The US is going to be an oil superpower and that is bad for everyone else

The daily crude oil production of the United States is about to reach the eight-digit mark again and, with this, it could get closer to energy independence.

The American ascent to the top of a mountain long occupied by Saudi Arabia would shake geopolitics. However, it does not have a clear path ahead.

The last time the United States extracted 10 million barrels of crude oil per day, Richard Nixon was in the White House. The first oil crisis had not yet reached Americans, who were enjoying buying cars, and fracking was an experimental technique that a handful of engineers were trying, with little success, to popularize. It was 1970 and the barrel was selling for one dollar and eighty cents.

Almost five decades later, with oil hovering around 65 dollars per barrel, U.S. daily crude production is about to reach the eight-digit mark again. It is an important milestone in the realization of a dream that a generation ago seemed unlikely: by the end of 2018, the United States could be the world's largest oil producer. And with that, the country is approaching energy independence.

The American ascent to the top of a mountain long occupied by Saudi Arabia would shake geopolitics. A new global energy order could emerge that would be good for the United States, but not so much for the planet.

On one hand, it would diminish the influence of one of the most powerful forces of the last half-century, the modern petrostate. “America First” diplomats would no longer have to tread carefully with oil nations like Saudi Arabia. The Organization of the Petroleum Exporting Countries (OPEC) would find it more difficult to reach an agreement on production guidelines, which would lead to lower prices and reopen old wounds in the cartel. This would weaken Vladimir Putin's foreign policy, while Russian oligarchs would find it harder to maintain the lifestyle to which they have become accustomed.

President Donald Trump, spotting the opportunity, wants more than independence; he wants what he calls “energy dominance.” His administration plans to open a large ocean area to offshore exploration and, for the first time in 40 years, allow drilling in the Arctic National Wildlife Refuge. Its exploitation may take years, but Alaska's oil reserves are enormous and are estimated at about 11.8 billion barrels of crude.

It sounds good, but we must be careful what we wish for. The last three years have been the hottest since records began in the 19th century, and Trump's plan leaves little room for planet-friendly energy sources. Governors of coastal states have already pointed out that a spill at sea could devastate tourism, another billion-dollar industry, not to mention fragile coastal environments.

Florida has already requested an exemption from such drilling. An increased supply could lower prices, thereby discouraging investments in renewable energy, which rise when oil prices go up. If the price of oil falls, enthusiasm for non-polluting energies could also decline.

For now, however, the oil train is moving forward. And we can thank the resilience of the U.S. shale industry for that.

The triumph of shale seemed impossible a few years ago. At the end of 2014, Saudi Arabia launched an offensive against its rivals, including U.S. oil companies. Instead of limiting production to keep prices high, the Saudis persuaded OPEC to open the taps, causing prices to fall below $40 a barrel in December, down from over $100 a barrel just four months earlier. The Saudis hoped to stifle the shale revolution. At first, it seemed they would succeed, as they had in the past. U.S. production fell from a peak of 9.6 million barrels per day to 8.5 million barrels. Bankruptcies multiplied in shale regions, from the Permian Basin in Texas to the Bakken formation in North Dakota, and tens of thousands of workers lost their jobs.

Instead of declaring defeat, shale companies fought back, cut costs, and borrowed like crazy to keep drilling. By the end of 2016, the Saudis surrendered. They convinced OPEC and the Russians to cut their production. Gradually, West Texas Intermediate, the benchmark for U.S. and Mexican oil, rose from $26 a barrel in February 2016 to its current quote.

What did not kill shale companies made them stronger. The survivors transformed into more efficient and faster versions that can thrive even at lower oil prices. Shale is no longer just sand, sweat, and luck. Technology is key. Geologists use smartphones to direct drilling, and companies are introducing increasingly longer wells. At current prices, shale producers can both raise production and profits simultaneously.

Hydraulic fracturing, or fracking, has also improved in the depths of the subsurface to release the hydrocarbon. It is what many call Shale 2.0. And the pioneers who dominated the first phase of the revolution, like Harold Hamm of Continental Resources Inc., are not the only ones benefiting from the boom. Exxon Mobil, Chevron, and other major oil groups have joined the frenzy. U.S. shale “seems to be on steroids,” says Amrita Sen, chief oil analyst at the consultancy Energy Aspects Ltd. in London. “The market remains fascinated by shale producers” ability to adapt to lower prices and continue growing.".

The results are historic. In October, net imports of crude oil and refined products in the United States fell to less than two and a half million barrels per day, the lowest level since official data collection began in 1973. A decade ago, net oil imports were over 12 million barrels per day. “For the last forty years, since the Arab oil embargo, we have had an energy scarcity mindset,” notes Jason Bordoff, founding director of the Center on Global Energy Policy at Columbia University. “As a result of the shale revolution, the United States has emerged as an energy superpower.”.

For OPEC, the emerging superpower presents an unprecedented challenge. If the bloc cuts production, shale drillers can respond by increasing theirs, stealing market share from OPEC nations and undermining their efforts to manipulate prices. The only solution for OPEC is to continue with production cuts, as it is doing now, and hope for the best. If cooperation between OPEC and Russia breaks down, OPEC may also fracture completely.

If shale production keeps prices low, Russia would be a big loser. Moscow used oil revenues to finance aggressive foreign intervention in Ukraine and Syria. The only solution is to continue cooperating with Saudi Arabia to keep production constrained, despite the displeasure of the oligarchs.

Thanks to shale, U.S. imports of Saudi oil plummeted to a 30-year low in 2017. This radical shift means that China and Japan are now more dependent on Middle Eastern crude than the United States. Consequently, the U.S. can now argue that other countries should help bear the burden of monitoring the sea routes leading to oil-exporting countries in Asia and North Africa.

However, not all roads are clear for the United States; the country is not immune to the ups and downs of the global market.

When prices rise due to a political upheaval in the Middle East, it doesn't matter where you are or how much you produce; prices also increase accordingly in the United States.

There is also another problem: the shale industry, the so-called Shale 2.0, could harm refineries. Shale oil is too good. For years, U.S. refineries spent billions of dollars on special equipment to process dense, high-sulfur, low-quality crudes from Mexico, Venezuela, Canada, and Saudi Arabia. The quality of shale oil is so high that it produces little diesel, the fuel that powers manufacturing.

Such limitations may be mere setbacks. But U.S. dominance is far from a panacea. It will not reverse climate change. It will not diminish the political influence of fossil fuel producers in Washington. Nor will it completely neutralize the political influence of erratic petro-states.

With growing demand despite the rise of renewable energies and the development of electric vehicles, shale may struggle to keep pace with global consumption.

There is a possibility that the world will witness the rarest market paradox: high oil prices alongside increased U.S. production.

Then Saudi Arabia and Russia could continue to be formidable obstacles to U.S. energy independence. They would dominate from the top of the peak even while keeping an eye on ‘Yankee’ shale producers.

These are problems that Americans who stood in long lines to fill their tanks in the 1970s could hardly have imagined, when the idea of the United States defining its own energy future was just a dream. Any celebration of this achievement ignores the evidence that such dependence on fossil fuels is not independence at all.