Don't Expect U.S. Energy Independence to Bring Lower Gas Prices

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Oil Well or Pumpjack pumping oil from Bakken reserve North Dakota  USA
Alamy
At long last, true energy independence for the United States is within reach. But will it matter?

Last week, the White House revealed that domestic oil production has hit its highest levels in 24 years -- while oil imports are at a 17-year low. As of this moment, the U.S. imports only 35 percent of its oil needs.

According to the latest monthly "Short-Term Energy Outlook" published by the Department of Energy, October marked the first month in nearly two decades when U.S. oil producers sucked more oil out of the ground than we imported. It won't be the last time this happens, either.

October saw U.S. crude oil production of about 7.7 million barrels per day, and according to the Department of Energy, production could grow 10 percent to as much as 8.5 million barrels per day next year. So unless there's a massive increase in the amount of oil consumed in the U.S., chances are good that for months -- if not years -- to come, the U.S. will keep on producing more oil than it imports.

How Did We Get Here?

Administration spokespeople are taking some credit for these developments, which they ascribe to a combination of tightened fuel economy standards and energy efficiency regulations, which have reduced fuel consumption in the U.S. -- plus increased exploitation of domestic resources through hydraulic "fracking" of oil-and-gas-bearing rock formations.

A third factor -- one the administration is unlikely to tout quite as loudly -- is the fact that with oil prices having roughly doubled over the past five years thanks to rising global demand, the high cost of gasoline has played its own role in reducing consumption, and imports.

What It Means for You

Whatever the causes are, this does appear to be a trend that's here to stay -- at least, assuming the Department of Energy's projections are on the mark.

But will it affect you from a price-at-the-pump perspective? Probably not a lot.

Sure, knowing that the U.S. produced more oil than it imported gives us all a nice warm-and-fuzzy feeling. America is the land of independence, and for a whole tankful of reasons, we'd like the idea of being "energy independent." That doesn't mean that the term has much relevance in a global economy, however.

Oil is, after all, a global and fungible commodity. It can be produced "here," but quickly pumped into a tanker and shipped over there (wherever "there" might be) to be sold -- and vice versa. In all likelihood, as soon as the price of oil in America drop low enough that companies can add the price of transportation yet still export it to somewhere where oil costs more, and make a profit, than they'll do just that.

Indeed, we're seeing just this kind of dynamic play out with the just-as-fracking-dependent commodity of natural gas today. Here in the U.S., it costs about 3.2 cents to buy enough natural gas to produce a kilowatt-hour's worth of electricity. But that same kWh's worth of gas costs 7.4 cents to produce in the U.K., 8.4 cents in France, 9 cents in Germany, and 17.5 cents (!) in Japan.

Result: The Department of Energy has already issued permits to three U.S. companies -- Cheniere Energy (LNG), Freeport LNG, and most recently, Lake Charles Exports LLC -- to export billions of cubic feet of natural gas daily to foreign countries that are willing to pay more for it. Dominion Resources (D) could be next to win a permit. And then there are 18 more companies lined up after it, awaiting permits of their own.

Long story short, while it's certainly not a bad thing that America is producing more oil than it imports, it's not as clear cut of a "win" for the U.S. as you might think. "Energy independence" may be a goal we can reach, but we can't win independence from the laws of supply and demand.

Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources.

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rogerstark325

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November 25 2013 at 2:36 PM Report abuse rate up rate down Reply
mac2jr

One-horsepower vehicles will be back as soon as we run out of gasoline and have not advanced enough to have converted to alternative energy sources.

November 23 2013 at 7:19 PM Report abuse -1 rate up rate down Reply
2 replies to mac2jr's comment
dweeeb.buster

One brain cell dunces like mac will post the sort of cartoonish stupidity that could never be imagined by thinking Americans.

Said differently, with mac around, truth truly is stranger than fiction.

November 23 2013 at 8:08 PM Report abuse -1 rate up rate down Reply
1 reply to dweeeb.buster's comment
dweeeb.buster

Excellent display of your staggering stupidity, someonedumb.

Nothing less (or more) is expected from the poster child of the dumbest 1%

November 23 2013 at 8:49 PM Report abuse +1 rate up rate down
willypfistergash

We're getting more power and efficiencey out of smaller displacement all the time. They way they breathe, timing, gearing, weight. Some scacrifices are made along the way, but if it's just moving one or two people...fine. a loftier task for moving a family or group.

November 23 2013 at 8:15 PM Report abuse -1 rate up rate down Reply
betty_brock

Democrats will spend us into the poor house no matter how much we "save".

November 23 2013 at 3:54 PM Report abuse -2 rate up rate down Reply
willypfistergash

What's next mac...a hamster on a wheel running like hell for power generating to charge batteries?

November 23 2013 at 2:53 PM Report abuse -3 rate up rate down Reply
1 reply to willypfistergash's comment
betty_brock

An Evan wheel would be nice.

November 23 2013 at 7:13 PM Report abuse +1 rate up rate down Reply
mac2jr

What is the biggest problem with Alternative Energy Vehicles, the government has not figured out how to Tax the use..

Here is a suggestion, do away with the Gasoline tax, and add a mileage tax that is charged once a year during vehicle Registration. Thus, all vehicles will be responsible for the damage done to the roads and highways, based on the miles driven..

November 23 2013 at 1:50 PM Report abuse rate up rate down Reply
2 replies to mac2jr's comment
willypfistergash

That's the biggest problem? Like government has a problem figuring out how to tax. They figured out how to tax us for not purchasing a private product, health insurance.

November 23 2013 at 5:19 PM Report abuse -2 rate up rate down Reply
dweeeb.buster

The biggest problem with Alternative Energy Vehicles is sh1theads like mac who refuse to purchase them.

November 23 2013 at 6:01 PM Report abuse rate up rate down Reply
3 replies to dweeeb.buster's comment
mac2jr

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November 23 2013 at 1:48 PM Report abuse -1 rate up rate down Reply
mac2jr

Electric, via batteries and kinetic energy forces can be used to power vehicles over ranges up to 100 miles at present, but as technology improves, the distances will also..

November 23 2013 at 1:45 PM Report abuse +1 rate up rate down Reply
1 reply to mac2jr's comment
dweeeb.buster

Also at present, sh1theads like mac refuse to buy electric verhicles.

November 23 2013 at 5:31 PM Report abuse -2 rate up rate down Reply
mac2jr

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November 23 2013 at 1:42 PM Report abuse +2 rate up rate down Reply
mac2jr

Flywheels, are the future.. Small electric engine to wind it up, then small generators or alternators used to recharge batteries, and flywheel's spinning is used to drive the vehicle. This was a proven concept back in the 1960's, but forgotten due to lack of computer controls and protective materials that are abundant today..

November 23 2013 at 1:40 PM Report abuse +3 rate up rate down Reply
willypfistergash

Oil prices aretied to the dollar, correct? Have we beeen doing anything in particular with our dollars?

November 23 2013 at 10:31 AM Report abuse -5 rate up rate down Reply