Keynote Address on Geological Impacts of U.S. Tight Oil Boom
The Geopolitical Impacts of the U.S. Tight Oil Boom
Sen. Lisa Murkowski
June 12, 2013
“Thank you, Senator Domenici for that wonderful welcome and introduction. It is truly a pleasure to be here at the Bipartisan Policy Center to help kickoff your discussion about the geopolitical impacts of our tight oil boom.
“As the title of this event suggests, the ramifications for our nation’s strategic posture will be profound. Even after just a few years, we are already beginning to see the significant shifts brought on by our growing oil production.
“Recently we learned that OPEC is planning to study the impacts of America’s shale oil. We hear complaints about high oil prices – and those are still quite valid – but today, we can also think about how much higher and consequential those prices would be without all of the new barrels coming from America. And we know that much of the energy we were expected to import can now go elsewhere, to the decided benefit of both our country and many others.
“We also know that this is an issue on which we must take the long view, recognizing that it will play out across decades. We will need the best and brightest working on this question, and I see many of you gathered here today. I’m glad to join you – and glad to be part of this conversation – because we really must approach it in a balanced and bipartisan manner.
“So, first, the facts, which will be familiar to most of you. In 2011, the United States became a net exporter of petroleum products for the first time since 1949. The Energy Information Administration reported that domestic production increased by 790,000 barrels per day last year, the largest increase on record since 1859. Crude production in the final two months of 2012 – over 7 million barrels per day – was the highest in 20 years. Hardly a month goes by that the EIA doesn’t report some record-shattering data point.
“These remarkable increases are due almost entirely to tight oil production from geological formations in North Dakota, Texas, and elsewhere – places with names like Bakken, Eagle Ford, Spraberry, and Granite Wash. Areas that were unknown or that seemed remote to most Americans just a few years ago are now suddenly topics of conversation in the halls of Vienna, Riyadh, and Rio de Janeiro.
“Sorting through the ramifications of this revolution is no easy task. The world we live in is not static, where one variable can be tweaked as all the others are held constant. We know the world is instead dynamic, and that markets adapt to change in both expected and unexpected ways.
This complex interaction is producing a set of trends that we can observe only imperfectly. And while it’s still early, let me share a few that I see.
“On the upstream side – with regard to exploration and production – there are some obvious impacts. Tight oil is also light crude, and to the extent that we are producing more light crude here, that means we can import less from overseas. Our imports of light crude from Angola, Algeria, and Nigeria – all members of OPEC – have fallen dramatically. In fact, those levels are roughly half of what they were in 2009, after the recession had reduced demand here at home.
“Meanwhile, our imports from Saudi Arabia – a heavier grade well-suited for our refineries in the Gulf Coast – have not dropped quite as precipitously. The same is true of imports from Venezuela. Yet overall, as production on state and private lands has soared, and even as federal production has fallen, our imports from OPEC countries have declined more than 10 percent since 2009.
“On the midstream side – that is, pipelines and transportation via barge, truck, rail – we are also seeing some geopolitical impacts. One way of displacing the heavy crude that we currently import from OPEC nations is by changing the source of that heavy crude. Here, geology and geography have once again come to our aid. Our friends to the north – or the east, if you’re from Alaska as I am, – have an abundant oil sands resource that they are eager to produce, process, and sell on the international market. The oil produced in Canada is heavy and, again, well-suited for our Gulf Coast refineries.
“The problem is getting that oil down to Texas and Louisiana. To be fair, quite a bit of Canadian oil already enters our country, and is now supplemented by flows from the Bakken and elsewhere. But we also have a bottleneck in the middle of the country, where there is simply too much oil and too few pipelines. That is why Keystone XL is so important, and why I believe it should be approved immediately. While we’re talking about the midstream and pipelines, I do not want to miss an opportunity to remind you that the world’s greatest oil pipeline is in Alaska and it has the capacity to carry and should be carrying a great deal more oil.
“There is a geopolitical dimension to this, as well. You’ve all heard that if the president doesn’t approve Keystone, then Canada will simply build a pipeline in the other direction, toward the Pacific Coast, and export it to East Asia. That’s certainly a possibility, but from where I sit, an equal concern is what this would mean for our relationship with the Canadians. The Congressional Research Service describes our interconnected network as so utterly intertwined that we are “joined at the well.” I think that’s an absolutely appropriate way of putting it.
“When the Prime Minister of Canada pays us a visit, and urges us to approve an infrastructure project that would benefit all parties, we have to take him seriously. If we don’t, the rest of the world has less reason to take us seriously. After all, we already have both oil and gas pipelines crossing our border with Canada. Our trade is vibrant and healthy. Expanding it further is the right thing to do.
“Finally, the downstream side of the equation – the refineries I mentioned earlier – will affect geopolitics in various ways, as well. We’ve already seen how the downstream sector interplays with the pipelines and our export/import balance, but let’s focus for a minute on the refineries themselves.
“Those refineries are taking oil, whether it’s from the Bakken or from Canada or from other plays in North America, and processing it into petroleum products. As I mentioned before, we are now a net exporter in this area and that’s great news for our trade balance. Diesel, gasoline, jet fuel – exports of these products are enormous and increasing.
“But don’t forget – the world is dynamic. Asia boasts major refineries of its own, and countries in the Middle East are moving forward on several projects that will change trade flows on the other side of the world. This is all occurring as Europe’s refineries are coming under tremendous stress as markets and demand evolve.
“The point here is not to make predictions about specific winners and losers. Instead, my point is to highlight the complexity of changes we are seeing – not solely as a result of America’s oil boom, but certainly affected by it.
“Before I wrap up, let me just turn briefly to a related subject that I have focused on as ranking member of the Energy and Natural Resources Committee. We are facing the real prospect of having a national surplus of natural gas. Much of that surplus will be used to satisfy greater domestic demand in the commercial, industrial, and transportation sectors. But I also believe we can liquefy and sell some of that surplus to our friends and allies around the world. This is all part of what the International Energy Agency calls “the golden age of gas.”
“Economic principles, generally, and the data surrounding this case, specifically, point unmistakably in one direction. That is why I have urged the administration to move forward with pending applications of export facilities in a swift and timely manner. We do not need additional studies. We do not need artificial timetables that kick these prospects down the road. The window of financial investment and market opportunity is not limitless. It is narrow and the clock is ticking.
“An analytical debate was necessary but, in my view, it is over. That is due in no small part to voices like Senator Byron Dorgan here at the Bipartisan Policy Center. You all know me well enough to know that I’m in favor of due diligence and careful consideration, but those are means to an end, not ends themselves.
“Honestly, if we can’t get natural gas right, then the chances that we will get oil right are pretty slim. Natural gas should be comparatively easy.
“No discussion of geopolitics is complete unless, as our own energy production soars, we simultaneously reassure the world that, we cannot and will not turn our backs on the world. But just as isolationism is wrong, so too is the belief that there will be no change in our outlook.
“At this early juncture, it’s impossible to know whether the geopolitical impacts of increased oil production will be greater than the impacts of increased natural gas production. But I think they certainly could be. As I stand here today, our nation is ignoring some of its greatest opportunities to increase conventional oil production – particularly in Alaska and the Outer Continental Shelf. But we could certainly realize them.
“This dual-sided hydrocarbon revolution will reverberate across the world. We cannot know for certain what the future holds, which is why I firmly believe that Congress must take a leadership role on these questions. As we think about our global posture, about our commitments and our ability to respond to new challenges, our nation’s policymakers must be front and center.
“Oil independence from OPEC; shifting trade balances and supply routes; an evolving refinery industry and continental pipeline network; the interplay of all of this with energy poverty, with the environment, with science and research, with the future. These are questions too big for one branch of government or for a single administration. As we sort through them, I guarantee we will be turning to groups and forums such as BPC for ideas. Thank you again for this invitation and the opportunity to speak.”
