You might not have realized it, but America is in the midst of an energy revolution. New technologies like hydraulic fracturing and horizontal drilling have unlocked vast quantities of hydrocarbons. And after decades of declining output, U.S. oil production is at its highest pace since 1989.
Unsurprisingly, this bonanza is creating great opportunities for investors and is having a noticeable impact on the country's economy. Here's what you need to know.
Booming production is a big boost to the economy
Rising oil and gas production is having a big impact on the U.S. economy. According to a report from IHS, America's shale boom boosted the nation's average household income by $1,200 last year. The consultancy firm also estimates that the advent of fracking alone has created 2.1 million direct and indirect jobs.
Surging energy production has also improved the country's fiscal health. Petroleum imports now only account for 40% of consumption -- a 20 year low -- reducing the country's trade deficit by $175 billion last year. If these trends continue, oil production in the United States will surpass Saudi Arabia by 2017, and the country could become completely energy independent by 2030.
The best is yet to come
A series of big finds in the Gulf of Mexico has profoundly changed the thinking of the U.S. offshore potential. This year, the Gulf solidified its position as one of the most promising offshore oil plays in the word. According to a report by Wood Mackenzie, Gulf coast production could hit two million barrels of oil equivalent per day by 2020.
The North Dakota Bakken has also emerged as America's most prolific shale play. But new reports suggest that there may be an even bigger oil discovery lying just underneath. According to the United States Geologic Survey, the Lower Three Forks contains 3.7 billion barrels of undiscovered, technically recoverable barrels of oil -- slightly larger than the Bakken.
EOG Resources (NYSE:EOG) has been one of the pioneers exploring the lower benches of the Three Forks. This spring the company released surprisingly good drilling results. One stellar well in particular posted an initial production rate of 3,150 bpd. This suggests the Three Forks could be just as productive as its Bakken cousin.
Additionally, the South Texas Eagle Ford has delivered impressive production growth. But new discoveries in the nearby Permian Basin could be even larger. According to early estimates provided by Pioneer Natural Resources (NYSE:PXD), the Spraberry Wolfcamp play could contain 50 billion barrels of recoverable oil.
"The Spraberry Wolfcamp could possibly become the largest oil and gas discovery in the world." Pioneer CEO Scott Sheffield told analysts in August. The company is one of the largest landowners in the Permian and is busy de-risking its acreage. Those reserve figures could be revised higher as Pioneer completes its exploration.
Energy independence won't impact the price you pay at the pump
Canada is a completely energy independent nation. Yet as of October 15, the average price of regular gasoline north of the border was $4.79 per gallon. U.S. drivers by comparison paid $3.49 per gallon. This illustrates the unfortunate fact that surging U.S. oil production will do little to cut the price you pay at the pump.
That's because oil is a globally traded commodity. If U.S. gasoline prices are lower than international benchmarks, marketers will simply export supplies until prices even out. This also means that energy independence will do little to mitigate price volatility or protect the country from global supply shocks.
The bottleneck is downstream
If there's one factor that could halt America's oil boom, it's the lack of infrastructure to move and refine the stuff. Midstream shippers are scrambling to lay down enough pipe to accommodate surging production. According to ITG and Tortoise Capital Advisors, MLPs have set aside $100 billion for capital investment over the next three years.
This is a great growth opportunity for the country's largest pipeline operator Kinder Morgan Energy Partners (NYSE:KMP).The company has a five year project backlog in plays like the Eagle Ford and the Bakken. Over that time, Kinder expects to spend $14 billion in growth investments.
Energy economist Jeff Rubin summed it up best when he told The Motley Fool Canada, 'The Achilles' heel of North American energy independence, whether it's trying to double oil sand production in Alberta or double shale production in the Bakken, is that we don't have the infrastructure to move that increased production.
Foolish bottom line
The North American energy revolution could be one of the greatest investment opportunities in a generation while resetting the global geopolitical map. But navigating the ups and downs will be a challenging task for investors.
Robert Baillieul has no position in any stocks mentioned. The Motley Fool recommends Kinder Morgan. The Motley Fool owns shares of EOG Resources and Kinder Morgan. 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.