposals. We are a long way from energy independence today because of the decisions and circumstances occurring over the past decades. But by treating energy issues in the U.S. as national security priorities, this can rapidly change.

 

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