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Independence Day 2020?

The Long Road to Energy Independence

Written by Keith Kohl
Posted August 27, 2012 at 8:00PM

I'm sure you're familiar with President Obama's "All of the Above" energy policy.

It's a strong bet we'll hear a good bit more by the time election day rolls around.

And I have no doubt you've also heard something about the notion of U.S. energy independence. Every sitting president since Nixon has touted that little catchphrase.

The empty promises of politicians past started kicking around my head as I sifted through Romney's proposed energy strategy this week.

There's a twist in Mitt's game plan that you may not pick up on immediately...

Suddenly, our energy independence has become a team effort.

Go, Team North America!

One of the main components to Romney's plan would be a new North American energy relationship — with the goal of becoming energy independent by 2020.

Romney makes a good point here, because there really isn't much hope without adding our closest neighbors to the energy mix. And though we're on good terms with Canada and Mexico (nearly all of their oil and gas exports go to us), the situation isn't likely to stay friendly for long...

Since 2004, declining production and rising demand has caused a sharp drop in available exports (click charts to enlarge):

small mexico 8-26

That's a serious problem when more than 40% of the government's budget comes strictly from Pemex's oil revenues. Imagine how tight things will get when their oil exports dry up, which I believe will happen within the next five to ten years.

Here in the U.S., we have a long, expensive road ahead of us...

US 8-26

Despite the slight increase we've had in production, we have to remember that this new supply is coming at a hefty price. In North Dakota, for example, the cost of a new well in the Bakken can run as high as $10 million.

In order to achieve North American energy independence, we would also have to replace the 4.6 million barrels of crude oil and petroleum products we receive from OPEC every day — as well as secure another 2.4 million bbls/day from non-OPEC imports.

That's seven million barrels per day of new oil and petroleum products we need to get our hands on somewhere.

If we can't expect Mexico and the U.S. to pick up this oil tab, that only leaves one player left on the field.

That said, it's a good thing their future is much brighter than other North American prospects:

canada 8-26

That export number has actually reached 3 million barrels per day.

From here on out, you can bet Canada will remain our largest source of oil. Nobody is questioning that reality any more.

Former Best Friends

Based on those charts you see above, North American energy independence in just eight years seems unlikely. But there's another major hurdle for Romney's goals...

We haven't been very friendly toward our northern neighbors as of late.

Consider the way we've handled the Keystone XL Pipeline, bogging down potential energy projects purely for political theater — all while China continues to invest a fortune in Western Canada for a stake in the same fossil fuel resources.

Our handling of the Keystone is just one more reason for Canada to ship those barrels of upgraded bitumen west, not south.

We aren't the ones offering billions of dollars to Canadian energy companies to help develop their resources.

Turns out Canada is a green friend to everyone — and by 'green,' I mean currency.

When it comes to cash, Uncle Sam's pockets aren't nearly as deep as China's...

That's why Canadians in the western provinces are quickly learning a new language. By now, they've got some key Mandarin phrases down: barrel of oil, cheap natural gas, and how much?

This area dominates the country's energy production. Oil production from Alberta's bituminous sands will account for 80% of the country's total production within 20 years.

So it seems the only advantage we have on our side is geography — and that won't matter five or ten years down the road, when China's thirst for oil surpasses our own...

china oil demand 8-26

Fortunately, we still have some cards to play — the highest of which is technology.

Right now, North America is the perfect testing ground for unconventional oil and gas production. Our success in effectively combining horizontal drilling and hydraulic fracturing methods has thrust us into the global spotlight — and that doesn't include other opportunities opening up for our oil industry...

Over the last several years, there's been a renewed and very profitable interest in improving our enhanced oil recovery techniques.

Improving EOR processes allows us to produce barrels of oil that were previously thought to be unrecoverable. These kinds of advancements have helped open up as much as 430 billion barrels of oil in the U.S. alone!

All bets will be off once this company's oil technology spreads across the Pacific and finds its way to Chinese hands.

Until next time,

Keith Kohl Signature

Keith Kohl

follow basic@KeithKohl1 on Twitter

A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.


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