The Emerging Irony of US Energy Independence

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Oil workers on a hydrofracking site.

For the first time in decades, pundits are talking seriously about U.S. energy independence. Yet the changes are anchored in precisely the opposite phenomenon. The United States is more entangled in the global energy system than it has ever been—and ever-rising world demand for energy will remain at the root of transformations in American energy for years to come.

It's richly ironic.

Take the emergence of shale gas as an economic engine and geopolitical disruptor. Entrepreneurs would never have figured out how to efficiently combine horizontal drilling and hydraulic fracturing—the masterstroke that has allowed companies to unlock natural gas trapped in shale—if rising natural gas prices in the 2000s had not created an economic incentive to experiment.

Those high natural gas prices, in turn, can be traced to ever-higher prices for oil, since the two fuels competed in U.S. industry until a few years ago, keeping their prices roughly in line. And those oil prices? We would never have experienced them if rapidly growing use in China and beyond hadn't strained available supplies.

One can tell an even more powerful story for the U.S. oil boom that in 2012 led to the largest ever one-year increase in American crude production. Tight oil, which is driving the gains, is benefiting not only from the technologies first developed to extract natural gas, but is being buoyed even today by continuing high oil prices. Shale gas has largely survived a collapse in U.S. natural gas prices, but most tight oil development would not survive an oil price crash. The growth we're seeing from Ohio to Texas thus continues to ultimately owe its continued strength in large part to ever-rising oil demand overseas.

A similar pattern prevails for Detroit and the U.S. automobile industry. In the last seven years, U.S. oil consumption has fallen by about 10 percent, driven by new technology, stricter regulation and higher oil prices. (This number is big: It's about the same as the gain in U.S. oil production.)

But it's not just the high prices that can be traced to developments overseas. During the 2000s, as more major international powers (notably China) emerged as big oil consumers, U.S. policymakers became seized with the national security risks that U.S. dependence on oil continues to create. Part of their response was to mandate better fuel efficiency for cars and trucks. The results at home are only beginning to unfold.

Global demand for fuel does even more to explain what's happening in renewable energy, where U.S. production has doubled in the last four years as prices have plunged. The surge in wind and solar deployment in the United States has been propelled by public policy that subsidizes new facilities. That, in turn, has been spurred by an intense belief that rising climate change risks mean that an all-out push for emissions-free energy is essential. And why the increasing worries that carbon emissions must be quickly brought under control? The biggest driver of rising emissions is—you guessed it—ever-higher demand for energy in the developing world, which is being met overwhelmingly by high-carbon coal.

As all these trends accelerate in the coming years, the influence of rising world demand on American energy will increase, not recede. Without ever-rising global appetite for oil, prices could crash, taking the U.S. oil boom down with them and pushing U.S. oil use back up, too. Overseas demand for natural gas has already sparked a flurry of interest in exporting the fuel from the United States to Europe and Asia, which will further alter the U.S. energy landscape. Carbon emissions from the developing world will almost certainly rise, intensifying pressure on the United States to push ahead with emissions-free fuels.

Over the last two years, I've traveled around the United States, exploring immense changes unfolding in American energy. Each transformation has its own local character, from the shale gas surge in Pennsylvania and tight oil boom in North Dakota to the emergence of a clean energy economy around Silicon Valley and historic changes in the cars being produced in Detroit. Yet a far-less-local thread links all of these: Their ultimate spark, inevitably, is skyrocketing demand for energy on the other side of the world.

_ By Michael Levi, for CNBC.com

Levi is the David M. Rubenstein senior fellow for energy and the environment at the Council on Foreign Relations and director of its program on energy security and climate change. He is author of The Power Surge: Energy, Opportunity, and the Battle for America's Future.