|Climate Protection and the National Interest (WRI, 1997, 56 pages)|
Low oil prices over the past few years have made it easy for Americans to ignore their increasing dependence on foreign oil. Meanwhile, the problem has grown more serious. With domestic oil production continuing its long-term decline and oil imports filling the gap, the nation's energy and economic security is increasingly at risk. Oil is a major factor in U.S. foreign policy and its overall trade deficit.
The importance of petroleum products to the economic and energy security of western nations was dramatically highlighted in 1991 by U.S. willingness to go to war with Iraq to ensure access to Persian Gulf oil under favorable conditions. (Even during peacetime the United States spends tens of billions of dollars each year to maintain a military presence in the Persian Gulf.) Paradoxically, while the United States was willing to fight to protect petroleum supplies on the other side of the world, it has no long-term strategy to reduce national dependence on imported oil either by improving energy efficiency or by developing alternative energy sources.
The United States is steadily increasing its reliance on imported oil. Between 1973 and 1996, oil imports to the United States increased by about 40 percent. (See Figure 8.) In 1996, about 40 percent of U.S. energy was derived from oil, with net imports of about 46 percent; about 17 percent of imports are from the Persian Gulf. (See Figure 9.) By 2015, the Department of Energy expects imports to account for 61 percent of U.S. oil supply.47 In other words, we are substantially more dependent on imports now than we were in 1973 when we saw how much a disruption in oil supply could hurt, and this dependence is sure to grow. The Strategic Petroleum Reserve - containing about 560 million barrels of oil - could be tapped in an emergency to replace current Persian Gulf imports. But as dependence on foreign supplies grows, our grace period - about a year at current import rates from the Middle East - shrinks.
Behind our growing dependence on imported oil is a hard geological reality: the United States is one of the world's oldest oil producing regions, and its oil fields are approaching exhaustion. Eighty percent of all the oil and gas wells ever drilled worldwide are in the United States, and we simply cannot produce nearly as much oil as we now consume. Production in the lower 48 states peaked in 1970 and, except for slight increases in 1984-85, has been declining since. Crude oil production in Alaska peaked in 1988 and has fallen by about 30 percent since. (See Figure 10.) It is possible that new oil deposits could be found in Alaska. But even if they were, they would take years to develop and probably provide no more than a decade of minor, temporary relief.
The future for domestic production of crude oil is anything but bright. Crude production in the lower 48 United States has declined by about 45 percent since its peak and is likely to keep sliding downward: the nation has pumped an estimated 85 percent of all the oil likely to be recovered in the lower 48 states.48 This production slump has not resulted from a lack of effort in drilling and exploration. When world oil prices rose during the 1970s, drilling for oil and gas in the United States intensified, tripling between 1973 and its peak in 1981. Despite this drilling effort, proved oil reserves have continued to fall.
The United States is not the only country strapped for oil and worried about how to get it. (See Figure 11.) The Western industrialized nations consume half of the world's oil but possess only 10 percent of global oil reserves. North America (including Canada and Mexico) alone accounts for almost 30 percent of world oil demand. Its share of world proved reserves, though, is only 8.5 percent, with only 2.9 percent in the United States. The Persian Gulf oil producers, representing 5.8 percent of world oil consumption, have about two-thirds of the world's proved oil reserves.
What do these trends in petroleum consumption imply for U.S. national security? Unless the nation gets serious about reducing oil consumption, it will have to import an ever larger fraction of its supply, increasingly from OPEC producers and increasingly from the Persian Gulf. According to the Department of Energy, OPEC's share of world production will rise from about 40 percent of total world production (1995) to almost 60 percent in 2015.49 And as OPEC regains dominance in world oil production - likely within a decade - so too will the risks of supply disruptions as a result of regional conflicts.
Finally, there are the long-term security and economic risks from the eventual exhaustion of conventional crude oil resources.50 Oil, coal, and natural gas are fossil fuels formed deep in the earth s crust over millions of years. They are finite and non-renewable and, in due course, will become scarce and costly, requiring the introduction of replacement energy sources. Over the past 50 years, oil companies, geologists, governments, and private corporations have published scores of studies on recoverable global oil resources, which they call Estimated Ultimately Recoverable (EUR) oil. (EUR oil is the total amount of oil that will have been produced when production finally ceases.) Taken together, the great majority of these studies reflect a consensus among oil experts that EUR oil reserves lie within the range of 1,800 to 2,200 billion barrels. As of the end of 1996, the world had consumed about 788 billion barrels of these ultimately recoverable reserves.
Given these estimates of recoverable oil, and assuming moderate growth in world oil demand (about 2 percent per year), it is possible to calculate when world production of conventional crude oil might begin to decline, driven by resource constraints.51 (See Figure 12.) At the low end - 1,800 billion barrels of EUR oil - peaking of world oil production could occur as early as 2007; at the high end - 2,200 billion barrels - peaking could occur around 2013. (An implausibly high 2,600 billion barrels of EUR oil would postpone peaking only another six years, to 2019.)
This analysis does not imply that the world will soon run out of oil or hydrocarbon fuels. Conventional oil production will continue, though at a declining rate, for many decades after its peak. In addition, there are enormous amounts of coal, tar sands, heavy oil, and oil shales worldwide that could be used to produce synthetic liquid or gaseous substitutes for crude oil. But the facilities for making such synthetic fuels are costly to build and environmentally damaging to operate, and their use would substantially increase carbon dioxide emissions compared to the use of products made from conventional crude oil.
As global oil production approaches its peak, there will be upward pressures on world oil prices from their present low levels, though by how much and how fast they might rise remain uncertain. The economic impacts will depend largely on the price and availability of energy alternatives and the rate at which production declines. Transportation, almost totally dependent on oil, could be especially hard hit unless vehicles fueled by sources other than oil are developed and rapidly deployed. As the peak and decline of world oil production comes within sight, we urgently need policies to encourage more efficient oil use and reliance on alternative energy sources, especially in transportation. Unfortunately, because oil prices are low, few decision-makers appreciate how little time remains. Efforts on both of these accounts are weak and overdue.