What Will Energy Independence Mean For the U.S.?

For the past century, oil has played an essential role in the global economy. The price of oil has a big effect on the cost of everything from the gas to fuel cars and buses to food and plastics.  Recently that price has been on a rollercoaster ride.  Oil prices hit an all-time high of $147 a barrel in 2008 just before the financial crisis only to dip down to $40 only a few months later.  

There are many factors that determine the price of oil. A strong economy tends to increase the demand for oil, also known as petroleum, and drive up the price, while a weak economy generally has the opposite effect.  In addition, many oil-rich countries are in political and social turmoil, and many are not friends of the United States, including Iran, Libya and Venezuela.

For decades, the U.S. has been dependent on other countries such as Canada, Mexico and Saudi Arabia for oil. The U.S. Energy Information Administration reported that in 2011, about 45 percent of the petroleum consumed in the U.S. was imported from foreign countries.

But that soon will change due to shifts in how we use and gather oil and other energy sources.

Commercial oil in the United States

	The Seven Sisters held a tight hold on the oil market after WWII. To see an expanded graphic of which companies make up the Seven, click on the image above.

People have used oil for various purposes such as illumination and building material for thousands of years. However, the need for lighting during the industrial revolution helped usher in the discovery of how to refine kerosene, the basis for oil lamps, from crude oil. From there the demand for “black gold” increased dramatically.

In 1859, the first commercial oil well was struck in Pennsylvania, igniting an oil rush that quickly spread to Texas and California.

At the beginning of the new century, the automobile revolution brought on a huge demand for gasoline, a product distilled from crude oil. Geologists spread out across the globe searching for oil from Russia to Indonesia. By the 1950s, most of the big oil fields of the Middle East, including Saudi Arabia’s giants, had been discovered.

After the Second World War, the business was dominated by a small group of very powerful and mostly American companies dubbed the Seven Sisters.

Obama administration: U.S. dependency on foreign oil is down

	Oil refineries in Libya, like the one pictured, have seen interruptions in oil exports due to political upheaval, making prices volitile.

The EIA report attributes America’s shift towards energy independence to several factors, including “a decline in consumption and shifts in supply patterns.” The economic downturn in 2008 lowered demand.  At the same time, car manufacturers have started making more energy efficient vehicles due in part to new laws in California that set strict gasoline mileage standards, forcing the industry to make dramatic changes.   

While demand has leveled off, new technologies have unlocked new reserves of oil and gas in shale rock.  This has had detrimental environmental effects to sort through, but it has also dramatically increased domestic production of energy.

While oil prices will still be affected by complex global markets, this new energy independence will be a boon to the U.S. economy, claimed International Energy Agency chief economist Fatih Birol on the release of the report. And thus the political debate will shift to how to balance the availability of cheaper energy with the need for livable environments, clean air and water.