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By Robert Rapier on Mar 29, 2009 with no responses

Yes He Could

Feasible? Yes. Realistic? No.

Do I believe the U.S. can be energy independent? Yes, I believe that with certain draconian measures, the U.S. could achieve energy independence within 10 years. But emphasis must be placed on ‘draconian.’ So yes, I think Barack Obama could make good on his campaign promises and make the United States energy independent. However, it would almost certainly make him a one-term president because the population would rebel at the cost of energy independence.

I covered the expected contribution of renewables to the U.S. electricity picture in The Nuclear Comeback. Conclusion? They better start building more nuclear plants if the administration wants to move away from coal. So let’s have a look at the oil picture and get our heads around just what energy independence might look like.

We Use a Lot of Oil

Here are some numbers, courtesy of the Energy Information Administration’s database. In 2008, the United States consumed 19.4 million barrels of oil per day (bpd) and produced 6.7 million bpd (including LNG). We imported 12.9 million bpd. (You may notice that there is a 0.2 million bpd discrepancy, which is partially caused by changes in inventory levels). So, in order to bring the United States to a state of energy independence, we have to somehow eliminate those imports through some combination of decreased demand and/or increased supply.

One way the U.S. could be energy independent is if we reduced our consumption by 65% to 6.7 million bpd. This would take the 23.6 barrels consumed in 2008 by the average person in the U.S. down to 8.3 barrels. That would put U.S. per capita consumption of oil between that of Croatia and Mexico. For reference, here is a sampling of per capita consumption of oil from various countries around the world (extracted from Energy Statistics – Oil – Consumption (per capita) (most recent) by country).

Country Per Capita Oil Usage (bbl/yr)
Saudi Arabia 30.6
Canada 25.9
USA* 23.6
Australia 17.3
Japan 14.3
Germany 10.9
UK 10.6
Croatia 8.4
Mexico 7.1
Brazil 4.6
Egypt 3.2
Afghanistan 0.06
Chad 0.05

Table 1. Oil Per Capita Energy Usage for Selected Countries

* Oil usage for the US is from 2008; usage for all other countries is from 2007.

So the US could still use almost twice the per capita consumption of Brazil and achieve energy independence (because we produce a lot more oil per capita than Brazil). But how likely are we going to be to reduce our consumption levels down to less than that of Germany or the UK? It’s hard to imagine unless oil becomes very, very expensive. But that’s an option. President Obama could make oil very expensive and potentially pull usage down toward U.S. production levels. Of course in the process, the recession would probably deepen and Obama would lose the election in 2012. More on that later.

Can Renewables Fill the Gap?

But that’s not the plan. The plan primarily involves filling the supply gap, with renewables as the most important part (see quotes below) of that plan. So what might renewables contribute? There are lots of small contributions from areas like corn ethanol and soy-based biodiesel. But let’s put those in perspective. In 2008, the US produced a record amount of ethanol: 9 billion gallons. How much does that amount to, given our need to close a gap of 12.9 million bpd of imported oil in 2008? Converted into barrels per day, 9 billion gallons per year amounts to 0.59 million barrels per day on a gross basis, but because of the lower BTUs it would only displace 0.32 million bpd. (The BTUs per gallon for a barrel of oil are higher than for gasoline; relative to oil, ethanol has 54% of the BTUs per gallon). For the purposes of this exercise, we will pretend for a moment that there aren’t big quantities of fossil fuels that enabled that 9 billion gallons.

Thus, last year’s record ethanol production is a drop in the bucket relative to the oil we use. How much ethanol – as a reference point – would we need to close that gap? Given that last year’s ethanol production in theory already should have displaced some level of oil, there is a gap of 12.9 million bpd to close with incremental ethanol. How about an additional 364 billion gallons, or more than 40 times last year’s record number? For reference, global ethanol production in 2008 is estimated to be 17.3 billion gallons.

Campaign Promises Revisited

I don’t know about you, but I don’t see any combination of renewables being able to close a gap like that. Remember what Obama said during the campaign?

We have to have energy independence, so I’ve put forward a plan to make sure that, in 10 years’ time, we have freed ourselves from dependence on Middle Eastern oil by increasing production at home, but most importantly by starting to invest in alternative energy, solar, wind, biodiesel, making sure that we’re developing the fuel-efficient cars of the future right here in the United States, in Ohio and Michigan, instead of Japan and South Korea.

Note what is “most important” in the drive for energy independence. To me, this is an example of someone who either doesn’t understand the scale of the issue, or someone who is just trying to score debate points.

Later on he elaborated:

The second point I want to make is — is the issue of energy. Russia is in part resurgent and Putin is feeling powerful because of petro-dollars, as Senator McCain mentioned. That means that we, as one of the biggest consumers of oil — 25 percent of the world’s oil — have to have an energy strategy not just to deal with Russia, but to deal with many of the rogue states we’ve talked about, Iran, Venezuela.

And that means, yes, increasing domestic production and off-shore drilling, but we only have 3 percent of the world’s oil supplies and we use 25 percent of the world’s oil. So we can’t simply drill our way out of the problem.

What we’re going to have to do is to approach it through alternative energy, like solar, and wind, and biodiesel, and, yes, nuclear energy, clean-coal technology. And, you know, I’ve got a plan for us to make a significant investment over the next 10 years to do that.

And I have to say, Senator McCain and I, I think agree on the importance of energy, but Senator McCain mentioned earlier the importance of looking at a record. Over 26 years, Senator McCain voted 23 times against alternative energy, like solar, and wind, and biodiesel.

And so we — we — we’ve got to walk the walk and not just talk the talk when it comes to energy independence, because this is probably going to be just as vital for our economy and the pain that people are feeling at the pump — and, you know, winter’s coming and home heating oil — as it is our national security and the issue of climate change that’s so important.

How About Drilling?

Those are certainly reasonable comments, but they won’t make us energy independent. Also, because the talk of drilling from Obama started just as McCain was gaining some traction with the ‘drill here, drill now’ campaign, many people felt like it was a campaign promise that wasn’t destined to be carried out in an Obama administration. However, it looks like Obama has looked at the issue closely enough to recognize that new production is going to have to be part of any energy independence plan that has any chance of success any time soon:

Obama to Remake Drilling Policies

Wesley Warren, director of programs at the Natural Resources Defense Council, said, “They have made a commitment to really be science-based, to look at all the facts before they make a decision. It is a new way of doing business.” The early signals from Obama and his cabinet agencies speak to that new way. Shortly after taking office, the president reversed orders issued in the closing days of the Bush administration that would have dramatically expanded offshore drilling.

Still, the Interior Department went ahead this week with a long-planned auction of drilling tracts in the Gulf of Mexico.

And Interior Secretary Ken Salazar has indicated in recent days that he’s looking for ways to expand offshore drilling in an environmentally conscious way. He has even said he’s open to allowing limited drilling at Alaska’s Arctic National Wildlife Refuge if it can be done from outside the refuge. “Oil and natural gas are, and will remain for many years to come, a cornerstone of our nation’s energy base,” Salazar told the American Petroleum Institute Thursday. “This is not, as some have suggested, a war on the oil and gas industry.”

There are still plenty of skeptics:

[Charles] Drevna of the National Petrochemical and Refiners Association said he’s concerned about Obama’s “anti-oil-refining-industry rhetoric,” the suggestion that big energy companies should face higher taxes as the nation shifts toward renewable sources.

“It is this talk about energy independence; it’s not achievable, and it probably is not desirable,” Drevna said. “Energy independence means energy isolation, and we simply cannot afford it if we expect the economy to grow.”

One could expect that we could open up offshore areas of the U.S. and potentially get some incremental production, but the administration certainly doesn’t plan to make it easy. They have more or less declared open season on the oil industry, and are pursuing policies that are certain to discourage U.S. oil production. Geoff Styles recently discussed the folly of punishing our own oil industry in The Wrong Enemy. Excerpts from his article:

I would paraphrase the Obama energy strategy as seeking to reduce US oil imports and greenhouse gas emissions by strongly promoting renewable energy and energy efficiency. Unfortunately, the administration’s actions risk putting the domestic oil and gas industry on the wrong side of the divide that creates.

Rather, we need to look to our self-interest, here. When an oil company drills in the US, its production backs out imports directly, barrel for barrel. It pays US salaries–attractive ones–and it pays hefty taxes: income taxes at a 40% effective rate, along with billions of dollars in royalties, rents and bonus bids collected by the government. When a US oil company drills elsewhere, much of the benefit is captured by foreign governments, and when the oil we import comes from a non-US supplier, our trade deficit swells and the federal government only gets to tax the profits on refining & marketing, which are often pretty thin.

Styles argues that the policies that are being pursued will almost certainly result in an increase in U.S. oil imports. If U.S. production is discouraged – and renewables aren’t up to the task of filling the gap – then guess what? Our imports will increase, and we will increase our energy dependence.

A How To Guide to Energy Independence

So how would I go about making the U.S. energy independent? As I said, it would require draconian measures. First, I would try to increase supply by incentivizing all forms of energy production. As I argued in an essay last year, I would use the proceeds of expanded offshore drilling to fund higher efficiency vehicles, electric transport, mass transit, and biofuels that aren’t highly dependent upon fossil fuels for their production. This should start to pull supply and demand closer together. But even my most optimistic scenario would still require substantial oil imports.

To close the rest of that gap requires the draconian piece. There are two choices. One is to ration fuel. Imagine that you had to get by on half the fossil fuel you normally use. Could you? I think most people – if they really dug down – could do it. It wouldn’t be easy, and we would certainly lose a lot of convenience. Someone complained to me last year that when gasoline got up to $4 a gallon, it was a real inconvenience for the family because they had to start consolidating trips. Boo-hoo. Nobody said it was a piece of cake; if it was we would already be energy independent.

The other option is to ration by price. The problem with this one is that there really isn’t a good feel for what kind of prices it might take to bring consumption in line with production. It could take $20/gal gasoline. Could we afford that? I would argue that we could, if the incremental gasoline tax was offset by income tax cuts. I have covered what I think would be a politically viable scheme for increasing carbon taxes in The Case for Higher Gas Taxes. But again, the problem with this option is that we don’t have a good model for how high the price would need to go before destroying enough demand.

But in my opinion, this is what it would take to become energy independent within the next decade. There is a reason that countries in Europe – with their mass transit and fuel efficient vehicles – still can’t achieve energy independence. It’s hard. It will always be difficult to achieve in a Democracy, where you have to make the voters happy lest you be voted out of office. Voters who have to make big sacrifices don’t look favorably on political leaders who ask for it.

Therein lies the problem for Obama. Yes, he could. But not with the policies he is pursuing. So, at the end of the day, “No, He Won’t.”