JANUARY 2017

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NEW TECHNOLOGY: US Strives for Self Sufficiency

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By R. S. Kalha*

According to well-placed oil industry sources, the arrival of new technology and innovative methods of drilling are opening up new vistas hitherto thought impossible. Natural gas and oil stored deep underground in fine-grained sedimentary rocks can be extracted using a process known as hydraulic fracturing – or ‘fracking’ – which involves drilling long horizontal wells in shale rocks more than a kilometre below the surface. Massive quantities of water, sand and chemicals are pumped into the wells at high pressure. This opens up fissures in the shale rock formations, which are then held open by the sand, enabling the trapped gas and oil to escape to the surface for collection.

President Obama has strongly endorsed the new production technology as a boon to the US economy and energy security. Last month (April 13, 2012), Obama ordered the creation of an inter-agency task force to streamline federal regulation of natural gas drilling and the Environmental Protection Agency issued revised air quality rules for oil and gas wells that gave drillers extra time to comply and lowered their costs. The US government also agreed to allow companies to reveal the contents of drilling fluids only after the operation had been completed. US industry officials praised both moves.

Geologists in the United States have long known that shale basins across the United States, like the Bakken field in North Dakota, Eagle Ford and Barnett in Texas, and the Marcellus in the northeast, held tremendous oil and gas reserves. But energy companies had no economic way to collect them until new technology recently changed all that. The results have been impressive. Production from the Bakken region alone has gone from negligible quantities to 500,000 barrels of oil a day in the last few years. Similarly, oil production at Eagle Ford had been negligible; it was estimated at just about 787 barrels in 2004.

Last year (2011), however, its production reached 30.5 million barrels according to local state regulators, and it is still growing. Natural gas production there went from nothing to 243 billion cubic feet in just three years. Some experts are even more bullish and have forecast that North American oil production could reach an astounding 27 million barrels a day by 2020, almost twice the rate of production of 15 million barrels a day at the end of 2011. Production from the United States could grow to 15.6 million barrels a day by 2020, up from nine million barrels a day in 2011.

As it stands today, the United States is already in a position to reduce the demand for oil imported from abroad to fulfil its domestic needs. Presently, the United States consumes nearly 25 per cent of the total world oil production. Imports by the United States fell from 65 per cent of total domestic demand, or 13.5 million barrels a day, their peak in 2005, to 9.8 million barrels a day in 2011, or 52 per cent of demand. Oil industry experts predict that US imports would keep falling, reaching 4.5 million barrels a day – or just a quarter of domestic oil demand – by 2015. By 2020, they forecast, the United States would not need to import foreign oil anymore. This very welcome situation has also developed due to better performance and less guzzling of 'gas' [Petrol/Diesel] by new model automobiles/trucks manufactured in the United States. Further, with the advent of the internet, there is considerably less urge among Americans to travel.

If such forecasts come true, there will undoubtedly be a huge impact on American strategic thinking, particularly in the political and economic spheres. For one, a United States not dependent on foreign imported oil would mean that there would be very little incentive for it to undertake foreign military adventures of the type witnessed in the Middle East, particularly in Iraq. As it is, of the top five countries that export oil to the United States, only one is in the Middle East, namely, Saudi Arabia. It is for this reason also that the United States can put pressure on other countries such as India and China to drastically cut their imports of oil from Iran.

Clearly, the United States is not as vulnerable as other countries are and therefore can afford to take a much tougher attitude. Hitherto, successive US administrations have made it clear that any disruption in the flow of oil from the Middle East would be considered a strategic challenge and would be met with full force, if necessary. All that might change in the future. Countries such as India, Japan, South Korea and to some extent China that had relied on the security umbrella of the United States Navy to ensure the free flow of oil from the Gulf region, that is so vital to their economic wellbeing, might now have to think afresh.

For India, the choice is rather stark given that the West Asian region is in its close proximity. India cannot afford poor relations with Iran. Dubai is nearer to Mumbai than it is to Cairo or even Amman. Muscat is only 967 miles away from Mumbai. Access to and the ability to import oil unhindered from this region is an important facet of national security. As the Indian Commerce Minister remarked in 2006, ‘the Gulf region is a part and parcel of India’s economic neighbourhood’. About 3.5 million Indians live and work in the Gulf region and are the largest expatriate community there. Indians remit about US $12 billion annually to India. The Gulf region is the third largest destination for Indian exports behind only North America and the EU and accounts for nearly 16 per cent of India’s total exports. The test for Indian diplomacy is at hand.

Apart from a general disinterest in the affairs of the Gulf Region, public opinion in the US is likely to sharply veer towards isolationism. This under-current of isolationism is never far from American thinking and the penchant for 'fortress America' may just gain further adherents. Nevertheless, the United States is also deeply conscious that the scourge of terrorism and support by some states to non-state actors has to be effectively met. It cannot be done on the basis of isolationism or by individual states, for the malaise is deep-rooted and requires collective action by like-minded states. Similarly, the spread of nuclear technology for weaponisation whether done surreptitiously or otherwise also requires collective action and therefore the US may opt for further strengthening of international institutions.

At the economic level as well, there could be significant changes within the United States. Cheaper energy costs – particularly for natural gas – would benefit a variety of domestic industries, like chemicals, pharmaceuticals and fertilizers. The rise in natural gas production has already led many utility companies to shift their electricity production away from coal. Some economists feel that with ample gas supplies available resurgence in American manufacturing might just be in the offing.

There is no doubt that with the United States possibly becoming self-sufficient in oil and natural gas, a profound change in its strategic thinking is bound to take place. We in India should be aware of the possibilities and should undertake serious studies to assess the impact of any such changes. What happens in the United States has an impact that is world-wide.

*R. S. Kalha is a former Secretary in India's Ministry of External Affairs. This article first appeared in the Institute for Defence Studies and Analyses (IDSA).

[Source: 2012 IDN-InDepthNews | Analysis That Matters]

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