The United States could become a net energy exporter in a few years, according to a report by the U.S. Energy Information Agency.
The possibility of exporting more energy than the United States imports is “a big deal,” says the President of the American Petroleum Institute, Jack Gerard. In a Washington speech, he said the move towards energy independence is possible because of the recent end of a legal ban on crude oil exports as well as rapidly improving and evolving technologies like fracking and horizontal drilling.
State Department energy expert Amos Hochstein says fracking and similar technologies brought an “unbelievable” increase in U.S. crude oil output in recent years, nearly doubling it. He says “that changed everything.” He also says U.S. oil drillers have made major efficiency improvements with a speed that has repeatedly surprised analysts.
Major changes in energy markets
These developments are bringing major changes to global energy markets, including efforts by major oil producing nations to end a two-year plunge in oil prices that have badly hurt their economies.
In the past, the Organization of Petroleum Exporting Countries (OPEC) coped with low prices by working out a deal among member countries to cut production. With less oil on global markets, prices rose.
But this time, OPEC kept pumping crude oil and let prices fall. Analysts say OPEC hoped low prices would crush high-cost competitors, particularly the U.S. companies that use expensive techniques like fracking. The demise of these high-tech oil drillers would eventually leave low-cost producers, like Saudi Arabia, free to boost prices and make big profits.
U.S. production boost hurts OPEC
But the State Department's Hochstein says surging U.S. oil production made OPEC production cuts much less effective. He adds that many American producers survived in the lower-price environment because they drastically improved the efficiency and effectiveness of their operations.
“The resilience of production meant for OPEC, the U.S. wasn't going away. Shale production [fracking] wasn't going away, so letting [the price] ride low is not going to be the answer.”
Crude prices rebound
Global crude oil prices have rebounded somewhat since November's agreement among OPEC member countries and other major oil-producing nations to cut production. But American Enterprise Institute scholar Benjamin Zycher says many oil producers face complex economic challenges, making the deal fragile. He says, “The agreement is unlikely to hold.”
Experts say even if the production-cut agreement does work, higher prices will spur frackers to produce even more oil, which in turn could oversupply the market and drive prices down again.