The results have been epic. U.S. oil production grew more in 2012 than it has in any year since the dawn of the oil industry in the 1800s, according to the Wall Street Journal:
Source: Energy Information Agency.
Put the two trends of falling demand and higher production together, and America’s reliance on foreign oil is declining. After peaking in 2005, net oil imports have declined by almost half, and are now at the lowest level since 1992:
Source: Energy Information Agency.
The impact this has on the trade deficit is simply massive. On net, we imported 5 million fewer barrels of oil per day in 2012 than we did in 2005. The nation’s total trade deficit was a quarter of a trillion dollars lower last year than it was in 2006.
This is good for the economy, and boosts the value of the dollar, but it’s also great for geopolitics. Several countries that America previously relied heavily on for oil aren’t particularly fond of our way of life, to put it politely. That’s now changing. Net oil imports from the Persian Gulf region have declined by a quarter over the last decade. Net imports from Venezuela have fallen by nearly half since 2005. Imports from OPEC nations as a whole have dropped 31% since 2007.
What happens next? The opening line of this article, a reminder of how fast things change, works in both directions. The history of oil booms turning to oil busts is long, so any forecast must be taken with a grain of salt. But the forecasts now making the rounds are nothing short of game-changing. The International Energy Agency predicts America will overtake Saudi Arabia as the world’s largest oil producer within a decade — not as crazy it sounds when you consider that it already happened briefly last November. The Monterey shale formation in California alone is said to hold some 15 billion barrels of recoverable oil.
But finding oil and exploiting oil are two different things. The question in California is whether the state’s environmentalists and politicians will play along. Then there’s the issue of transporting the oil we pull out of the ground — largely in the Northern states — to refineries, located largely along the Gulf. Oil shipments by rail rose 256% in 2012, according to the American Association of Railroads. In his latest letter to Berkshire Hathaway Inc. (NYSE:BRK.B) shareholders, Warren Buffett said, “All indications are that [Burlington Northern’s] oil shipments will grow substantially in coming years.” But fully exploiting America’s oil potential through rail seems impractical, if not impossible. The hamstrung Keystone XL pipeline is a good reminder that the gap between what’s technically possible and politically feasible can be vast.
But think back to 2008. Billionaire T. Boone Pickens told a Louisiana crowd that our addiction to foreign oil was an unaffordable sap on the economy. “And if we don’t do something it will get worse,” he warned. Thankfully, we did.
The article America’s Next Boom originally appeared on Fool.com and is written by Morgan Housel.
Morgan Housel owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway and has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy.
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