In recent years, the United States has become much more self-sufficient when it comes to energy. A surprising decline in US petroleum consumption paired with increased production have combined to erase much of the American dependence on foreign oil imports. This week, the US reached another energy milestone when it was announced that America is now a net exporter of natural gas.
According to the Wall Street Journal, the US exported an average of 7.4 billion cubic feet of natural gas per day in November. Over the same period, only 7 billion cubic feet per day was imported. It has been almost 60 years since the US exported more natural gas than it imported.
The news on natural gas comes three years after US oil imports balanced for the first time since the 1950s. In 2013, US crude oil production was greater than the amount of oil imported for the first time in decades.
The increase in US oil production is due largely to fracking and other new technologies that allow oil that was previously not recoverable to be harvested profitably, even when the price of oil is low. Shale oil production has risen even as prices fell. According to CNN, fracking now accounts for more than half of US oil production and has increased US output to a 43-year high. Since low oil prices have actually depressed production, US oil output can be expected to increase further as prices rise.
American oil production has increased to the point that US oil companies are now exporting oil for the first time in 40 years. In December 2015, Congress lifted a 1975 ban on exporting domestically produced oil. Six months later, oil exports averaged more than half a million barrels per day and US oil was being shipped around the world.
The shift from importing to exporting is also due to a decline in US oil consumption. After steadily increasing since the early 1980s, the 2008 financial crisis caused oil consumption to plunge. However, even after the recession was over, oil consumption remained low. In 2015, the White House Council of Economic Advisors pointed out that 2014 oil consumption was lower than 1997 in spite of an economy that was 50 percent larger. The decline was due primarily to a drop in vehicle miles traveled, but higher fuel economy was also a factor.
So far, the oil consumption “surprise” in the US has been greater than in other countries, but consumption is expected to fall around the world. Forbes points out that the discussion has moved from concerns about a “peak oil” decline in production to peak oil consumption. New technologies to conserve oil and alternative energy sources are pointing to the possibility that worldwide oil consumption may soon start to decline.
The decline in oil prices over the past few years is a perfect illustration of the laws of economics in action. As oil production, the supply side of oil, increases, the price of oil, the demand side, decreases. Additionally, decreases in demand due to less driving and more fuel efficient cars also contribute to falling prices.
Ultimately the markets corrected and solved the problem of high oil and gasoline prices without government interference. In the future, they will also solve the problem of what to do when oil supplies eventually become scarce or inefficient. Tim Worstall noted in Forbes, “As Sheikh Yamani pointed out, the stone age did not end because of a shortage of stones. And it looks like the oil age will not end for a shortage of oil, rather simply because we’re finding better ways to get our energy.”