Can the U.S. Eliminate Its Dependence on Foreign Oil?

In the presidential debate last Friday, Sen. Obama called for eliminating the United States dependence on Middle Eastern oil within 10 years. It sounds like a desirable policy goal–the less we are dependent on unstable or unfriendly regimes, the better for our national security. But is this goal realistic? My research suggests it is certainly plausible. But I have my doubts about whether it is very meaningful in and of itself.

How Much of Our Oil Comes from the Middle East?

According to the Energy Information Administration (EIA), the US imports 5.9 million barrels of oil per day from OPEC, whose 13 members include middle eastern nations of Iran, Iraq, Kuwait, Saudi Arabia, United Arab Emirates and Qatar, plus Libya, Algeria, Nigeria, Angola, Venezuela and Ecuador. The Middle Eastern members of OPEC accounted for 29% of global oil production in 2005 according to the EIA. (There should be more current figures around but I can’t find them just now. Please leave a comment if you know where to find them)

The EIA says the US consumes 20.68 million barrels of oil a day, so 28.5% of our daily oil consumption is currently supplied by OPEC nations.

How Is Our Oil Used?

While oil is our single most important source of energy, it is of course not our only one. According to the EIA, oil accounted for about 39% of all Btus consumed in 2007. Here’s our energy consumption broke down by source in 2007:

39.2% petroleum

23.3% natural gas

22.4% coal

8.3% nuclear

2.4% hydro

4.3% non-hydro renewables

Hardly any of the oil is used to generate electricity; coal and gas are much more heavily used for that purpose. Most of our oil—some 70% of it—goes toward transportation. That’s about 14.5 million barrels of oil per day consumed by transportation. That means that transportation is a good place to start looking for ways to reduce our consumption.

How Can We Reduce the Amount of Oil We Use for Transportation?

If transportation is the biggest use of oil in the U.S., how can we reduce the oil we consume for transportation? There are three main ways.

Drive less. A variety of factors can reduce the amount of driving Americans do, but perhaps the most effective is raising the cost of driving. For example, according to the Federal Highway Administration, recent rising fuel prices caused American to cut back on driving by more than 4% in March 2008 compared with March 2007.

Employ oil substitutes. The main candidates here are a) natural gas for fleet vehicles, a centerpiece of the T. Boone Pickens plan; b) plug-in electric vehicles, which draw electricity from the power grid and thus ultimately from electric sources such as coal, natural gas, or alternative sources of electric generation such hydroelectric wind or solar.

Increase vehicle fuel efficiency. The golden age of increasing fuel efficiency in this country was between 1975 and 1987, when the average fuel economy of the new cars produced rose from 13.1 miles per gallon to 22 miles per gallon, at a compounded annual growth rate of 4%. Improvement has not been steady since, however. According to a study by the EPA:

Since 1975, overall new light-duty vehicle fuel economy has moved through four phases:

1. a rapid increase from 1975 through the early 1980s,

2. a slower increase until reaching its peak in 1987,

3. a gradual decline until 2004, and

4. an increase beginning in 2005.

A variety of factors influence average fuel efficiency, including federal and state mandates and the mix of vehicles consumers choose to buy. (An SUV fetish increased SUV’s share of light-duty vehicles purchased from 10% in 1990 to 30% in each year since 2003.) But assuming a 4% annual improvement in fuel efficiency, over 10 years it would lead to a reduction in gasoline consumption of over 30%.

Three caveats:

  1. If the resulting lower cost of car travel motivates consumers to drive more, the net reduction will be somewhat less.
  2. This is a static analysis that assumes no increase in fuel demand during the period; obviously that’s unrealistic. The EIA’s Annual Energy Outlook 2008 has projections of demand and fuel use through 2030. I have not taken the time to factor those projections into my light-weight analysis, but at a high level they seem to be projecting an increase in US demand for liquid fuel (which is a broader category than petroleum) of about 10% over 30 years—so a very gradual increase that could be offset with efficiency and other measures.
  3. The impact of new fuel-efficient cars is dilluted by continued presence of older, less efficient cars on the roards. If you know where the figures are on this, please point the way.

Can Improved Fuel Efficiency Liberate Us from OPEC?

The 5.9 million barrels per day we import from OPEC represent about 40% of the total amount of oil used in the US for transportation. So a 30% reduction due to improved efficiency would take us a long way, but not far enough to render OPEC imports unnecessary. The Obama plan does call for other measures besides boosting fuel efficiency, including supporting the adoption of plug-in hybrid cars and streamlining drilling for oil in permitted domestic areas.

Given our recent experience of a sharp drop in driving as a result of higher gas prices, it would seem that higher taxes on gasoline would nudge us closer. If we acheived a 30% reduction in oil used outside the transportation sector (in industrial and building uses) that would put us within spitting distance of the 5.9 million barrels according to this static analysis.

But what would that mean geopolitically?

What Does OPEC Independence Mean Geopolitically?

This is a big question, one I hope to explore in more depth in the future. But here I will just make two observations. First, OPEC’s share of world oil production is about 38% according to EIA data from 2005. Since most non-OPEC countries are net importers of oil, OPEC has substantial pricing power over oil. Even if The US stops importing oil from OPEC, the price the US pays for oil from other countries can still be significantly influenced by OPEC’s actions. Second, US independence from OPEC may be necessary but not sufficient to ensure geopolitical independence from the region, as important parts of the world, allies and trading partners of the U.S., will continue to be dependent on OPEC unless they embrace similar programs.

Further Reading

There is tons written on this subject.Here’s a very recent article slamming the presidential candidates for misrepresenting the true costs of “energy independence.” But from my reading, I think the authors represent the candidate’s positions. Obama, for one, doesn’t talk about energy independence (which I think is a misguided goal) but rather independence from Middle Eastern oil, which is easier to achieve but with perhaps less of a geopolitical impact than we might hope. The author also pins Obama’s plan on alternative energy, but my read is that is depends largely on improved efficiencies.

For an view on why the benefits of energy independence are overstated, see this essay in the Washington Post from January.

Your Comments?

The more I dig into this topic, the more I appreciate the complexity of it. I’m sure I missed some important points here. Feel free to point them out in your comments, or link to other sources of information and perspect to help fill in the picture a bit. Thanks.

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7 Comments

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7 responses to “Can the U.S. Eliminate Its Dependence on Foreign Oil?

  1. Hi David, great post, thanks for writing it!

    I wanted to expand on the geopolitical and global economic risks of suddenly declaring “energy independence.” I was going to write it here as a comment, but it became lengthy enough to merit a full-on blog post of my own: http://skirocky.typepad.com/eletters/2008/09/the-hidden-risks-of-us-energy-independence.html

  2. Peter Troast

    David–Enjoying your blog very much. Humble suggestion that perhaps energy productivity is your next stop after transportation. An excellent place to start is McKinsey Global Institute’s report: http://www.mckinsey.com/mgi/publications/Investing_Energy_Productivity/

    Looking only at investments with an IRR of 10% or better, McKinsey says that global energy demand could be cut in half by 2020.

    It appears to be the area of focus with the highest return on investment.

    PT

  3. dschatsky

    Hi Chris,

    Thank the comments you posted on your blog. I suppose you are right that a collapse in the economies of oil-producing states could yield geopolitical trouble. Collapse of any kind often does. The good news is that it seems just about impossible for global oil demand to fall off a cliff. The time lines for seeing effects of conservation and substitution are too long.

    However, those who think reducing global demand for oil yields geopolitical benefits are indeed thinking precisely of depriving unfriendly countries of petrodollars and thus sapping their ability to project power.

    Economic history suggests that countries with economies heavily dependent on the extraction of natural resources tend to be corrupt, autocratic and face significant obstacles to economic development and industrial diversification. This is sometimes termed the “resource trap” and it’s elegantly explained in a great book that came out this year called “The Bottom Billion,” by Paul Collier.

    The resource trap theory suggests that, far from holding resource rich economies together, an abundance of exportable natural resources can hold them down. If the developed world reduces demand for key commodities from resource-trapped countries, it should also consider aid that would foster economic diversification.

    Sorry I didn’t see your comment sooner. WordPress flagged it as spam for some reason. Glad I took a closer look.

  4. Pingback: Oil and Geopolitics: Comments From a Reader « David Schatsky’s Weblog

  5. Chris Townsend

    Hi David,

    Yes you make good points and I agree with you in what you say. In reality, the doomsday scenarios outlined in my comments are highly unlikely, perhaps pure fantasy. My aim was to conduct in-depth thought experiments that underscore the importance of what might otherwise appear to be trivial. Namely: the effects of our energy on other countries can boomerang back to us much more easily than most would believe from the comfort of their living rooms. Especially the larger and more globally integrated petro-autocracies, their health and stability is vital for our security aswell. Consider what we’ve already learned from Iraq: merely removing a dictator does not guarantee that conditions will improve. Similarly, if america has ANY intention to use energy policy as a lever to force changes within these countries, then we better be ready to help them manage that change. Anything less is in my view both short-sighted and hypocritical. In some ways, America has been the “drug dealer” that, by buying their oil, has kept them hooked on using this easy cash to fund their livelihoods. In essence, they are our Frankenstein. If we want these regimes to improve, we need to work with them as partners to wean BOTH sides off of this crack cocaine called oil. If however we think only of ourselves and fail to navigate the transition with them as partners, then we shloudnt surprised when these cold-turkey former oil-money addicts start wandering the geopolitical sttreets starving and prone to crime as their last resort. I am continually saddened by the degree to which the tenor of foreign policy discourse in the US assumes that other countries are our adversaries rather than partners. Not only is this attitude generally self-centered and xenophobic, it also simply does not reflect reality. We might wish that the word were still a simple place organized according to straightforward us-vs-them Cold War rules, but it simply isn’t true anymore. For better or worse, we’re all connected now. And trying to pull ourselves apart again will necessarily be quite painful – for ALL sides, not just “them.”

  6. Yes. There’s no such thing as independence from foreign oil. We could do as Sweden does, and reduce our dependence on oil itself. But, the US is at about 5 Mb/day and we use/haved used between 19-21 Mb/day.

    As far as price goes, it matters not where the oil comes from. No doubt you understand this. But, from a strategic standpoint, it does. It matters how many days it takes oil to get here from exporters, and it matters the routes it takes to get here, and it matters who it comes from. However, no one can escape the global price, which is the same for all.

    China, for example, has done alot to secure supply on this strategic level. It goes to Russia. It goes to Africa. It doesn’t care about price, because it knows it can do nothing about it. It cares about the safety of supply. It also has discovered it can barter for oil. Good idea!

    As many highly intelligent people have conducted many studies on this issue over the years, it would be better to hear a candidate talk about the only solution that will ever take: and that’s a transformation to public transport driven by a larger more robust electrical grid, that is fed by new solar, new wind, and new nuclear.

  7. David Schatsky

    Right. The emphasis on independence from foreign oil reminds me of the campaigns to get people to stop smoking that emphasized non-health reasons, such as preventing your clothes from stinking. Whatever works.

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