America’s Great Leap toward Energy Independence

Every trimester, leading fund managers in the United States release their investment strategies. That of Berkshire Hathaway, Warren Buffett’s financial arm, is one of the most followed on Wall Street. His interest in companies “made in the USA,” especially large ones, is well-known. What they didn’t expect on the trading floor was that he would announce he was taking a stake in the Exxon Mobil oil company.

Though surprising, this investment is no accident. Buffett has spent years believing in an energy renaissance in the U.S. He holds positions in ConocoPhillips and Suncor Energy, and he owns the Burlington Northern Santa Fe Railway Company, with which he controls the infrastructure to transport the oil and natural gas coming from the new fields that are being tapped in the country’s heartland and in Canada.

Buffett’s maneuver reflects the frantic energy race in which the U.S. is engaged, which will have important ramifications for its economy and its relations with the rest of the world. Dennis Ross, former negotiator for the U.S. in the Middle East, recently showed how energy self-sufficiency can alter the balance of power in the region.

The diplomat’s fear is that the U.S. may recede as a power in the region because it no longer depends on oil from the Persian Gulf. Other analysts see something similar regarding Venezuela and other oil-producing countries in Latin America. “Energy developments in the United States are profound and their effect will be felt well beyond North America — and the energy sector,” says the International Energy Agency in one of its outlook reports.

The numbers are there. Last October, the Department of Energy forecasted that this year the U.S. will already be the world’s largest oil and natural gas producer, surpassing Russia and Saudi Arabia. This is explained by the amount of hydrocarbons being extracted in Texas and North Dakota, not to mention the natural gas extracted from porous rock in some East Coast states.

Five years ago, the U.S. produced less than 20 million barrels per day of oil and natural gas, evenly spread between the two. Russia exceeded this level with both fossil sources combined, whereas Saudi Arabia was the largest crude oil producer. Total American production is now approaching 25 million barrels; its oil exceeds that produced by Saudi Arabia.

The key to this increase lies in shale exploration. There are a dozen countries trying to find a viable model to extract natural gas trapped in rock formations. But the U.S. is clearly ahead, despite the controversy generated by this extraction technique. It currently represents over 40 percent of total natural gas production in the U.S. and 15 percent in Canada.

And it would be an even greater share, were it not because the capacity of the infrastructure to transport all this energy is limited. Turning again to Buffett’s case, ConocoPhillips has numerous projects in progress in Athabasca, Alberta, while Exxon Mobil has 4 billion barrels in proven reserves in oil shale deposits in Canada. As for Suncor, it is the largest producer in tar sands.

The Department of Energy forecast is that oil production in the U.S. will remain at 10 million barrels per day between 2020 and 2040. In the case of liquid fuels, it will increase to 18 million barrels per day in 25 years. This will allow a reduction in net imports to 25 percent in 2016, down from 60 percent in 2005.