U.S. cannot drill, frack and pump its way to oil independence

The United States can become energy independent. We can develop an energy infrastructure with stable prices low enough to support a modern, growing society.

Although much of the discussion about energy independence revolves around increasing U.S. oil production, doing so is not sufficient to achieve America's energy independence goals. Increased domestic oil production cannot result in long-term low, stable oil prices.

American production cannot stabilize oil prices, no matter how much oil the U.S. produces. Oil is a global commodity. Its price reacts to supply and demand elsewhere, in the volatile and unpredictable manner characteristic of all commodities. OPEC and its allied countries can also simply choose to destabilize oil prices instantly, by withholding supply for economic or political reasons.

Increased U.S. production can help constrain the oil price (if other governments, or higher foreign demand, does not cause higher prices), but increased U.S. production cannot stabilize the price at a low level. Technology improvements like deep offshore drilling, oil sands refining, polymer injection and hydraulic fracturing have improved our ability to find and extract oil. Unlimited American drilling, fracking and pipeline construction do tend to lower oil prices. Oil production here has increased more than many people thought possible and could increase further.

However, advanced oil technologies are expensive. High cost producers have to make money to produce oil. The U.S. fracking industry nearly went bankrupt in its entirety when the oil price fell below $60 a barrel for a few weeks during early COVID-19 lockdowns. Discussion within the industry suggests that financing for new fracking will likely require sustained prices around $80 a barrel. Therefore, even the removal of all regulatory constraints on the U.S. oil industry wouldn't keep the long-term oil price significantly below that level.

High oil production and delivery costs are not limited to the U.S. Globally, inexpensive oil – i.e., light, low-sulfur oil in shallow fields on easily accessible land, with high gas pressure in the geological formation – has already been found and extracted. Much discussion of theoretical new U.S. production is centered on deep offshore wells and Alaska. If exploration was successful, development would have high costs.

Everywhere, new oil is becoming harder and more expensive to find, extract and deliver from new fields even when exploration is successful. For example, production from Russia's west Siberian fields is declining. Russia anticipates moving its oil production to the high Arctic. To do so, Russia needs to invest in new, expensive Arctic roads, rail lines, pipelines, ports and cities for support personnel. If the Russian government starts building infrastructure instead of buying tanks for Ukrainian farmers, Russian oil production may stay high, but Russian production costs will increase.

Even Saudi Arabia, after decades of production, is seeing increased costs as gas pressures in its oil fields fall. This increases the amount of energy that has to be used to keep oil flowing.

Finally, demand is relevant. If global oil demand grows or even stabilizes, prices will go up, because supply growth is constrained and new supplies are expensive. If global demand falls, prices will fall – but only so far, because at low prices, expensive producers like U.S. frackers and Canadian tar sands operators cannot make money.

Energy independence cannot be achieved through U.S. oil production. Next time, I will talk about how U.S. energy independence can be achieved.