Wednesday, March 30, 2011

Reducing US Oil Imports By a Third

Reportedly, President Obama is about to make a major speech on energy policy, and it seems that somebody gave a great deal of advance detail to the New York Times:
With gasoline prices rising, oil supplies from the Middle East pinched by political upheaval and growing calls in Congress for expanded domestic oil and gas production, President Obama on Wednesday will set a goal of a one-third reduction in oil imports over the next decade, aides said Tuesday.

The president, in a speech to be delivered at Georgetown University, will say that the United States needs, for geopolitical and economic reasons, to reduce its reliance on imported oil, according to White House officials who provided a preview of the speech on the condition that they not be identified.
The graph above shows the history of oil imports, together with the President's goal (assumed to mean a reduction by 1/3 from 2010 levels by 2020).  You can see that, since 2006, we have in fact been on about the right trajectory required to accomplish the President's goal.  So, all it should take, then, is another decade of big oil shocks and major recessions to get there.  Be careful what you wish for, Mr President...

The required reduction in imports is about 4mbd (from the graph above).  If we look also at the domestic production picture, we get this (with imports in red stacked on domestic crude production in blue):

Note that this is roughly equivalent to consumption (but the equivalence is really quite rough because of things like refinery gains).

You can see that production has generally been declining since the US peak in 1970, with two periods of growth - the period in the late 1970s and early 1980s when prices were high and Alaska was coming on stream, and the last two years, when prices have again been sustainedly high.

If I had to guess about the future of domestic crude production, my guess would be roughly flat - depletion of old fields together with restrictions on offshore drilling post Macondo, will tend to counter the effects of high prices.

If we didn't have a decade of major oil shocks and recessions, we would expect US usage to grow at something like the historical rate - 1.5%/year between 1983 and 2005 (and note that 2010 grew 1.2% over 2009, so even an anemic recovery with modestly high oil prices caused immediate resumption in usage growth).  That would add about 2.5mbd of additional usage between 2010 and 2020.

So really, a reduction of 4mbd in imports is going to mean about 6-7mbd of conservation relative to "business as usual" - here meaning conditions that feel similar to the mid eighties and nineties.

Of course, then there's this:

Just projecting out the historical rate of Chinese oil consumption growth over the next decade gives another 8-9mbd of Chinese demand by 2020.  Unless global production can be raised significantly, that, and corresponding amounts in other developing countries, are going to have to come out of the consumption of the US and Europe.

So I think the mostly likely outcome is recessions and oil shocks, and that President Obama may get his desired import reduction.  The major things that could change that include 1) if the Cheney/Al-Shahristani plan comes to fruition on schedule, and 2) if China experiences a major bubble bursting event that depresses its internal demand, while leaving its ability to export intact.

In other notes on the speech plans:
He will call for a consistent long-term fuel-savings strategy of producing more electric cars, converting trucks to run on natural gas, building new refineries to brew billions of gallons of biofuels and setting new fuel-efficiency standards for vehicles. Congress has been debating these measures for years.
Emphasis mine. Could we please leave the bolded part out? Trying to save fuel by increasing food prices is not going to improve things in the Middle East and make us more secure.

Mr. Obama is also expected to renew his call from the State of the Union address to increase the percentage of electricity produced from so-called clean sources to 80 percent from the current 40 percent by 2035. The president’s definition of clean energy includes renewable sources like wind, solar, hydro and geothermal, as well as nuclear, natural gas and coal with carbon capture and storage, an as-yet-unproved technology.
Could the President please explain why, despite these calls, wind power investment in the US has collapsed on his watch?


Stuart Staniford said...

Andy Revkin has posted the text of the speech here.

kjmclark said...

The depressing thing about food for fuel is that it helps to make the case that we need to reduce imports. Higher food prices will just make the food-importing middle east more unstable.

James Hamilton has a post this morning that energy prices have reached the point that they may significantly impact consumer spending.

The only good news is that the administration does seem to recognize the problem. Maybe oil and gasoline prices will spike this summer and get the opposition out of Obama's way. Of course, higher prices will probably throw the economy back into recession too.

seriouslyflashy said...

We've been hearing these things since the 1970s. They've failed then and they will certainly fail now. Especially with the partisan congress.

Obama can only get where he wants by, just like you said, major oil shocks and a turn to a long, protracted depression.

But by then the last thing on his mind(remember, he'll be President to 2016 if he gets another term) will be oil prices.

Either way, it's far too late to do anything meaningful at this stage. We'll have to react to the crisis as it unfolds, and by then any mitigationtime is lost, and we'll be trying to run to catch up an accelerating train.

Something's got to give, though. Either China or the U.S.

But then, again, we have the Vaclav Smil's of the world, denouncing 'uninformed doomsters' by claiming that NGV will save us.


Kostas Kalevras said...

Hello Stuart.

Have you seen the Deutsche bank oil report?

They are projecting US gasoline demand to fall from 9 MB/d to 5.2 MB/d by 2020 due to increased car efficiency and large hybrid penetration. It would be interesting to read your take on these projections.

Mike Aucott said...

It's heartening that there is mention of increasing fuel efficiency of motor vehicles, because this is very do-able with present technology; all we have to do is make cars smaller and not so ridiculously high-powered.

But it's unfortunate there isn't much more emphasis on energy efficiency. Without more push for E2, reducing oil imports could largely translate to increasing coal and natural gas combustion, which isn't sustainable.

And, conspicuously ignored as usual is mention of possible high-tech ways, such as advanced telecommuting, of reducing the need for repetitive high-speed movement of people, goods, and heavy machinery (e.g., cars).

Lars-Eric Bjerke said...

The most efficient way to reach a common goal in a market economy like the US, in this case to reduce oil imports, is in my opinion to use the tax tool. In this case it would be to reach agreement that until 2020 the oil taxes should in steps be increased towards European levels. The market will then find the most efficient way to handle higher prices i.e. to save energy and to develop alternatives. You all seem to believe that a governed market economy is politically impossible when it comes to oil. Why is it possible in all European countries but not in US?

Stuart Staniford said...


You ask an excellent question. As someone who grew up in Europe, but then have lived here for twenty years, my answer would be that the US is at least half a political party to the right of Europe. The "center" between left and right parties in Europe corresponds, in the US, to a point somewhere in the middle of the democratic party, whereas the views of Republicans largely don't exist in Europe.

This makes many things that seem obvious and sensible in Europe, politically impossible here (and vice versa).

As to why this is so, I like the speculations in American mania: roughly speaking, all the wild rogue individualistic genes upped and left Europe in the 19th century, and came here. So this country is much more individualistic and risk-taking, and Europe is more communitarian and less risk-taking.

Lars-Eric Bjerke said...


Thanks for the answer, you might well be right. In a country with good education like US it should hopefully be easier to implement changes which are wise in the long run. I more often hear “I love my country” in US television than in Europe.

Just a small comment on bio fuels. I can run my Volvo V70 diesel 50 miles/gal on third generation bio fuel made from by-products from the pulp industry refined by one of the major refineries.

The Rational Pessimist said...


There is a wonderful book by David Hackett Fischer called 'Albion's Seed' that in many ways supports your thesis for a genetic basis to the right-ward slant of US politics.

He argues that four immigrant paths from the British Isles to the US have had a fundamental influence on American politics, with the numerous independent borderlands folk of Ireland, Scotland and the north of England having had a particular influence. Worth a read.

Hypnos said...

Do you have any evidence on the voting patterns of Americans with Scot-Irish ancestry?

Minorities in America are overwhelmningly Democratic while the hard core Republican voters are white, but I've always put that down to the Republican's blatant racism since the Civil Rights rather than predisposition to individualism.

Sam Penrose said...

America has a broken political structure at the national level, in which we think of the presidential election as choosing the government, but in fact it is the set of president-house-senate elections plus anti-majoritarian rules in the senate that actually control things. Obama the candidate campaigned on a promise of power b/c they all do; Obama the President has no more ability to make new law than previous Presidents have (some, for some laws, at some times)