The United States is one of the largest consumers of energy in the world. Unfortunately, on the supply side, conventional (easily accessible) U.S. reserves increasingly have been depleted. U.S. oil production peaked in the 1970s, and U.S. dependency on foreign oil grew. Against this darkening backdrop, however, hope was materializing on the horizon. Geologists had long known about oil and natural gas reserves in North American shale, which are found in more than 30 states.
Vast quantities of oil and gas are trapped in tiny pores in layers of rock thousands of feet below the earth’s surface. But these resources were very expensive and almost impossible to extract, given their location and the impermeable nature of the rock itself. Today, drilling activity incorporates two processes — hydraulic fracturing (pioneered in the 1940s) and horizontal drilling (first practically applied in the 1980s). Combining the two processes in the mid-2000s has dramatically changed the game, enabling producers to access and retrieve these trapped resources from locations throughout North America.
The discovery of more reservoirs of resource-rich shale, and the potential discovery of additional shales in areas where industry was previously unable to fully explore, have added additional fuel to the significant increase in North American energy production. The result: a sea change in the global balance of energy that has tremendous promise for a host of benefits. Not only is it increasing the relevance of the U.S. as a key global energy player, it has brought significant positive implications for the U.S. economy, including the potential for the creation of millions of jobs in the energy sector and for industries that support it, the generation of billions of dollars in local, state and federal tax revenues and an improved trade balance. Perhaps most significant of all, it is decreasing U.S. dependence on foreign oil, making the notion of greater U.S. energy independence move from a mere dream to a more realistic possibility.
An American story
The history of unconventional fossil fuel production is a uniquely American story. Although shale resources exist in many regions of the world, North America is among the few places where the investment opportunity currently exists in significance. In addition, in North America, private ownership of acreage and consistent application of, and faith in, the rule of law (the influence of law in society) mean that companies have the confidence to make the significant investments in both land and technology necessary to access the oil and gas in shale deposits. Lack of faith in these principles has in some cases slowed the development of shales in parts of the world.
As a result of an early start and these fortuitous conditions, the U.S. now has well developed and expanding energy infrastructure spanning the energy value chain – the essential infrastructure that links energy functions from exploration and production through delivery to end users.
Following 30 years of decline, the U.S. reached a peak of net foreign crude oil imports in 2005. As we have begun to increase access to energy sources through continued innovation, national production has risen significantly.