Energy Security -- Background

Jose Michael

Our energy environment today is based predominantly on oil. This wasn’t always the case – up through the end of the 19th century, coal was king. But the 20th century has been the century of oil. (Daniel Yergin’s Pulitzer-winning tome The Prize provides invaluable background on the history of the oil industry. A must read.)

Thirty years ago, we experienced the first OPEC oil crisis, followed by a second oil crisis after the Iranian Revolution. After the first, Congress implemented the CAFE standards to improve fuel efficiency. Gasoline prices shot up; people waited in looooong gas lines, burning as much fuel as they pumped in some cases; tempers frayed. The smaller Japanese imports came in burning less gas per mile, and established a beachhead against big Detroit iron. But here we now are, driving SUVs and pickups. Slurp.

The US gobbles oil at a voracious rate, consuming annually more than 25% of the world’s supply. Yet we are a relatively efficient glutton now. In 2002, with 25% of the oil pouring into our maw, we produced 32% of global GDP.

It’s hard to imagine now, but at the beginning of the oil era, the US was the world’s leading producer. Texas was the Saudi Arabia of the day. (And the Texas Railroad Commission was its OPEC – but read Yergin for that.)

It has been decades, though, since we produced more that we used. This chart below shows the difference between domestic production and consumption. The difference is the import gap. The size of that gap means we are far from secure.

US_consump_prod_2

(Click the thumbnail for full-size.)

Just on the basis of the magnitude of the import gap, we need to either

  1. increase domestic production or
  2. reduce our dependency on oil

We in the US are not going to drill our way out of this mess. US oil production peaked in 1970, and has been declining ever since – even factoring in the addition of the Alaskan oil, offshore and deepwater oil, and non-crude sources of oil (sands and shale). You can see the decline in the chart above. (Taking out the non-crude sources makes the decline look even scarier.) The hotly contested ANWR resource would, mean case, add some 870,000 barrels per day at peak production (in 2025). Today we use almost 20,000,000 barrels a day. Assuming no growth in oil consumption, ANWR would represent 4% of the total US consumption. The Energy Information Administration projects ANWR would contribute between 0.5% to 1.3% of global oil production.

Reducing our dependency is the only shot we have – and that means becoming more efficient in the short term while in the long term moving to a new energy foundation. Transitions from one energy source to another have occurred throughout history – from wood to coal to oil, for example. The strategic questions at hand for us are these:

  1. How urgent is it for us to make that transition quickly?
  2. How long can long-term be?
  3. What ARE our future energy options?

There is another lurking factor regarding energy security we must confront -- the factor of when GLOBAL oil production will peak.

Oil is a finite, non-renewable (at least in our timeframe) resource. Production of such a resource follows a curve, and after you hit the peak of production, you begin declining. It doesn’t precisely mean that you are running out – it means that our ability to extract it – to produce it – diminishes as the resource itself is depleted – to the point where it is too expensive or impractical for other reasons.

That’s what happened with the US oil industry in 1970. That’s what will happen to the Global oil industry. The trillion dollar question is: When?

It turns out that there is a great deal of sharp dissension within the oil industry over that exact question. In a separate post I’ll list some of the links to substantive information in the debate. It’s worrisome.

So our problem isn’t just figuring out how to reduce our dependency on imported oil – it’s how to reduce our dependency on ALL oil. How hard to we need to push to make that transition happen now? Pretty hard.

In that context – some of the green car technologies such as the hybrid designs will help, but they are not going to solve the problem. A secure energy environment is only obtainable with the transition to a renewable source. A danger with the current enthusiasm for hybrid cars is the removal of urgency from the larger challenge.

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