Can North America Become Energy Independent?
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Can North America really become energy independent?
Based on the media consensus, energy self sufficiency is right around the corner. A report by Citigroup predicts North America could wean itself off imports by 2020. Continental Resources CEO Harold Hamm thinks it's possible with less government interference. But is this goal really achievable? Let's investigate.
The road to independence
We're in the midst of a North American energy renaissance. Sustained high oil prices have made it economical to exploit harder to reach deposits offshore in the Gulf of Mexico and in the Alberta oil sands. New technologies have unlocked the bounty of shale formations like the Bakken, Eagle Ford, and the Permian Basin. With the advent of horizontal drilling and fracking, companies were finally able to access the oil trapped in those thin layers of tightly-packed rocks.
This combined factors have caused a boom in oil and natural gas output. According to the EIA, North America's total energy production has increased 8% over the past six years. Analysts project that figure to grow another 17% by 2030.
The path to indepence is also being reinforced by a steady decline in U.S. energy consumption. According to the CIA World Factbook, U.S. oil demand peaked in 2004 at 20.7 million b/d. Since then consumption has fallen 10%.
All of these trends are accelerating North America's path to energy self-sufficiency. Based on EIA estimates, the continent imported only 11% of it fuel needs in 2011, down from 19% in 2005. If these trends continue North America could be independent by 2020. Some analysts are making even bolder forecasts predicting that the United States is on track to become the world's largest energy producer by the end of the decade and will be completely self-sufficient by 2030.
But there're three big problems with this theory
First, the Alberta oil sands play a key role in North America achieving energy independence. But while Canadian production is expected to grow substantially over the next three decades, the oil sands are some of the most controversial resources on the planet.
Enbridge (NYSE: ENB), the Canadian pipeline company that is responsible for transporting 70% of Canada's oil exports to the U.S., is under intense regulatory review and public scrutiny after a series of spills. Enbridge is also facing strong resistance to its west coast bound Northern Gateway pipeline. In June, the British Columbia provincial government rejected the company's proposal after intense pressure from environmental groups. Many think the pipeline will never get built.
TransCanada (NYSE: TRP) is also facing stiff political resistance to its proposed Keystone XL proposal. If approved, the pipeline would ship 830,000 b/d of Alberta crude to refineries on the Gulf coast. While the project has received approval from the State of Nebraska, it's still awaiting a final decision from the U.S. State Department.
Opposition to desperately needed infrastructure could trap North American crude in the ground. And even if these pipelines are constructed, there may not be enough refining capacity further downstream.
Second, it's extreme to assume the energy industry won't be hit by another disaster. We don't know how any of the national governments will react if we are struck by another Exxon Valdez or Deep Water Horizon. Any similar event would delay or suspend independence.
Third, I can't help but feel these economists are simply extrapolating current trends into the future. This is a dangerous forecasting methodology and can lead to predictions that diverge laughably from the actual outcome.
Six years ago the conversation was centered on peak oil. High fuel prices were going to put an end to the suburbs. I thought my world was going to get a whole lot smaller. No one outside of the oil industry had heard of 'fracking' or 'horizontal drilling.' Just like then, it's likely that some unknown factor will completely throw off all of today's models.
Foolish bottom line
Even if the continent were to achieve self-sufficiency by 2020, it would do little to lower energy prices for consumers or insulate the market from Middle Eastern geopolitics. At the time of this writing, the price of regular gasoline at my nearby Ultramar station in Ottawa, Canada - an energy independent nation - is $4.60 US per gallon.
Robert Baillieul has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!