Political and energy leaders for decades have talked about American energy independence.
Until the past seven years, however, the country increasingly became more dependent on foreign oil, not less.
The last time the U.S. produced all the oil it consumed was in 1949. Our thirst for foreign oil steadily increased until 2005, when it peaked at 13 million barrels per day, or about two out of every three barrels consumed in the country, according to the U.S. Energy Information Agency.
A nearly 50-year trend was then suddenly and dramatically reversed as the recession and conservation efforts have driven down demand while improved drilling techniques have allowed domestic producers to increase their oil output by about 1 million barrels per day over the past three years.
As a result, America's imports have dropped to just less than half the country's usage today.
Pavel Molchanov, an analyst for Raymond James Equity Capital Markets, spoke last month at the Oklahoma Independent Petroleum Association's annual conference. He said domestic producers likely will recover an additional 1 million barrels per day each year for at least the next three years.
If those figures hold, America's oil imports could drop to one-quarter the country's oil usage by 2014 and be effectively eliminated by 2020, Molchanov said.
The idea has been echoed by other experts and energy players.
British energy giant BP in February predicted North American energy independence by 2030. Continental Resources Inc. CEO Harold Hamm has said for months that North America would no longer import oil within 10 years.
Chesapeake Energy Corp. this week launched a “Declaration of Energy Independence” campaign, calling on people to sign a petition calling for the country to “use its vast natural resources to end its risky addiction to OPEC oil.” The Chesapeake plan calls for an increased use of natural gas, including electricity generation and fueling vehicles.
The potential benefits of energy independence are great.
Instead of sending billions of dollars a day to foreign governments — several of which we are in conflict with — the money would be used in the U.S. to hire American workers who spend their money and pay their taxes in this country.
But while there are many benefits to American energy independence, there also are potential problems.
Oil is a global market. There is a certain amount available in the world and there is a certain world demand for oil.
An imbalance in either direction can have a dramatic effect on price.
If the U.S. stops importing oil and other countries do not increase their demand by a similar amount, the world will face an oversupply and prices will fall.
Molchanov told the Oklahoma producers that U.S. oil production likely will increase by 1 million barrels per day in each of the next three years while global demand is expected to increase by only half that amount. Oil production also is increasing in Canada, Brazil and other parts of the world.
It is widely believed that Saudi Arabia will reduce production to compensate, keeping global prices near current levels.
That probably is true in the short run. But the world's largest oil producer is unlikely to curtail production indefinitely just so American companies can make more money.
Lower prices with strong supply are good for consumers, pipeline companies and refiners.
But at some point, producers risk flooding the market and driving prices so low that energy companies can no longer afford to recover new oil.
Four years ago, the prevailing wisdom was that domestic natural gas prices would be trading at more than $6 per thousand cubic feet today. Instead, production outpaced demand, sending prices tumbling and leaving companies scrambling to move away from natural gas wells.
The oil market is different.
Natural gas is a regional game, while oil is traded globally.
But the same rules apply, even if it is a larger scale.
Locally, we're already seeing a problem for producers.
Increased oil production in the central part of the country has led to a massive backlog at Cushing. As a result, domestic producers are receiving about $15 per barrel less than the global oil price even though the U.S. West Texas Intermediate crude historically has traded at a premium to the global Brent Crude price.
Just a few years ago, the energy observers feared that world oil production had peaked. Now it is possible that instead of a global oil shortage, the world could soon face an oil glut.