Chris Martenson: First, let's define what we mean by energy independence. Since various types of energy—coal, gas, oil—perform very different functions in our economy, there's no point in lumping them together and counting their BTUs as one big pile of energy. That obscures reality, rather than illuminating anything useful. Rather, we should explore the question of independence of each type of energy individually: oil, coal, nuclear and natural gas.
If the question is: Will the U.S. ever achieve petroleum independence?, the answer is currently no. Today, the U.S. produces a bit more than 8 MMbbl/d of crude oil, and imports an additional 7 MMbbl/d. Under even the most optimistic scenarios, shale oil peaks out in 2021 while adding another 4 MMbbl/d to current production. That still leaves a gap of 3 MMbbl/d and at that point the gap only grows wider, forever, as the shale oil fields enter terminal decline.
Under less rosy scenarios, the shale plays peak out in 2018, while adding only 2–3 MMbbl/d, leaving a much wider gap of 4–5 MMbbl/d to be filled by foreign imports.
For natural gas the situation is different. Fracking has a real chance to deliver natural gas independence. . .for a while. The U.S. will remain a net importer of natural gas for a few more years, and then be in a position to either meet 100% of its own needs for 20–30 years or export natural gas to the world in the form of LNG, and cut that window of independence down to 15–20 years.
As with the shale oil plays, the shale gas plays require extremely intensive drilling to keep production growing. The minute the last well is finished, production begins to decline. Our choice with natural gas is either to use it to deliver the energy that drives the refashioning of our domestic energy infrastructure for the day that it, too, runs out, or to export the gas to drive up the current profits of energy companies.
Our view at Peak Prosperity is that we should not export LNG for two reasons. First, it costs 25% of the embodied energy in natural gas to compress it, power that is forever lost to humanity in the service of creating a liquid out of a gas. That's just energetically stupid. Second, we desperately need that gas for domestic purposes, as we face the largest-ever build-out of our energy infrastructure, to move toward whatever combination of resources we decide will replace dwindling fossil fuels.
Bill Powers: The U.S. is a mature oil-producing region. Some of the shale fields, like the Piceance Basin in Colorado, are already in severe decline. One of the best, the Marcellus Shale, is already slowing its rate of growth, and is within two years of peaking. Technology has increased oil and gas production in recent years, but there is a limit to what technology can do. The laws of physics and geology will always win out.
TER: In a recent interview, T. Boone Pickens predicted an energy renaissance in the U.S.—if the government gets out of the way. What are he, and other industry experts, getting wrong about U.S. production estimates?
BP: They don't understand the decline rates. These wells don't last multiple decades. The average is seven years, many less than that. Refracturing can work, but it is expensive. In the end, the price has to go up. That is an opportunity for juniors with a weighting toward gas and low valuations. That includes Pine Cliff Energy Ltd. (PNE:TSX.V), which has substantial upside opportunity and low cost of operations.
Advantage Oil and Gas Ltd. (AAV:TSX; AAV:NYSE) is also a low-cost operator with a great opportunity. Bellatrix Exploration Ltd. (BXE:TSX) has significant gas resources waiting to be unlocked. And Arsenal Energy Inc. (AEI:TSX) has significant acreage coming on.
Everyone in North America should be aware we are in a structural rising gas price environment that will result in tremendous opportunities from an investment position. This also means individuals may want to find a way to use less gas.