Safe, Strong and Secure: Reducing America's Oil Dependence
America's rising consumption of oil threatens the economy and national security.
America spends more than $200,000 per minute on foreign oil -- $13 million per hour. More than $25 billion a year goes for Persian Gulf imports alone. This NRDC analysis considers oil demand and supply projections and how our current policy of oil dependence effects our economy and security.
America's dependence on oil is a threat to our national security and our economy. Growing demand and shrinking domestic production means America is importing more and more oil each year - much of it from the world's most unfriendly or unstable regions. We spend more than $200,000 per minute -- $13 million per hour -- on foreign oil, and more than $25 billion a year on Persian Gulf imports alone.1 By October 2004, Americans had shelled out $249 per capita to foreign oil-interests.2
With U.S. gasoline consumption accounting for 11 percent of world oil production, the U.S. has been hit hard by our dependence on oil, intensifying our economic and political vulnerability. Of the $54 billion trade deficit reported in August, more than a fifth or $12 billion is from imported crude oil.3 Federal Reserve Chairman Alan Greenspan has called the higher value of imported oil a tax on U.S. citizens that has cost us three quarters of a percent of our economic output in 2004, and warned economic impacts for the U.S. will intensify if current trends in oil demand and prices continue.4
Countries on U.S. oil purchases are spending heavily in Washington to make sure the party doesn't end: Since December 2003, OPEC has spent $13.3 million on federal lobbying, $6.6 million of which from Saudi Arabia alone.5 U.S. energy companies are jumping on the political bandwagon too, spending $59.4 million on lobbying in 2003 and $29 million on campaign contributions in the 2002 and 2004 election cycles.6
The immediate result of these contributions is an energy bill currently before Congress that would leave the country more dependent on oil imports, not less. It would invite oil drillers into some of America's last pristine wilderness areas to eke out a relative trickle of oil, while severely shortchanging conservation and efficiency efforts. And this plan would rely even more on shaky overseas governments, exposing us to greater security risks in the name of unrestrained consumption.
In fact, we simply cannot drill our way out of this problem (Figure 1). The U.S. has just three percent of know oil reserves; even drilling in the pristine Arctic National Wildlife Refuge would increase those reserves by less than one-third of one percent. Meanwhile, even OPEC is quickly exhausting excess production capacity according to the Federal Reserve. Looking beyond OPEC offers no comfort. Investment in new production capacity continues to lag in non-OPEC countries, limiting any near-term growth in output.7
In short, the system has reached its limit. Today's oil use outpaces new oil discoveries, with the world using about 12 billion more barrels per year than it finds.8 The growing imbalance between supply and demand means record high crude prices and the threat of more skyrocketing costs caused by even mild supply disruptions.
The only real solution is to reduce our demand for oil and therefore the economic and security risks of dependence on imports. It starts with increasing the efficiency of our cars and trucks, and developing more renewable sources of energy. Using technology available right now, America can save 2.5 million barrels of oil each day. Solutions range from better tires to cutting edge hybrid technology.
We've done it before: Passenger car and light truck fuel efficiency increased 70 percent between 1975, when the fuel economy law was originally enacted, and its peak in 1987. Since then we've been moving backward. Overall mileage of our new cars and trucks has steadily dropped. Today it's at its lowest level in 20 years.
Hooked on Oil
While domestic oil production peaked in the 1970s, consumption continues to grow at break-neck speed. In 2025 the U.S. is projected to consume 28.3 million barrels a day -- 44 percent more oil than we do today, with domestic production meeting a mere 30 percent of that need (see figure 2).
Other countries will increasingly compete with the U.S. for the oil available for export. Consumption by industrializing nations will double over the next 25 years, from 15 to 32 million barrels a day. To meet projected world demand of 118 million barrels a day in 2025, global oil output would have to expand by more than 50 percent -- 40 million barrels per day -- between 2002 and 2025.
For example, China's per-capita oil consumption is just six percent of the U.S. figure. But rapid industrialization and a growing consumer demand mean China's thirst for imported oil is likely to quadruple from less than 2 million barrels per day in 2004 to nearly 8 million barrels per day by 2020 (see figure 3).9
The growing problem is not lost on the Chinese government. China recently took an important step towards reducing their booming demand by creating a new system of fuel economy standards that U.S. experts say are more stringent than our own.10
Closer to Home: How Oil Addiction Drains the Economy
With stubbornly high prices, the U.S. economy is feeling the drag of dependence. In the first nine months of 2004, the U.S. exported $72.5 billion for oil.11 Every day the U.S. pays out $390 million for foreign oil, with half of every dollar going to OPEC and a quarter to the Persian Gulf (see figure 4). While some of those dollars could make their way back into the U.S. economy, recent trends suggest that those paid out to OPEC will not be reinvested here.12 And OPEC countries are profiting handsomely from surging oil prices; in fact, they are expected to pocket $300 billion by the end of the year.13
The high costs of oil have been passed on to consumers at the pump, through more expensive goods and services, and in a weaker job market and lower stock prices.14 Economist Philip Verleger finds that oil price spikes have cumulatively sapped 15 percent of our economy's growth since the Second World War, resulting in $1.2 trillion in direct losses.15 The total economic penalty of our oil dependence, including loss of jobs, output, and tax revenues, is estimated to be between $297 and $305 billion annually.16
Where's a Gas Station When You Need One?
Arab OPEC states supply the United States with 2.5 million barrels per day -- 25 percent of our daily imports. Unless things change, the future holds more of the same: The Middle East countries hold two thirds of the world's proven oil reserves.17 By 2025, the Middle East is expected to supply 36 percent of the world's oil, with OPEC as a whole producing 46 percent.18
Attempting to address this challenge, the Bush administration national energy policy targets eight nations for increased government investment and closer political alliances as alternative oil suppliers.19 But these eight nations -- Angola, Azerbaijan, Colombia, Kazakhstan, Mexico, Nigeria, Russia and Venezuela - have just a fraction of the oil reserves of the countries they're meant to counter (Figure 5).
Total proven reserves of these countries, 198 billion barrels, is 70 percent lower than Persian Gulf reserves, with only 30 years of remaining reserves at 2003 production levels.20 In comparison, the Persian Gulf has almost 100 years of proven reserves at 2003 production levels. And all the major alternative players face significant political and social instability and remain porous to global terrorism, making it difficult to attract foreign investments necessary to increase production.21
Take Nigeria: Nigeria currently supplies the United States with 11 percent of daily imports.22 The West African nation has been wracked with political and environmental strife since it declared independence from Britain in 1960, and remains seriously unstable today. Recent rebel activity spurred Shell Oil to evacuate employees and drove oil to a record highs.23 Nigeria currently produces approximately 2.2 million barrels per day and holds three percent of world oil reserves.24
Or Venezuela: The United States receives 13 percent of its daily oil imports from Venezuela, slightly less than our imports from Saudi Arabia.25 This South American country has faced numerous labor and street demonstrations in recent years. Leftist President Hugo Chavez has cracked down on such activities, but at one point in 2002 even he was forced to flee the presidential palace for the security of a military base.26 A second general strike is late 2002 and early 2003 involved 18,000 workers for the state oil company, causing jittery markets and price spikes.27 More recently, Chavez suddenly increased taxes on foreign oil producers from one percent to 17 percent, claiming that "We are no longer going to give away our oil."28 Venezuela produces 2.99 million barrels of oil per day and holds 6.8 percent of the world's proven oil reserves.
Or Russia: Although Russia supplies only 1.5 percent of our daily imports, it produces 11.4 percent of the world's oil, pumping out 8.5 million barrels per day. Political squabbles and market uncertainty surrounding the criminal indictment of Yukos Oil, one of Russia's largest producers, rocked the market this year. Today Russia holds six percent of the world's proven oil reserves, however most of that oil is trapped in Siberia, and it is doubtful Russia's production would ever exceed that of Saudi Arabia.29 Furthermore, the instability and hostility fueled by Russia's military involvement with Chechnya, Georgia, and other lower Republics is deeply rooted in the struggle over oil pipelines to the Persian Gulf, a conflict that will continue to complicate Russia's potential as a supplier of oil.
Trumping Insecurity with America's Strong Suit: Efficiency, Innovation
The U.S. can become more secure by putting America's factories and farms to work to reduce our thirst for foreign oil. Instead of investing hundreds of billions of dollars expanding oil production in the Persian Gulf and other unstable regions, America needs to be investing in revitalizing its factories to build fuel-efficient cars and its farms to create renewable fuel supply.
Passenger vehicles are the single largest driver of United States oil consumption. But thanks to legal loopholes, the average fuel economy of America's cars and trucks has been getting worse for a decade. This pattern can be broken by providing automakers with incentives to retool their factories to produce more efficient vehicles and create new jobs, raising fuel efficiency standards, expanding the market for gasoline-electric hybrid vehicles through tax incentives, and investing in alternative fuels, such as biofuels or hydrogen.
To immediately ease our oil addiction, the US should make a national commitment to reduce our oil dependency by at least 2.5 million barrels per day within a decade and to set longer term goals that secure our energy future without depending on unstable and hostile areas of the world.
Technologies exist today to cut oil consumption while saving money. We can improve the fuel economy in cars, trucks and SUVs of all sizes and reduce oil consumed in factories and homes. America's farmers can turn crops and waste into "biofuels," displacing oil. Additional oil savings can be achieved by increasing the use of renewable, non-petroleum fuels, expanding transit options, encouraging smart growth development that makes communities more livable with less driving, increasing the efficiency of heavy trucks and aviation, expanding programs to weatherize oil-heated homes, and helping businesses adopt more efficient production processes. Over the longer run, we can replace the oil in our car and trucks with renewably produced hydrogen or biofuels.30
But it won't happen until leaders in Washington and Detroit make it happen. Instead, our energy policy leaves us too dependent on oil and the unstable regimes that supply it. We can and must reclaim our freedom and secure a cleaner, safer energy future by investing in American jobs and taking the lead on efficient technology, alternative fuels, more transportation choices, and other commonsense policies.
1. The import spending estimate is calculated based on 2003 Energy Information Administration data on U.S. crude oil imports and average annual world oil price, http://www.eia.doe.gov/emeu/international/petroleu.html#IntlTrade and http://www.eia.doe.gov/oil_gas/petroleum/info_glance/importexport.html.
16. National Defense Council Foundation. "The Hidden Cost of Imported Oil," September 2003, as cited by the Institute for the Analysis of Global Security in Energy Security Bi-Weekly, October 30, 2003, http://www.iags.org.
30. Dangerous Addiction: Ending America's Oil Dependence, Natural Resources Defense Council and Union of Concerned Scientists, 2002: http://www.nrdc.org/air/transportation/oilsecurity/securityinx.asp.
last revised 10/27/2004
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