The United States and Canada possess enormous conventional and unconventional oil and gas reserves that could not just make NAFTA energy independent, but also fundamentally change the global balance of power in oil and global geopolitics, breaking OPEC's control and ensuring developing nations that their energy sources are secure.  All the U.S. government needs to do is two things: 1) open up these resources for development, and 2) put in a modicum of protection that will ensure that an OPEC price war does not (once again) crush North American production.  This second point will also encourage the development of non-carbon-based technologies.  Unfortunately, there are political forces in the U.S. that oppose any further development of carbon-based resources.

To understand the implications of these reserves, they must be put into context, both physical and economic.  According to the CIA, the world currently has about 1.5 trillion barrels[1] of proven oil reserves, and humans consume about 87 million barrels a day[2] or 29 billion barrels per year, which would exhaust the reserves in about 46 years.  And while consumption is growing steadily, particularly with the rise of the Asian economic giants, many geologists have long believed that the world is at or near its peak production of oil and will see falling production henceforth.  (One can just Google "peak oil" to find a wealth of sites debating this point.)  However, with new discoveries cropping up frequently with the current high prices, including a large, 33-billion-barrel find in Brazil[3] and shale oil and gas reserves in many part of the world, the peak may be prolonged somewhat[4].

Of the global proven reserves, the Saudis hold the most with about 263 billion barrels, while the U.S. has less than 1/10 that -- 21 billion barrels, or a little over 1% of global reserves.  Moreover, the U.S. is consuming about 1/4 of the world total, 20 million barrels day, and it imports half of that[5].

In addition, the current global oil reserves -- known as low-cost or conventional oil -- cost something under $15/barrel to produce, according to some former administration analysts[6].  Indeed, the Saudi and Iraqi fields cost only a few dollars per barrel to retrieve.  The combination of enormous supplies at low cost is why the Saudis and their OPEC allies in the Middle East have had control of global oil markets for over thirty years.

But into this bleak scenario have recently penetrated some bright rays of hope.  One is that according to numerous reports, there is a huge pool of oil sitting within the Lower 48 that could increase U.S. reserves tenfold and make the country energy-independent.  This reserve, known as the Bakken Formation, stretches from North Dakota northwest into Saskatchewan, and the U.S. portion is thought by some analysts[7] to hold between 175 and 500 billion barrels.  It is in a formation known as shale oil, which lies several miles below the surface in a narrow sheet of shale that must be reached by conventional drilling, then penetrated by horizontal drilling, and hydraulically fractured (or "fracked") to shatter the rock to let the hydrocarbons leak out.  Such formations are considered "tight oil."

On April 10, 2008, the U.S. Geological Service reported[8] that the Bakken contains "only" about 4 billion barrels of "technically recoverable" oil.  This estimate might be considered favorable but ultimately inconsequential, as it would represent only about a half-year's consumption.  However, the key term, "technically recoverable," means that this oil is accessible given current technology and economics.  It's therefore critical to recognize that drilling technology is advancing rapidly.  Indeed, compared to the prior USGS estimate of the Bakken twelve years ago, the new estimate is 20-30 times greater.  If the total Bakken reserves are in fact about 400 billion barrels, then a mere 1% recovery rate would be extraordinarily and perhaps implausibly low.  Getting at those reserves may ultimately be only a matter of technology and cost.

The unusual characteristics of the Bakken make it a more expensive formation to discover and produce than the low-cost fields.  Numbers of $20-$40/barrel are bandied about[9].  The main indication of the Bakken's production costs is that drilling is booming in the region, so at today's prices, it is clearly attractive.

If the Bakken could produce half its estimated 400 billion barrels' potential, it would be about the size of the Saudi reserves.  This alone could make the U.S. energy-independent for decades.  And there are other, similar shale oil formations in the U.S., such as the Eagle Ford deposit in south Texas.  But the Bakken is actually small potatoes.  The big game-changers, and other reasons for hope, are two other massive reserves, also here in North America.

The first of these is the Athabasca oil sands (or tars) in Alberta.  These reserves are now being developed, and in 2003, the Canadian government officially added 177 billion barrels -- 2/3 as much as Saudi Arabia -- to its reserves from these fields.  However, this is only about 1/10 of the total reserves of Athabasca[10].  In other words, this field holds more than the world's proven reserves.  Like the Bakken, it is thought to be more expensive to produce than conventional oil -- perhaps in the range of $35-$40/barrel[11], but also as with the Bakken, this field is enjoying a development boom.

The U.S. also has oil sands, in Utah, Colorado, and Wyoming, though relatively small -- but still significant -- at 32 billion barrels, and evidently not yet being commercialized[12].

The other big game-changer could be U.S. oil shale (as distinct from shale oil, like the Bakken and Eagle Ford), the reserves of which lie close to the surface in the Rockies and are estimated to hold 2 trillion barrels[13] -- again more than the world's conventional reserves.  The costs of producing these reserves are thought to be higher than oil sands, but well below the current prices of oil.  In fact, Estonia and Brazil are already producing oil from oil shale, and IDT Corporation is working on a project in Colorado and another in Israel[14].  While various critics have stated that oil shale would take a decade or more to produce, this writer has spoken to a knowledgeable congressional aide who reported that Shell is confident that it could have 1-2 million barrels per day in production within a couple of years of a green light.  But to produce these reserves would require substantial upfront investments that would not pay back for some years.

So why aren't oil companies developing these massive reserves rapidly?  There are two main obstacles: competitive risk and political opposition.  Regarding competitive risk, oil-producers have witnessed huge swings in oil prices in the last 35 years, with peaks in 1974, 1979, 1991, and 2008 close to current levels (in inflation-adjusted dollars), with deep troughs as low as less than $25/barrel[15] in adjusted dollars in the mid-'80s, late '90s, and 2009.  This bitter history and the prospect of similar price swings in the future increase the perceived risks associated with making the long-term investments necessary to exploit these resources.  Such risks chill, or kill, long-term investments.

The political impediment is even more imposing.  The environmental movement has pushed the Democrats to prohibit leasing of the oil shale deposits[16], which lie mostly under federal lands[17].  Republicans have made repeated attempts to open these reserves, but they have not been able to get anything to pass the Senate.  If they did so, getting their attempts signed into law would be problematic, as demonstrated by the political uncertainty surrounding obtaining federal permits to build the Keystone XL pipeline that would take Canadian oil from its sands to refiners along the Mississippi River and Gulf Coast[18].

To summarize: global production from conventional, low-cost reserves is not keeping up with demand growth; oil prices are near all-time highs and likely to rise farther if production can't keep up with demand; but enormous supplies of higher-cost oil lie within NAFTA.  The only reasons why they are not being developed aggressively are politics and competitive risk.

To address the latter, imagine that the U.S. government imposed a "reverse tariff" on oil imported from outside NAFTA, so that as the world price of oil fell below a certain point -- say, $70/barrel -- the tariff would make up the difference and keep the North American price for crude at $70.  Producers of Bakken shale oil, Athabasca oil sands, and Rockies oil shale would have some security that prices would not force them to stop production, so they would be more willing to produce.

Such a policy would have several benefits, both economic and political.  Setting a price floor like this would not impose an immediate increase on consumers, as it would kick in only if prices fell by about one-third from current levels.  Indeed, such an increase may never be invoked.  On the other hand, it wouldn't necessarily represent a hard floor -- if North American sources turned out to be producible at lower-price levels, competition among producers would drive the price down below the tariff trigger.  The tariff would bite only if/when global oil prices cycled into a trough, from which they would eventually emerge anyway.  And the low, unlikely costs of having this tariff should be compared to these substantial benefits: making North America truly energy independent, free from supporting the hostile nations currently providing us our energy; increasing the world supply of oil, thereby reducing the prices available to those other oil-producing nations; liberating the U.S. from having to guarantee the sea lanes to the Middle East; giving China and other emerging countries confidence that they have ample sources of supply outside of the Middle East; creating thousands of jobs in North America, with the associated tax revenues for all levels of government; and -- importantly for those who believe in anthropogenic global warming -- establishing an historically high price for North American oil that should in turn stimulate both conservation and development of alternative energy sources.

There is more for progressives to like about this program than just encouraging the development of non-carbon-based forms of energy.  What could be more progressive than creating high-paying jobs in the U.S. and income for the working class and revenue for local, state, and federal government?  Moreover, there are four basic issues in the upcoming election: persistent high unemployment, income inequality, fiscal solvency at all levels of government, and national security.  Developing our national energy reserves would address all four simultaneously.  This should be a bipartisan no-brainer.

Without incentives like this tariff policy, the U.S. may ultimately develop its own oil resources, but the process will probably take much longer, and in the meantime, the U.S. will continue to run unnecessarily large trade deficits, forego thousands of jobs and billions of tax revenues and, to paraphrase New York Times columnist Tom Friedman, fund both sides of the jihad, and run the risk of having a catastrophic oil shortage and resultant price increases because of supply disruptions in the Middle East.  We have an opportunity now, with current oil prices, to break out of dependency on hostile oil states and establish a rational strategy towards energy independence.

Bruce Stevens received a bachelor in economics from Duke University and an MBA from Harvard.  He worked as the global energy coordinator for The Boston Consulting Group in the late '80s and has been involved in the energy industry as a private equity investor and management advisor.

[1] https://www.cia.gov/library/publications/the-world-factbook/geos/xx.html

[2] https://www.cia.gov/library/publications/the-world-factbook/geos/xx.html

[3] http://www.chicagotribune.com/business/sns-ap-brazil-oil,0,6549115.story

[4] http://online.wsj.com/article/SB10001424052970204479504576638731600191382.html?KEYWORDS=big+oil

[5] https://www.cia.gov/library/publications/the-world-factbook/rankorder/2175rank.html

[6] http://www.manhattan-institute.org/html/_wsj-oil_oil.htm

[7] E.g., http://www.nextenergynews.com/news1/next-energy-news2.13s.html

[8] http://www.usgs.gov/newsroom/article.asp?ID=1911

[9] http://en.wikipedia.org/wiki/Bakken_Formation and and http://www.worldoil.com/High-oil-prices-spur-Bakken-activity.html

[10] http://en.wikipedia.org/wiki/Tar_sands

[11] http://en.wikipedia.org/wiki/Athabasca_oil_sands#Economics

[12] http://ostseis.anl.gov/guide/tarsands/index.cfm

[13] http://en.wikipedia.org/wiki/Oil_shale_reserves#North_America

[14] http://www.businessweek.com/magazine/content/11_24/b4232017039815.htm

[15] http://www.inflationdata.com/inflation/Inflation_Rate/Historical_Oil_Prices_Table.asp

[16] http://www.msnbc.msn.com/id/25282295/ns/us_news-environment/t/colorado-wyoming-battle-bush-over-oil-shale/#.Tt6CUfKs9Rw and http://www.realvail.com/article/656/Udall-says-politics-impeding-progress-on-energy-policy-as-Wyo-Sen-Barrasso-floats-bill-to-remove-drilling-barriers

[17] http://www.blm.gov/wo/st/en/prog/energy/oilshale_2/background.html

[18] http://www.politico.com/news/stories/1111/68089.html