Celebrate our Energy Independence

America’s emergence as an energy superpower signals independence and economic promise.

Just how did we get here? It was almost 45 years ago when we lost our energy independence. And it was of our own making. American companies, using their advanced technology and expertise, discovered and developed oil and natural gas in the nations now known as OPEC. The wealth created for those mostly impoverished countries, was rewarded on Oct. 17, 1973, by these petroleum exporters instituting an oil embargo to punish the West and, in particular, the United States, for its support of Israel during the Yom Kippur War.

Those of us working in the field at the time will not forget how shocked Americans were by the embargo—and by the quadrupling of oil prices that followed. We experienced the economic carnage that flowed from shortages that required rationing and saw the real fear of gas station owners when they had to fight off truckers and others that needed the fuel for their work vehicles. Then six years later, the Iranian Revolution toppled the Shah, one of America’s closest allies in the Middle East, further disrupting the global oil supply. All this was completely at odds with the widespread American assumption of abundance that had been shaped by decades of ample supply. Remember, in World War II almost every barrel of oil used by the Allies came from the United States. In fact, prior to the embargo most Americans did not even know that the United States imported oil, much less that imports met 35% of our needs.

For years after, we continued to become more dependent on our foreign imports, which rose to 60 percent of the supply as recently as 2005. While we were become increasingly dependent on those foreign oil supplies, our natural gas production declined to the point that we started building LNG import facilities. In many of the countries where American and British companies had been trusted partners, energy production was virtually nationalized, limiting our access and control over the production.

American independent oil and gas producers, who always believed there was more oil and gas to be found in America, continued to research, invest and innovate. Led by George Mitchell and other great entrepreneurs, horizontal drilling and hydraulic fracturing, paired with 3D seismic mapping brought revolutionary tools to American exploration and production. They refined methods for development of shale gas and tight oil. This didn’t come out of a lab of the large multinational oil companies, who had largely abandoned on-shore domestic exploration and who were importing oil to the U.S., but from the brilliant and tenacious minds of these patriotic and entrepreneurial American oil men. They started a revolution from which all of us are now benefiting.

Aubrey McClendon, a true visionary, set out to spread the word about this revolution through the American Clean Skies Foundation. At one time, utilizing this new technology, his company Chesapeake was the number one natural gas producer in America, much of it from shale gas formations. Thanks to him and other innovators like Larry Nichols (Devon), Harold Hamm (Continental) and Scott Sheffield (Pioneer), oil and natural gas production began to increase again. This drove investment and expansion of energy infrastructure, particularly new high tech pipelines to move it. Quietly, companies like Plains All American Pipeline, Entergy and others started building out the transportation to get this product to market. With these increases, as well as more efficient automobiles, petroleum imports have fallen from their high of 60 percent in 2005 to 25 percent today—less than what they were in 1973! And as domestic production increases and gasoline mileage improves, imports will continue to go down.

In 1973, President Richard Nixon proclaimed that it was his goal to make the U.S. energy independent again. Every President after that has said the same. But it was not the action of any President, but private sector innovators that invented the technology to achieve independence from OPEC. The last Administration deserves credit for encouraging diversity of American energy sources, but the move to energy independence during its tenure was achieved despite its barriers to development of oil and gas resources.

In 2017, as we celebrate Independence Day, the U.S. has become the world’s top natural gas producer since 2009, passing Russia, and the top producer of oil and petroleum hydrocarbons since 2014, passing Saudi Arabia.

The one major policy change that the Republican Congress made in 2015, led by Speaker Paul Ryan, that is contributing to American independence and influence, was lifting the 40-year ban on U.S. crude oil exports. Since then, exports are rising, in some weeks, to more than one million barrels of oil per day. That’s double the pace of 2016 when government permission was required. And while the U.S. still imports less than a quarter of its needs, mostly from Canada and Mexico, lifting the ban has resulted in a more efficient global supply chain. Exporting the light sweet crude from the new shale oil formations and importing cheaper heavy oil for our refineries that most of American refineries are configured to take, results in lower prices for consumers. The larger world market has allowed U.S. drillers to revive production after prices fell from close to $90 a barrel in 2014. And there is the surge in liquefied natural gas (LNG) exports. Since the first LNG shipment from the lower 48 left a Louisiana port in 2016, the EIA expects exports will climb by about 200% over the next five years.

There is more work to be done in the policy arena to remove some other unnecessary roadblocks. This last week Congress began working again on streamlining their processes for building energy infrastructure. President Trump has already started doing this by Executive Orders, and Congress through Congressional Review Act legislation. Energy Week 2017 highlights additional work to be done. After so many years striving for energy independence, President Trump isn’t talking about energy independence anymore, but energy dominance for America. While this is a lofty goal, it is within our grasp this Independence Day.












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                    FROM THE CHART ROOM

                    U.S. Exports of Crude Oil and Petroleum Products Have More Than Doubled Since 2010


                    U.S. crude oil and petroleum product gross exports have more than doubled over the past six years, increasing from 2.4 million barrels per day (b/d) in 2010 to 5.2 million b/d in 2016. Exports of distillate, gasoline, propane, and crude oil have all increased, but at different paces and for different reasons.

                    Restrictions on exporting domestically produced crude oil were lifted in December 2015, and in 2016, the United States exported an average of 520,000 b/d. U.S. crude oil exports reached 1.1 million b/d in February 2017, the highest monthly level on record. While Canada remains the largest destination for U.S. crude oil exports, Canada’s share of total U.S. crude oil exports has declined, dropping from 92% in 2015 (427,000 b/d) to 58% in 2016 (301,000 b/d). Other leading destinations for U.S. crude oil exports in 2016 included the Netherlands, Curacao, China, Italy, and the United Kingdom. Read more on the EIA website.



                    Michael Best Strategies’ Energy Team

                    About Michael Best Strategies

                    Michael Best Strategies focuses on achieving clients’ objectives through unparalleled strategy development and deployment for implementation, pragmatic guidance on public policy development, and government relations. The Strategies team specializes in a full range of services, including government relations, public policy consulting, grassroots advocacy, public affairs, conference planning, and strategic political relationships. For more information, visit michaelbeststrategies.com.