This is a follow-up to a previous post Drill Baby Drill.
There’s been a lot of talk recently about the ability of the United States to become energy independent. Being independent as the term is used here means that we produce what we consume. After hitting bottom around 2008, U.S. production has increased to the point where in 2020 our production exceeded our consumption.
So, in theory, we should be able to say adios to Russia and the Middle East, numbers three and four, and the bad players on our import list. Canada and Mexico are numbers one and two. Sadly this isn’t possible—yet. So, why is there a need to import at all? The answers are production, infrastructure, and logistics.
Production has dropped from its high in 2020. Though the current administration claims there are 9,000 leases that have been approved, they leave out several facts. The biggest is that drilling, mining, fracking, or whatever the extraction method used, are highly speculative. The reward needs to exceed the risk. In a market where price fluctuates drastically, just because it might be profitable now, doesn’t mean it will when the resource begins to produce. In two years, we have gone from all-time lows to all-time highs. Regulation adds to the complexity as well. The restrictions on drilling in California versus Texas could be a go or no go decision.
Infrastructure is another issue. Crude oil needs to be refined and delivered.
Because of the Jones Act, another rabbit hole for another day (but a good explanation here), it is cheaper to transport goods by vessel internationally than domestically. Considering the economics, why would an oil refinery absorb the cost of shipping its products from a Gulf Coast refinery to the Northeast U.S. when it is cheaper to ship them to Mexico or even Africa. The Jones Act requires any shipment from one U.S. port to another to be via a U.S.-owned, registered, made, and crewed vessel. The Act dates to 1920 and as the link above shows has failed its purpose.
Pipelines are an answer, but after the debacle with the Keystone XL Pipeline (for and against arguments here.) The debacle, in this case, is that through three administrations we have stopped the project, started it, and stopped it again. Regardless of the reasons, and some are good, denying a key permit on a half-built project which resulted in its abandonment is a huge red flag for any private company wanting to develop infrastructure in the U.S.
Refineries are also an issue. North America’s biggest refinery—Motiva’s Port Arthur, Texas, facility—is owned by Saudi oil giant Saudi Aramco and imports crude from its overseas affiliate. Many U.S. refineries were also built before the shale boom and remain optimized to process different (heavier) oils than the lighter stuff that comes from much of the United States.
Repealing the Jones Act and compromising on delivery methods as well as building or converting refineries for the abundance of shale that we have will reduce and maybe eliminate our reliance on foreign oil.
That’s the oil part of the equation. The next is electricity.
Sooner or later the general public and a good portion of our lawmakers are going to finally understand that their electricity doesn’t come from the ether. Well in the case of lightning it can, as BF found out. To provide electricity we have a magic grid—one that is antiquated and needs upgrading now. It will need to be rebuilt before we can plug in the millions of electric cars and trucks that our leaders are claiming will save the world. If you haven’t read it, check out my piece on electric vehicles.
We get our electricity from coal, natural gas, petroleum, shale, and sustainable sources. I’ll leave out nuclear energy because that is such a hard sell that it’s not likely to happen—though it should. Sustainable sources like hydroelectric, solar, and wind contribute little to the current grid and have their own environmental and life cycle issues as well.
Upgrading our electrical grid needs to be done regardless of what happens with electric vehicles. Because of the onerous restrictions in place and in the pipeline to force the end of the internal combustion engine, we are in a stagnant position. In order to produce anything infrastructure is required. Fifty years is often used as the depreciable life cycle of such projects. My fear is that we are going to find ourselves in a void where the infrastructure necessary to support electric vehicles is not yet built, and no new infrastructure for the oil we need to fill the void for our internal combustion engines will be built either.
In Jared Diamond’s book: Guns, Germs, and Steel he outlines the reasons that civilizations have failed. We might want to consider our energy policy to be a potential death blow to ours and add Oil to his title.
The fact that hurts is that the US has enough fossil fuel found and accounted for to last us for several hundred years, not counting what is yet to be discovered. Same for nuclear fuel if we could only get past people’s totally ignorant bias. Building enough renewable energy sources will require vast amounts of fossil fuel to supply the energy needed to fabricate and construct them and will take many decades. Steven’s comments on the electrical distribution infrastructure is spot on. We need to get the politics out of this issue and let the businesses operate like they are supposed to.
I love your articles. New to your website. Also love your books. Keep them coming.