Even if a combination of increased production, energy conservation, and shifting from oil to coal could make U.S. domestic oil production equal to domestic oil consumption, “energy independence” would not be gained because of the U.S. economic interdependence with the globalized economy.
While the U.S. imported 12.2 million barrels per day in 2006, Japan, China, and South Korea as a group imported more than 10.5 million barrels per day and the European Union imported another 9 million barrels per day. Of world production of 84.5 million barrels per day, these imports represent more than a third. <cite for imports><cite for world production (Excel File)>
Unless our major trading partners also gain energy independence, any potential oil shock from a disruption of supply from the Middle East would have significant enough consequences for the global economy that political and military disengagement from the Middle East by the great economic powers would not be possible. If the U.S. were to pull back from its role as the major guarantor of security for the Persian Gulf, China and/or the EU would find it necessary to step in.
Also, oil is fungible and prices can’t be stopped at the border: if the price of a barrel of oil on the world market hit $200, U.S. oil companies would be more than happy to start filling up tankers to export the homeland’s black gold wherever it needed to go.
There’s a pretty easy and obvious solution to guaranteed energy independence: The US Govt should buy up crude on the open market and pump it into the ground inside the US (on govt land)
This guarantees a supply of easily pumped crude and the reduced military spending would offset the purchase costs. Less violence around the world, too.
Later, when the US needs to deal with the national debt, it could sell the crude. Had someone had the intelligence and influence to implement this policy after the 1970’s OPEC situation, the US could have quietly socked away a few trillion dollars worth of crude at prices around $10 a barrel.
Had someone the intelligence, influence and a remarkably accurate crystal ball that could predict the future price of oil.
I doubt anyone could make a case for spending several trillion dollars back in 1970 based on an assumption that in 2007 the price would be 78$ a bbl.
Hell even back in 1997 the price was at 9$ for a while, and if you mention 1985 to anyone still in the oil industry they tend to get a far away and paniced look in their eye, the last one out of the oil industry was charged with turning off the lights.
Spending a trillion 20 years back would look like a really dumb decision.
I don’t think that would be an easy solution - how to make that much storage, back in the 70 they were not even sure that salt dome gas storage or any form of underground injection would actually allow the oil to be recovered at a suitable recovery factor. You could just be pumping it away to never get it back.
Obvious solution - well is it obvious today that everyone should sell their houses and invest in oil futures? - you first - after all you will be a multi millionaire next year.
Yes, but you’re also ignoring the hypothetical situation I set up. I wanted to assume that the Middle East wasn’t viable for oil, Africa was still splintered and that the tar sands were certainly possible, but expensive. Would you want to use up the last of your oil, or, to put it a different way, would you want to use up the last of your oil that you have some kind of immediate access to?
Actually, everybody already knew there is a finite supply of easily pumped crude, even back in the 70’s. When the OPEC cartel situation arose, it was known that certain countries had a large influence over the crude supply. At that time, it was not a big leap to think the US could implement policy to guarantee a stable supply of crude, at least to itself. Yes, gas is a fungible commodity and all that, but why would other countries pull anything, if they KNOW the US is sitting on a large stable supply of crude inside its borders? Disruptions wouldn’t accomplish anything. Why would the US go overseas to ensure a stable supply of oil, if it already had one?
As for making profit, the purpose of govt is not to profit, but to guarantee safety. The goal of pumping crude into the ground is to ensure a stable supply, thereby also improving national security. By budgeting and purchasing an amount each year, the govt also gets the benefit of dollar cost averaging on purchase prices. Since the supply is finite, there’s little possibility that the price would stay down over time. No crystal ball necessary.
And I believe in a nation as large and varied as the US, at least one suitable location for cheap, safe, long term crude storage could be found.
Importing vast quantities of crude over and above what the petroleum industry is already doing? Well, that would shortly drive up the market price. And why pump it into the ground? Why not store it in tanks?
I believe he was referring to the fact that we already do this (the strategic petroleum reserve), but we’re still not energy independent, but I reckon we ought to let him verify that.
The USA has probably the world’s largest deposits of oil-bearing shale rock 9in the Gren River basin). Suppose we decided to spend $400 billion developing that resource (instead on fruitless wars)? We would have unbelievable freedom of action-we would not have to worry about arab oil boycotts, or OPEC jacking up prices. Wouldn’t this be a GOOD thing?
Higher cost at the pump – I believe it is more expensive (with current technology) to extract gasoline from shale than from crude oil. And mining is more expensive than drilling-and-pumping.
And then we’d still be burning it, adding to the greenhouse-gas problem.
Despite the downsides, I confidently expect it to be done, sooner or later.
Well, according to that link, $4 Billion was spent to make a 57 day reserve. If it were 100 times larger, it would still cost less than the current Iraq war. By my rough calculation, a 5700 day reserve is over 15 and a half years of supply.
Definitely debatable. First off, we are ALREADY developing those shale deposits (just like the Canadian’s and Venezuelan’s are developing their tar sand deposits). As the price of oil climbs there will become a point where those resources are economically viable (in fact, IIRC the tar sands already are reaching or have reached that point).
Certainly this will be a vast new source of hydrocarbons. But, is that a good thing necessarily? A lot of environmentalist types would definitely say no. With GW being linked by many to rising levels of C02, finding vast new sources of oil would definitely be a two edged sword to many…and a disaster in its own right to some.
Personally, as I’ve said before, I don’t think we ever will fully tap those resources. The Oil Age won’t end (as the gloom and doomers and Peak Oil flakes howl about) because we run out of oil…it will end because of mounting social pressure to switch to a cleaner alternative finally makes alternatives completely viable.
If done intelligently, it would increase the market price, but not more than future crude oil prices would be, anyway. And a massive tank is expensive to build.
OK . I’ll have to take back my comment about oil storage in the 70, it was the mid 70 when some large scale salt cavern storage projects got underway. The technology was still not certain for large scale applications back in the 50 60s.
Whilst governments are certainly not profit centered businesses, they still have to spend money in a sensible way. Buying a bucket load of oil to use later does not look like a good idea now or probably then.
The GDP of the US was 1.6 trillion in 1975 (2006 inflation adjusted) - military spending was 5% of GDP, so call it 80 billion.
If you had oil at 20 bucks a bbl (again that is inflation adjusted so we can work in today’s numbers) to get one year supply of oil imports (say 10 million bbl a day) you need to buy 73 billion dollars of oil. So an additional 5% of GDP to buy one year imports for 30 years time? That is a hell of an investment, plus it gives the money to they very guys you are contemplating economic warfare with (or vice versa) for them to invest in what ever trouble making they wish.
Take out the assumption that buying all that oil, which would have been be a significant chunk of global supply back then, would not have pushed the price up further, and things get even less attractive. Global supply was 56million bbl/day in 75, so taking an additional 20% of world supply would have had a large effect on the price.
That is a very expensive plan to address an undefined problem scope a long way in the future.
Now you are importing 10 million bbls a day at say 70 buckaroos a bbl, that is 255 billion dollars of imports, which is 2.3% of GDP (11 trillion give or take a billion or a hundred)
I agree that spending 800 billion on military adventures in the middle east is not a cost effective way of ensuring stable supply, simply burning that quantity of 1 dollar bills would go as far in reversing the US energy deficit. Leaving everything and one alone and letting the market sort out the supply situation would be a significant improvement.
I would say a more obvious strategy would have been to use money to buy off the local politicians, keep a strong military presence in the regions in the short term and invest in alternate forms of energy and energy efficiency so in 30 years time, you are not a net importer.
Well they got 2 out of 4
w.r.t. the comment on everyone knew that oil would run out, as ever - the exact picture of how much oil is left and how the reserves will play out and what will be found where - is not as clear cut as everyone knowing the finite supply would end.
So, are you saying, if the US has on hand 30+ years of crude supply inside US borders and under US control, that would not be a “good idea” by today’s view? Or does that not achieve “energy independence”?
As for giving money to folks in the middle east, we’re already doing that. If they had twice the money, would that change anything? I think not having a US military presence over there would have a more beneficial impact on the region than them having half the cash. Fewer dead or maimed folk, too.
30+ years supply on hand would be great - but don’t see how the US could get the money together to buy it, that is a phenomonal ammount of money way beyond what the US could afford, which was the point of my ball park numbers game.
I contend that that cash would be better spent elsewhere and the US continues to pay the market rate. Buying up huge reserves and putting them in a tank in the US is not a cost effective thing.
Giving your enemies a lot of money a long time ago is a bad idea. They invest and grow - you loose investment money to inject into your own economy.
If you give the foreign powers the equivalent of the entire US military budget every year for 30 years , you will end up with a significant problem in influence.
instead you only give them what you absolutely have to, now prices are high, sure they make more, but it is still less than the 30 years of 5% of your GDP.
You seem to be under the impression that the massive stockpile of crude would be given away for free or has no monetary value. If today’s price is $70 a barrel and it was purchased for $10, that represents a better return than US Savings Bonds.
This is a whoosh, right?