Things change fast in modern economies. One of the biggest changes of the last decade is America's boom in energy production. Scan through an archive of news stories from 2006, and you'll find headlines like "U.S. oil imports at record high." Scan through today's news, and you'll find headlines like, "U.S. oil imports to fall to 25-year low."

For years, it was assumed that America's insatiable appetite for oil would spike prices and balloon the trade deficit. But this fear relied on two assumptions: That domestic energy production had peaked, and that demand for oil would continue to rise. Both turned out wrong. As a result, net oil imports in 2012 hit the lowest level since 1993, and are on track to fall to the lowest level since the 1980s next year. It is one of the most important economic developments of the last decade. And by most accounts, it's just getting started.

A few charts tell the story.


The first is energy demand. A good way to measure it is total crude products supplied, or the amount of oil the economy is consuming:

Source: Energy Information Agency.

We consumed less oil in 2012 than we did in 1997. Consider that the U.S. population grew by 43 million during that period, and the change is extraordinary. 

Part of the decline -- perhaps most -- is due to the weak economy. Less employment and lower incomes means fewer vacations, fewer road trips, and putting on a sweater in lieu of turning up the heat. After rising uninterrupted for three decades, Americans drove 40 billion fewer miles in 2012 than in 2005.

But another downward push on demand is efficiency. Daniel Yergin, an energy analyst who won a Pulitzer for his book, The Prize, calls energy efficiency and conservation "the fifth fuel," writing that, "many would not even think of it as a fuel or an energy source. Yet in terms of impact, it certainly is." He goes on:

The United States uses less than half as much energy for every unit of GDP as it did in the 1970s ... a new car in the 1970s might have averaged 13.5 miles to every gallon. Today, on a fleet average basis, a new car is required to get 30.2 miles per gallon.

The boost in efficiency and conservation is mostly driven by price. Changing behavior requires incentives. "The key to high prices is high prices," as the saying goes.The last conservation push that led to a drop in demand occurred in the early 1980s, coming off an oil shock and soaring gas prices. The 2008 oil spike looks like it also changed consumer behavior. The vehicles that capture our imagination shifted from Hummers and Excursions to Teslas and hybrids. 

Beyond falling demand, domestic oil production is booming like it hasn't in decades.

For as long as we have been drilling oil, we have been worried that we're on the cusp of running out of it. Yet, the story ends the same way every time: Tight supplies push prices up, and higher prices provide the incentive for oil companies to invent new ways to extract more oil out of the ground than we ever knew existed.

Last decade was no different. Conservation complacency of the 1990s, combined with burgeoning demand from Asia, sent oil prices from $11 a barrel in 1999, to $140 a barrel by 2008. It was terrifying -- many thought we hit a point where oil prices could only go up and, in 2008, the CEO of energy giant Gazprom predicted oil would soon hit $250 per barrel. But those high prices made if feasible for oil companies to utilize and improve technology. Fracking -- cracking oil out of rock formations with pressurized water and sand -- and horizontal drilling, took off.

"The key year was 2003," Yergin recently told NBC. "That was when it was proof of concept. So for five years, it unfolded quietly with the independents. In 2008, that's when the majors got interested." Chesapeake Energy's 2004 annual report doesn't contain a single mention of the words "hydraulic fracturing." Last year, the words appeared 57 times.

The results have been epic. U.S. oil production grew more in 2012 than it has in any year since the dawn of the oil industry in the 1800s, according to the Wall Street Journal:

Source: Energy Information Agency.

Put the two trends of falling demand and higher production together, and America's reliance on foreign oil is declining. After peaking in 2005, net oil imports have declined by almost half, and are now at the lowest level since 1992:

Source: Energy Information Agency.

The impact this has on the trade deficit is simply massive. On net, we imported 5 million fewer barrels of oil per day in 2012 than we did in 2005. The nation's total trade deficit was a quarter of a trillion dollars lower last year than it was in 2006.

This is good for the economy, and boosts the value of the dollar, but it's also great for geopolitics. Several countries that America previously relied heavily on for oil aren't particularly fond of our way of life, to put it politely. That's now changing. Net oil imports from the Persian Gulf region have declined by a quarter over the last decade. Net imports from Venezuela have fallen by nearly half since 2005. Imports from OPEC nations as a whole have dropped 31% since 2007.

What happens next? The opening line of this article, a reminder of how fast things change, works in both directions. The history of oil booms turning to oil busts is long, so any forecast must be taken with a grain of salt. But the forecasts now making the rounds are nothing short of game-changing. The International Energy Agency predicts America will overtake Saudi Arabia as the world's largest oil producer within a decade -- not as crazy it sounds when you consider that it already happened briefly last November. The Monterey shale formation in California alone is said to hold some 15 billion barrels of recoverable oil.

But finding oil and exploiting oil are two different things. The question in California is whether the state's environmentalists and politicians will play along. Then there's the issue of transporting the oil we pull out of the ground -- largely in the Northern states -- to refineries, located largely along the Gulf. Oil shipments by rail rose 256% in 2012, according to the American Association of Railroads. In his latest letter to Berkshire Hathaway shareholders, Warren Buffett said, "All indications are that [Burlington Northern's] oil shipments will grow substantially in coming years." But fully exploiting America's oil potential through rail  seems impractical, if not impossible. The hamstrung Keystone XL pipeline is a good reminder that the gap between what's technically possible and politically feasible can be vast.

But think back to 2008. Billionaire T. Boone Pickens told a Louisiana crowd that our addiction to foreign oil was an unaffordable sap on the economy. "And if we don't do something it will get worse," he warned. Thankfully, we did.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics. 

The article America's Next Boom originally appeared on Fool.com.

Morgan Housel owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway and has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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