Energy Independence – What Then? (Part Three: The Broad Goal of North American Energy Independence)

This post is the third in a four-part series on energy independence and its significance (or insignificance). Click to read the first, second, and fourth installments.

In its recently-issued World Energy Outlook, the International Energy Agency (IEA) underscored the likelihood and significance of North America becoming “a net oil exporter around 2030.” Here, we ponder why a North American perspective on energy, and especially the prospect of self-sufficiency in oil, is meaningful. After all, when it comes to production and trade in, say, grains or wood products, we do not hesitate to separately analyze trends for the US and Canada rather than emphasizing their aggregate impact.

It’s hard to lose sight of the many factors shaping the strong relationship between the two countries. The long shared border, common resource-producing regions, democratic institutions, culture, language, and military interests all play their part. Interconnected electric transmission flows give both countries joint incentive ensuring integrity of the grid. And overall, trade and investment undergird strong economic ties.

But for energy (in particular for oil), there are two interconnected areas of importance: security and trade.

The security implications of a virtually self-sufficient North American oil market are genuine but easily overstated. Though not neatly separable, these implications are twofold—geopolitical and economic. On the geopolitical side, it is arguable that oil consumers (especially large-volume importers like the US) have been in thrall to oil-supplying regimes whose questionable political posture might otherwise have been more easily challenged. To the extent that a new world oil outlook sees a greater share of global output and its growth originating in places deemed free of such burdens (like North America), it would allow greater foreign policy flexibility.

These geopolitical circumstances also have an economic dimension. Some oil-producing areas— particularly the Persian Gulf region—are prone to political and military turbulence which would translate into higher and more volatile prices in global oil markets. Some of these price impacts would result from reduced output; some from transportation bottlenecks that, in an extreme case, Western military personnel would have to safeguard. But the Middle East produces about 23 of the 85 million barrels/day in world oil production. Global production is unlikely to increase much over 100 million barrels/day over the next two decades, so the Middle East’s share will stay large. That makes it hard to believe that the incremental surge in North American oil would be large enough to more than moderately diminish exposure to turbulence in the Middle East.

In terms of trade, the U.S. today imports 2.4 million barrels/day from Canada, its leading oil supplier at 26% of overall imports. At the same time, the overwhelming share of Canadian oil exports go to the US (See table below). Even though US oil imports from other regions will continue, that closely intertwined connection can only become more pronounced in the years ahead with Canada further raising its share of a sharply declining volume of total US oil imports.
At the same time, rapidly expanding output of Canadian oil sands (which may approach 5 million barrels/day by the mid-2020s) will prompt Canada to seek additional markets for its exports. Which brings us to the controversial Keystone XL pipeline, which we have discussed in the past and is a part of this story. A significant part of Keystone’s throughput could be oil in transit, for refining in foreign trade zones, rather than destined for US consumption. Although not an unusual practice in international commerce, this has already provoked a hostile reaction from environmental groups and will test the US commitment to free—trade principles. (A related controversy regarding planned export of US natural gas has already stirred similar controversy.)

Recall that in just the last couple of years, expansion of US oil reserves and output have dramatically exceeded expectations of five years ago. More such surprises – and they shouldn’t be ruled out—would solidify IEA’s forecast of North American self-sufficiency in oil still further.

 

Posts in this series:

1. The Centrality of Oil

2. Zero Oil Imports: Benefits – But With Some Lurking Uncertainties

3. The Broad Goal of North American Energy Independence

4. Energy Independence and the Environment

About Roger A. Sedjo

Roger Sedjo is a senior fellow and the director of RFF's Forest Economics and Policy Program. His research interests include forests and global environmental problems; climate change and biodiversity; public lands issues; long-term sustainability of forests; industrial forestry and demand; timber supply modeling; international forestry; global forest trade; forest biotechnology; and land use change. He has written or edited 14 books related to forestry and natural resources.

About Joel Darmstadter

JOEL DARMSTADTER is an economist and senior fellow at Resources for the Future, which he joined in 1966, following an earlier stint in the corporate sector and several research organizations. Specializing in economic and policy aspects of energy and the environment, he has written, co-authored, and contributed chapters to, numerous books and journal articles. He has appeared as an expert witness before congressional committees, been a consultant to several government agencies, and served on a number of National Research Council panels. During 1983-93, he was a professorial lecturer at the Johns Hopkins University School of Advanced International Studies. He has degrees in economics from George Washington University (A.B., 1950) and the New School for Social Research (M.A., 1952).

Views expressed above are those of the author. Resources for the Future does not take institutional positions on legislative or policy questions. All information contained on Common Resources is intended for informational and educational purposes and may only be used for these purposes. Please see RFF's Terms of Use for further information.

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  1. [...] http://common-resources.org/2012/energy-independence-what-then-part-three-the-broad-goal-of-north-am… In its recently-issued World Energy Outlook, the International Energy Agency (IEA) underscored the likelihood and significance of North America becoming “a net oil exporter around 2030.” Here, we ponder why a North American perspective on energy, and especially the prospect of self-sufficiency in oil, is meaningful. After all, when it comes to production and trade in, say, grains or wood products, we do not hesitate to separately analyze trends for the US and Canada rather than emphasizing their aggregate impact… [...]



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