American energy independence has been a critical goal of US policymakers since at least President Dwight D. Eisenhower who imposed quotas on energy importations. But despite this focus, the United States, for decades, had relied on foreign energy sources for domestic consumption.
However, the United States has experienced a sea change in domestic energy production in recent years. This article will provide an overview of the history of US energy independence, the recent boom in US energy production, and finally, the necessity of investing in the "midstream" portion of the energy supply chain to make the most of the United States' abundant natural energy resources and its natural gas production dominance.
American Reliance on Foreign Energy Sources
The United States' reliance on foreign energy suppliers was emphasized starkly in the oil crisis of 1973. In response to American support for Israel during the Yom Kippur War, the Organization of Arab Petroleum Exporting Countries ("OAPEC") placed an embargo on the exports to the United States and other states that supported Israel. Along with the blockade, Arab states gradually cut production. The price of a barrel of oil quadrupled by 1974, when the embargo ended in March of that year.
Consequences on the Global Economy
The intense rise in the price of oil had disastrous consequences for the global economy, which underwent the worst recession since the Great Depression. The recession and inflation period – stagflation – typified the Seventies and had broad consequences for American politics, economics, and international relations.
One of the key consequences of the oil crisis was the realization by American policymakers that the country's reliance on foreign energy sources, particularly oil, posed economic and security vulnerabilities.
In particular, President Richard Nixon unveiled in 1974 "Project Independence," an initiative he compared to the Manhattan Project and the space race, to secure America's energy supply by drastically lowering its reliance on foreign sources of energy production. “Project Independence,” insisted the President, “is absolutely critical to the maintenance of our ability to play our independent role in international affairs.” Thus, energy independence was linked explicitly to political autonomy, assuring the freedom of American action on the world stage.
Project Independence, however, failed on its own terms – its projected goal of one thousand nuclear plants in the United States by 2000 never materialized (in 2023, there were 54.) Indeed, in the years after, American imports of foreign energy rose precipitously while domestic production actually decreased in absolute terms. US energy independence, while remaining a sought-after goal by American leaders, was still out of reach.
The Energy Independence and Security Act
While many initiatives to secure American energy dependence focus on the supply side – increasing domestic production, innovations in oil and gas extractions, and improving extraction capacity – other projects have focused on the demand side – reducing consumption demand for foreign sources of energy by achieving increases in consumer efficiency.
One such attempt was the Energy Independence and Security Act of 2007. President George W. Bush signed this into law in December of 2007, this comprehensive piece of legislation represented a significant step towards reducing the nation's dependence on foreign energy sources while also addressing environmental concerns.
One of EISA's key provisions was the increase in fuel economy standards for automobiles, requiring automakers to improve the average fuel efficiency of their fleets. The Act mandated that new passenger vehicles must achieve an average fuel economy of at least 35 miles per gallon, a significant increase from previous standards. Known as a CAFE increase, this move aimed to reduce greenhouse gas emissions and enhance energy efficiency in the transportation sector. Indeed, the transportation sector represented 27% of all US energy consumption in 2022.
The Act included myriad other provisions – expanding the Renewable Fuel Standard from 9 billion gallons to 36 billion gallons, replacing a portion of the US transportation energy consumption with renewable fuels; economic studies on evaluating the effectiveness of fuel economy standards; grant programs for the electrification of transportation infrastructure; loan guarantees for production facilities which utilize fuel-efficient vehicles and parts; loans for construction of manufacturing facilities for advanced vehicle batteries; incentives for the manufacture of energy-efficient vehicles; and much else.
If the Energy Independence and Security Act of 2007 represented demand-side solutions, the following administrations also pursued supply-side solutions to America's energy independence. In the energy industry, facilities and companies that survey for, exploit, and produce energy sources are known as "upstream" of the energy supply chain.
From 2009 to 2019, American energy production rose dramatically – from 73 quadrillion BTUs (British thermal units) in 2009 to 101 quadrillion BTUs in 2019. For reference, in 1973, thirty-six years before and the year of the Arab oil embargo, the US produced 64 quadrillion BTUs. A mere ten years after 2009, US energy production had risen by almost 30 quadrillion BTUs or a 38% increase in energy production. In fact, in 2019, the US produced more energy than it consumed for the first time since 1957, spawning headlines declaring the US a “net energy exporter.”
Much of this increased production came from innovation in natural gas sourcing and extraction – particularly using the new hydrofracking technique. The ability to exploit underground shale formations, previously thought to be uneconomical sources of natural gas, caused US energy production to explode. A study by the Brookings Institute found that fracking had caused the global price of natural gas to decline by nearly 47%. Hydraulic fracturing, an innovation upstream of the energy supply chain, made the US “the world’s largest oil and natural gas producer.”
But upstream solutions to US energy needs are only one of the avenues. As important are "midstream" solutions, which refer to the processing, treatment, storage, transportation, and export/import of energy.
The midstream of the energy supply chain includes the transportation of crude oil after it is extracted, natural gas transmission pipelines, natural gas and oil storage, and the transformation of natural gas into other natural gas products.
By definition, midstream processes involve moving the energy industry's natural products from the point of extraction to other locations for processing or storage. Because of this, midstream processes, like the maintenance of pipelines, must be secured to prevent widespread environmental damage. The midstream industry will also be an important staging ground for transitions to renewable energies, as the core of the supply chains will enable the cheap and efficient transportation of new energy sources.
What will happen if the US fails to invest in midstream processes?
If the US does not have sufficient investment in midstream processes – including secure, reliable, and efficient transportation, storage, and refinement – then investments in upstream production will be throttled. US energy dependence, therefore, at least partially relies on its investments in this vast midstream infrastructure. If the US is to maintain its dominance in the energy sector while transitioning to other renewable forms of energy, it must also invest heavily in midstream infrastructure.
The ability of domestic American producers to easily transport and distribute their upstream products has a positive feedback effect – the easier it is for domestic producers to tap into an existing midstream infrastructure, the more incentive there will be for companies and governments to invest in American production capacity.
Europe as an Example
For example, until recently, Europe relied heavily on Russian natural gas for its energy consumption. This was partly due to midstream infrastructure – geographic proximity made it easy for European countries and Russia to cooperate on constructing natural gas pipelines like Nordstream 1 and 2.
Even if Europe wanted to rely more on US natural gas production, the midstream infrastructure needed to exist to get that energy from the upstream sources in the US to the downstream uses in Europe. As an article from the outbreak of the Ukraine war in 2022 notes, America's midstream network is a critical component of detaching Europe from Russian gas – and thereby bolstering the United States' status as a net energy exporter.
To assure US energy independence and export dominance, investments must continue to be made in midstream infrastructure to make investing in domestic energy production profitable and attractive for investors. The Inflation Reduction Act included such investments in the context of transitioning carbon-based energy infrastructure to renewable-based midstream infrastructure – but more can be done. As the example of Russian gas, Nordstream pipelines, and European dependence makes starkly clear, midstream infrastructure is a critical component of the energy supply chain. It must be given attention commensurate with its importance.