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U.S. energy independence? Don't hold your breath

(MoneyWatch) Gaining energy independence would be an enormous boon for the U.S. No other country could use a threat of cutting off supply as a geopolitical weapon, as OPEC did in the 1970s. A major contributor to the nation's trade imbalance would disappear, boosting the economy. Improved supply might even allow production to be focused on domestic needs first and not necessarily sent to such developing countries as China and India that are part of the global competition for energy sources.


But while there has been considerable talk lately about rising U.S. oil and production, energy independence is likely to remain a case of wishful thinking for the foreseeable future. Technical limitations in drilling, along with a little common sense, further make the idea of energy freedom more a matter of conjecture than a practical goal.

To be sure, there's no doubt that the U.S. has made strides in fulfilling its own energy needs. Oil production is the most robust it's been in 15 years, while gas production and inventory hover at record highs.

The more such energy comes from local sources, the less it must be procured from geopolitical hotspots or "frenemies" such as the Middle East, Nigeria, Venezuela and Russia. As research firm Capital Economics points out in recent report, in 2012 U.S. energy production satisfied 83 percent of domestic consumption, a vast improvement from 2005, when production covered only 69 percent of consumption.

According to U.S. Energy Information Administration projections, the percentage covered by local production could hit 92 percent by 2040.

Of course, total energy independence would require meeting all U.S. consumption demand with domestic sources of energy. That would mean a combination of increasing domestic supply, reducing demand or switching from imported oil to some other source, like natural gas. That is unlikely for several reasons, according to Capital Economics:

  • Closing the consumption gap only from production would require a doubling from current levels, which would be difficult to achieve even if offshore drilling rebounded.
  • U.S. oil consumption is down chiefly because economic demand remains weak -- companies have lower energy needs -- and because and oil prices have shot up over the last decade. But as the economy recovers, oil usage will rise.
  • Switching from one source of fuel to another, like substituting natural gas for oil, is difficult because much of the oil is turned into gasoline for cars. Despite the growing number of hybrid and even electric vehicles on the road, the traditional gas engine is likely to stick around for years to come.

Capital Economics doesn't mention alternative energy sources, such as wind, solar and geothermal, and those could offset some oil consumption. But adoption of these alternative energy sources continues to be slowed by their inherent limitations. Wind and solar require the right conditions, aren't effective in all locations, generate only electricity (which does no good for the vast majority of cars) and lack good technology for storing generated power for later use.

Is there a way to gain energy independence? But few will like it: skyrocketing oil prices. The higher the cost of oil, the less of it people will be inclined to use and the more economical switching to substitutes becomes. However, in the long run, that may be what happens. There is a finite amount of oil available for use, so upward is probably the only direction prices will go.

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