Energy independence is the talk of the presidential election and a modern cliche we're hearing more and more. The U.S. never really had an energy policy, but high gasoline prices over the past few years have made energy the center of the political debate.

Energy Independence in Natural Gas & Coal

The U.S. has been "independent" from the standpoint of having enough capacity to supply both coal and natural gas needs for several years. That wasn't always the case. Just a little over a decade ago, oil & gas companies begin building LNG regas facilities to make sure the country could import the natural gas it would need. The whole idea was flipped on its head when the Barnett, Fayetteville, Haynesville, and Marcellus shales were discovered. We now have predictable supply and oil & gas companies are building LNG export facilities. We'll come back to this point.

Oil Imports are Declining and Production is Rising

Crude oil imports have been declining for a few years now. The recession hit demand as people began to drive less and domestic production from places like the Bakken Shale, Eagle Ford, and West Texas are driving growth for the first time in decades. If you extend what has happened the past few years into a forecast, it is possible we could push imports out completely.

The problem with the forecast we see is that most assume we have supply that is cheaper than imports and it will stay that way for the foreseeable future. Ding. Ding. Remember what everyone thought about natural gas? Technological improvements and exploration can change the energy dynamic very quickly. South Texas folks can attest to how fast the Eagle Ford has blossomed.

The possibility the U.S. has the reserves and production potential to supply its needs is relatively high, but the probability that other crude sources will be more competitive is high as well.

The Reality of Energy Independence

The reality of energy independence is that it doesn't mean much. We could likely be energy independent right now if we produced from the oil shales in Colorado, Utah and Wyoming. The problem is you'd be paying twice as much to fill up your car, so don't focus on the two words "energy independence". We could do it and be worse off.

What is important is that we can supply our oil appetite reasonably without indirectly supporting hostile oil exporting countries.We currently import 9 million barrels of oil per day and produce a little more than 6 million barrels of oil per day. Even if the Bakken, Eagle Ford, Permian Basin, Mississippian, Utica and Gulf of Mexico all added 1 mmbbls/d of production we'd still fall short 3 mmbbls/d. That's aggressive and we still don't get there.

Natural Gas Production Could Get the U.S. Close

If we can't produce enough, what could change our consumption habits? We might not be able to produce enough oil, but we still might be able to drill our way there. If the transportation fleet begins to shift to natural gas, the chance we could become an energy island is much more feasible.

Today, oil is trading at more than thirty times natural gas prices. On an energy equivalent basis, oil should trade at six times natural gas prices, but history would tell us 8-10 times is more realistic. Still, thirty times means there is significant disparity in the oil and natural gas markets. We have the cheapest natural gas in the world and we're buying oil and international prices.

It would take approximately 6 Bcf/d to replace 1 mmbbls/d of oil. That means we'd need a field producing more than Barnett, Haynesville, or Marcellus for every million barrels of oil we'd need to offset. There's a lot of gas being produced from oil fields, but we won't likely get to energy independence without a major worldwide event....... Changes as big as the one we just laid out just don't happen unless the psychology of an entire culture changes. We're not there, but at least we have supply for once and can talk about it.