What Happens after the U.S. Oil Boom Goes Bust?

The Bakken crude oil formation spread out over North Dakota and Montana should give up more than 1 million barrels of oil per day next month. North Dakota is already the second-largest crude oil producer in the country behind Texas. A string of reports out last week said oil production in states like North Dakota is putting a dent in OPEC's market influence. A break from the grips of Middle East oil producers was put on the U.S. table 40 years ago and politicians and pundits alike are heralding recent developments as an energy revolution. What develops after the revolution is over, however, is something policymakers may have to consider in the not too distant future.

The U.S. Energy Information Administration said it estimated crude oil production from the Bakken region of North Dakota will top 1 million bpd in December. That region, the heart of the shale revolution in the United States, now accounts for more than 10 percent of total U.S. oil production. Last week, the EIA said oil production from states like North Dakota helped push net aggregate crude oil imports for October to their lowest level in more than 20 years.

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"American ingenuity and innovation have turned the goal of controlling our energy destiny from a dream into a reality," U.S. Rep. Fred Upton, R-Mich., chairman of the House Energy and Commerce Committee, said.  "We now have the opportunity to take back control of our energy future and liberate ourselves from OPEC's influence."

The Organization of Petroleum Exporting Countries singled out the phenomenon in its latest monthly market report. Driven mainly by the United States and Canada, the 12-member cartel said non-OPEC oil production should increase by 1.2 million bpd to average 55.3 million bpd in 2014.

"The current expected growth for the United States in 2013 is the highest on record for the nation and the highest among all non-OPEC countries for 2013," OPEC said.

U.S. oil production has reached the point that the industry is gearing up for a campaign to convince lawmakers to erase a 1970s era law restricting oil exports. President Nixon promised energy independence within 10 years of November 1973, though that promise was made three weeks after the Arab oil embargo. Now, thanks to formations like Bakken in the northern Great Plains states, energy independence is within reach.

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Last week, the International Energy Agency said crude oil production from North America is reducing the role of OPEC on the international stage. OPEC acknowledged the influence of North American crude oil production in its own reporting, saying its share of crude oil production in global production declined slightly to 33.1 percent. The IEA said, however, that the Middle East is "the only large source of low-cost oil [and] takes back its role as a key source of oil supply growth from the mid-2020s."

That's not too far away in the grand scheme of things.  Policymakers like Upton said it's a seize-the-day moment of the U.S. energy sector. For better or worse, he may have a point as it appears the revolution is fading just as quickly as it began.

By. Daniel J. Graeber of Oilprice.com