The rural state of North Dakota is famous mainly for its rough weather. Its largest city, Fargo, is best known to outsiders as the title of a noir movie in which a body is fed through a wood chipper. With a population half the size of Winnipeg’s scattered across rugged plains, it once held the distinction of being the least-visited state in the U.S. But today, so many people are flocking to North Dakota that there is nowhere to put them. In a nation beset by joblessness, workers are coming here in such numbers that an estimated 15,000 people are now living in trailers, cars, corporate “man camps” and other forms of makeshift housing. So scarce are places to sleep that in 2010 one firm housed some of its workers by trucking in a chunk of Vancouver’s recently used Olympic Village to the overwhelmed city of Williston.
The reason is an oil boom. Production in the state has surged from 100,000 barrels per day in 2007 to 500,000 barrels per day and growing—almost overnight making North Dakota the fourth-largest producer in the U.S., and on its way to becoming second only to Texas. And, like the Alberta oil sands boomtown of Fort McMurray—whose mayor recently visited to offer advice (“Plan ahead!”)—Williston is abruptly bursting.“First it got hard to find the hotel rooms. Then it was housing. Now it’s everything,” says Ron Ness, president of the North Dakota Petroleum Council. The state is racing to build more houses, roads, schools and hospitals. The biggest sign of change: “Young people in the communities,” says Ness—sons and daughters are not leaving the state to look for work as soon as they turn of age. It’s been, he says, a “renaissance—and a challenge.”
A rebirth of the local economy is the least of it. The oil boom under way here is part of a global transformation with far-reaching consequences for matters of warfare, the environment and modern life. Like Alberta’s oil sands, the sudden bonanza in North Dakota is driven by recent technological advances that have, for the first time, made it economically viable to extract oil (and natural gas) from previously untappable geological formations—so-called “unconventional” fuel trapped in rock. Such formations have been discovered elsewhere around the United States, but for years sat fallow as a mere curiosity. Suddenly, however, the technology is available to get the oil and gas out. And the rise of the feasibility this type of oil and gas extraction is poised to transform the geopolitics of energy.
In spite of the considerable environmental and logistical challenges involved, these developments have led to feverish calls for “energy independence.” The prospect that the U.S. could fulfill all its own energy needs from domestic sources, plus those from friendly neighbours such as Canada, has become a rallying cry for the Republican presidential candidates who are attacking President Barack Obama for standing in the way of job creation and “energy security.” Obama’s decision to deny a permit for the Keystone XL pipeline, which would have moved Alberta oil sands crude to refineries on the coast of the Gulf of Mexico, has become a staple topic on the Republican presidential trail. In November, the Obama administration did move to open more areas in the Gulf of Mexico and Alaska to offshore drilling, but banned development along the East and West Coast, fuelling more criticism from industry groups and Republicans.
The debate over North American energy security has been unfolding against the backdrop of the unpredictable Arab Spring in the Middle East and North Africa, home to 70 per cent or more of the world’s known conventional oil reserves. “The Arab world is very possibly at the beginning of the great revolutionary period of the 21st century,” says Paul Sullivan, an economics professor at the National Defense University in Washington. “Nobody really knows how long this will go and how it will all play out.” Of course, non-oil-producing states like Egypt and Syria are in chaos. But tensions continue to threaten some of the region’s largest producers, like Libya, Algeria, Bahrain, even Saudi Arabia.
And now the discussion has been sent into overdrive by recent threats by Iran to close the Strait of Hormuz—a choke point on the Persian Gulf separating Iran from Oman—as retaliation for harsh economic sanctions over its nuclear program and the threat of a military attack on its nuclear facilities. The Strait of Hormuz is only 54 km wide, but each day, 15 million barrels of oil—17 per cent of the oil consumed by the world—move through the waterway. It would be a global disaster.
The rise of North America as an energy power is starting to get attention overseas. “A few years ago, much of the global debate was based on the premise of acute resource scarcity and its economic and political ramifications,” said Khalid al-Falih, the head of Saudi Arabia’s state-owned energy company, Aramco, in a speech on Nov. 21. But, he added, “Rather than supply scarcity, oil supplies remain at comfortable levels, even given rising demand from fast-growing nations like China and India.” The reason? Abundant supplies and a “more balanced geographical distribution of unconventionals”—such as the new sources now being developed by Canada and the United States.
Canadians are among the loudest voices in the U.S. selling a vision of continental energy independence. One of the pitchmen is Brad Wall, the premier of Saskatchewan, who gives several U.S. speeches a year on energy. Speaking in December to conservative lawmakers from around the U.S. who had gathered in Phoenix, Ariz., he urged the audience to choose Canadian oil over what he calls “extreme oil” that depends on the U.S. military presence abroad. “I think we should have a broader goal continentally to move toward energy independence,” Wall told Maclean’s afterward. “Maybe this should be the moon mission of the next couple of decades.”
There is also a view that North American energy independence should include “Canadian energy independence.” Currently, Canada is a net exporter, producing more oil (2.5 million barrels per day) than Canadians consume (1.85 million). However, most Canadian production is exported from western provinces to the U.S., while about half of the crude used by Canadian refiners to meet domestic demand comes from imports—44 per cent of that from OPEC countries and 37 per cent from the North Sea, according to Natural Resources Canada. (The reason is the cost-effectiveness of exporting western oil to relatively closer American refineries, rather than moving it to refineries in Atlantic Canada, Ontario and Quebec.)
But are the Canadian and American unconventional sources enough to fuel continental energy independence—or, at the very least, to wean America off Middle Eastern oil? The number to start with is 19.1 million barrels—the amount of petroleum products the U.S. consumed per day in 2010, according to the U.S. government’s Energy Information Administration. Most of that was used for transportation.
The U.S. only produced about half of that—9.4 million barrels per day (counting crude oil, natural gas liquids and biofuels)—leaving a gap of about 9.7 million barrels to be supplied through imports. Canada contributed the largest share—one-quarter. The next biggest supplier was Saudi Arabia, at 12 per cent, followed by Nigeria, Venezuela, Mexico and others. All told, OPEC members (Persian Gulf states, African countries, Venezuela and Ecuador) supplied about half of U.S. imports—already down from a peak of 70 per cent in 1977. So in order to eliminate oil from hostile or unstable sources at its current level of consumption, the U.S. would have to replace roughly five million barrels per day. Can it?
The U.S. domestic oil industry says yes—“Drill, baby, drill!” By ramping up domestic U.S. production and increasing imports from Canada, the United States could end its reliance on all other sources. “If the full potential of domestic oil and gas production could be achieved while also increasing imports of Canadian oil, all of America’s liquid fuels could come from secure North American sources within 15 years,” says Jack Gerard, the head of the American Petroleum Institute, an industry group.
The API hired consulting firm Wood Mackenzie to analyze a scenario of maximal North American oil production. They looked at what would happen if “all impediments” to extracting oil within the U.S. and off its shores were lifted. Under their scenario, drilling would be allowed in currently restricted areas off the coast of Alaska, the Pacific and Atlantic coasts, the eastern Gulf of Mexico, the Alaska National Wildlife Refuge, and in portions of the Rocky Mountains. This would also include lifting a moratorium on shale drilling in New York state, and speeding up drilling permits in the Gulf of Mexico that were slowed after the BP oil spill. In addition, Canadian oil sands pipelines into the U.S. would be fully developed so that the United States can absorb the expected increases of Canadian oil sands production.
The report concluded that without any change to current policies, U.S. production would increase only slightly above current levels. But if development was encouraged, U.S. production could surge to 15.4 million barrels per day in 2030 (not counting biofuels). The extra six million barrels would slightly exceed the portion of current consumption that comes from overseas. In addition, if enough pipeline capacity is built, Canadian oil sands production would increase from 1.6 million barrels per day in 2010 to 5.8 million in 2030. “By 2030, we could be very close if not equal to not having to import from other places in the world.” says John Felmy, chief economist for the API.
Already, the United States has seen a boom in natural gas production, thanks to the same technology that is enabling the oil boom: hydraulic fracking. This process pumps millions of litres of water and chemicals underground to break apart rock and release natural gas or oil. It is used to extract natural gas from underground shale formations such as the Marcellus in the northeastern part of the country, and the Eagle Ford and Barnett in Texas. Not only does the U.S. now produce enough natural gas to cover its own needs, but it is expected to soon become a natural gas exporter. Meanwhile, the abundant supplies have driven down prices for consumers, and have raised the possibility of replacing gasoline with natural gas for some vehicles such as buses and trucks, and for industrial plants to be adapted to run on natural gas—helping to reduce dependence on oil.
“Natural gas could conceivably become the basis of a vehicle fuel in the long run,” says Washington-based independent energy analyst Joseph Dukert, although, he adds, “We still have a long way to go before that happens. There is room for natural gas to penetrate the industrial energy market to a greater extent—but it would involve bringing in new types of equipment. Industry has been reluctant to move in that direction so it might take some nudging from the government.”
As for oil supplies, Canada is not the only neighbour that could help the U.S. move off of Middle Eastern oil. Oil giant BP has looked at the broader picture in the western hemisphere and concluded that if oil reserves trapped deep below the ocean off the coast of Brazil are developed, self-sufficiency is within reach by 2030. “The growth of unconventional supply, including U.S. shale oil and gas, Canadian oil sands and Brazilian deep-waters, against a background of a gradual decline in oil demand, will see the western hemisphere become almost totally energy self-sufficient by 2030,” the company concluded in a report on Jan. 18.
But on the opposite end of the spectrum are advocates for the surest form of independence: ending reliance on oil altogether. According to the National Resources Defense Council, an environmental group, a “comprehensive but achievable” clean energy strategy could cut America’s oil consumption by seven million barrels a day by 2030—more than enough to displace all imports, at today’s consumption level at least, from hostile and unstable countries.
The biggest piece of the NRDC’s strategy is a major increase in fuel efficiency. Already the Obama administration has taken a substantial step in that direction. Last November, the President announced new mileage rules for passenger cars and light trucks. Beginning in model year 2017, fuel-efficiency rates will have to start rising five per cent until they reach an average of 54.5 miles per gallon by 2025—nearly double the fuel efficiency of today’s car. If the vehicle fleet on the road today had that efficiency rate, it would reduce U.S. oil consumption by 1.7 million barrels per day, according to the U.S. Environmental Protection Agency.
Under the NRDC’s plan, emissions standards should be increased further—to 60 miles per gallon by 2025—and seven per cent of all passenger-vehicle miles be travelled using plug-in electric vehicles. The estimated savings if the plan went into effect would be 2.8 million barrels a day by 2030. For additional savings, fuel-efficiency standards for new medium- and heavy-duty trucks would be increased from six to 10 miles per gallon, old vehicles retrofitted, and large numbers of heavy trucks switched from diesel fuel to natural gas. The rest of the plan consists of long-term changes to urban design and lifestyles—such as expanding public transit and planning “smart communities” that require less driving and commuting, a savings of 1.6 million barrels per day. Another 1.6 million barrels per day could be saved by a combination of conservation initiatives, including fuel-efficient replacement tires and motor oil. “The fact of the matter is that the lowest hanging fruit lie in efficiency and clean fuel technology,” says Anthony Swift, an attorney for the NRDC.
Environmentalists also argue that reducing supply is a more “secure” form of energy independence. The price of oil is set by global markets regardless of whether oil is produced in the U.S. or imported from Canada, so instability in the Middle East that leads to price hikes will still be felt by North American consumers. “Should OPEC or any other major exporter choose to cut off supplies to any country, supply shortages and a price spike are likely to affect every major importing country regardless of where they get their oil,” says Swift.
The National Defense University’s Sullivan, though, says that energy security is greater when supply is guaranteed, even if prices are high: it’s the difference between paying more at the pump—and a scenario under which no oil can be had at any price. Still, the maximalist North American production scenario is unlikely to happen in the kind of time frame contemplated by the oil industry, or ever, given environmental concerns, political opposition and infrastructure challenges. Witness the years of delay and impediments to building the proposed Keystone XL pipeline, which would have helped move not only Alberta crude but also domestic U.S. shale oil. Or take the mounting opposition to the hydraulic fracking that underpins so much of new domestic production—a major concern for environmentalists as well as local communities concerned about the possibility that the aquifers that supply their drinking water could be contaminated by chemicals.
There is also reason to be pessimistic about the political prospects of achieving independence purely by reducing fossil fuel consumption through greater conservation and the use of renewable “green” energy sources. A case in point is the controversy that erupted over the Obama administration’s half-billion-dollar loan guarantee to solar-panel-maker Solyndra Corporation in 2009. The company went bankrupt and taxpayers were left on the hook, in a debacle that critics have made into a poster child for wasteful government efforts to expand clean energy production faster than market forces would do on their own.
Indeed, the most likely way to reach oil independence by 2030 is probably a combination of some increase in production, alongside further reductions in demand. “In order for North America to become energy independent, there would have to be substantial changes in the demand side of the equation as well as supply,” says Joseph Dukert, an independent energy analyst in Washington. Murray Smith, a former Alberta energy minister and the province’s former envoy to Washington, agrees. “If you sat down and formed a presidential commission and said, ‘How do we do this? How do we get to the math?’ you could come very close to energy independence. It would require some increased availability of drilling in the U.S., changing natural gas into a transportation fuel, and it would require further savings on making the hydrocarbon molecule more efficient, and increasing the level of diesel engine penetration in the marketplace.” Smith adds, “I don’t think it’s a dream out of reach—but it’s an elusive dream. You have to commit to it.”
But rather than Americans uniting around a plan for the future, the politics have become divided. The pro-drilling advocates and the anti-oil advocates have taken to the barricades, as the Keystone and Solyndra clashes show. Republicans and Democrats have made energy a partisan issue. Each side has enthusiasm and fundraising for their cause—be it from the oil industry or national environmental groups. There is little evidence of a constituency for a compromise approach that could realistically take North American energy independence from buzzword to reality.
“It would be best to have a full, comprehensive energy security policy, but this is unlikely to happen any time soon,” Sullivan testified to a congressional committee earlier this year. “It seems we will need to settle for ad hoc improvements in the diversification of supplies and other ad hoc policy measures, until the real shocks hit us in waves upon waves upon waves of economic and energy security woes.”