News and analyses on a new oil order are creeping all over filling columns and airtime space, especially in the United States, and for a good reason. At last the United States seems to have broken the bad habit of increasing consumption at the time of a dwindling domestic production and, more important, the center of gravity for the oil industry seems to be moving from the Middle East where it has been resting for some seven decades with all geostrategic ramifications.
It dates back to the former President Richard Nixon in November 1973, who coined the phrase "Energy Independence" following the Arab embargo on oil supplies to the United States after the Arab-Israeli war broke and Washington's decision to re-supply Israel. The unthinkable Arab decision unleashed by Riyadh sent a shock wave in both worlds of politics and oil industry.
Seven presidents followed Nixon, some democrats and others republicans, some serving two terms like Reagan, Clinton and Bush Jr., while some like Ford who took over as vice president and was unable to serve a term of his own making, but one thing was binding all those presidents: Energy independence was one of their goals, though in reality imports of foreign oil increased from 35 percent of total needs during Nixon era back in 1973 to some 60 percent seven years ago. And that is despite a strong political will.
However, over the past few years, three developments started to take place and making a difference in addressing the crucial issue of increasing supplies domestically and nearby secure sources. The reference is to oil sands or tar oil from Canada, the deep water drilling in pre-salt areas in Brazil and releasing oil from rocks in the United States through a technological breakthrough came to be known as “fracking.”
Among them the three can add some 10 million barrels to oil supplies away from the volatile Middle East with its never-ending conflicts. Both Canada and Brazil are providing a new, more reliable alternative to the traditional western hemisphere suppliers of Venezuela and Mexico to the American market. Though Canada moved to replace Mexico, yet still the Middle East and in particular the Gulf states led by Saudi Arabia represent the main area of concern.
Extracting oil from Canada's sands, or Brazil deep water or US applying horizontal drilling and hydraulic fracturing are all resulting from unrelated technological advances as Daniel Yergin, the notable researcher in oil industry, said once. But they are here to stay, and the question is about their potential impact as far as securing the goal of energy independence that have been haunting successive American presidents for the past four decades.
One main area of concern is how to reconcile between different goals regarding increasing domestic production or supplies in general bearing in mind the environment dimension as far as drilling in the arctic areas and extricating oil from Canadian sands. There is an estimated 100 billion barrels in the arctic area, which proved to be a very sensitive area and of main concern to environmentalists.
Not only that, but the main source of additional supplies coming from Canada and expected to double from 1.5 million bpd now by the beginning of next decade is becoming a source of heated environmental debate that in effect led to freezing of the controversial 1,700 miles Keystone XL pipeline that is supposed to transport sand oil from Canada to the US market. Given that controversy the Obama administration delayed till next year making a decision on the pipeline.
That brings to fore and in focus the way the US political system operates given the fact that it is subjected to pressures, lobby groups and, more important, inability to make long term decisions as the country gets paralyzed every two years because of presidential and congressional elections and that the main concern of politicians is how to secure short term gains.
However, two more main factors are of special importance: The first is the fact that the oil market is becoming integrated and international, which means that whatever happens in any part of the world in terms of interruption for instance is going to have its impact on supplies and price worldwide including the United States.
The second is the need to have a closer look at the concept of energy security and what it means in real terms. Is it complete self-sufficiency, which seems an impossible target to achieve in any commodity, but rather achieving a degree of domestic production as well as ensuring at the same time that the oil market in general with its two wings of producers and consumers are working toward the goal of satisfying the interests of the two and achieve a degree of stability.
And that is where having Saudi Arabia as a source of last resort in terms of supplies with its excess production capacity of cover any shortfall remains a crucial part of any world energy security plans despite changing oil order.