What $5 per gallon gas will mean to a still ailing American economy.
The average price of a gallon of gas is now $3.70—almost 90 cents more than this time last year. With instability roiling Libya, Nigeria and the Persian Gulf region—and the summer driving season still months away—it’s going to get worse. A former Shell exec predicts $5-per-gallon gas by the end of the year.
If that happens, the fragile economic recovery now underway will collapse, which helps explain President Barack Obama’s renewed focus on energy issues. In the next decade, he wants the U.S. to decrease its 11-million-barrel-a-day oil imports by a third. He plans to achieve that laudable goal with a mix of new alternative-energy technologies, conservation and efficiency, and increased domestic energy production.
It’s about time. Fully exploiting domestic oil reserves is not the only solution to our energy woes, but it must be viewed as part of the solution for the following reasons:
- The U.S. economy, as currently configured, is dependent on oil and other fossil fuels.
- The cost of importing oil is rising rapidly due to increasing global demand and decreasing domestic production. A quarter-century ago, by way of example, just 27 percent of America’s oil came from other countries. Today, some 60 percent comes from outside the United States. These costs, as the wars in the Middle East remind us, are not simply economic.
- The stuff that will power the U.S. economy after oil is simply not yet ready to shoulder the burden.
Hence, the two-track goal should be maximum development of domestic oil reserves to enable America to reconfigure its supply base in the near and medium term, and investments today in the energy alternatives of tomorrow’s “post-petro economy.”
The good news is there have been a number of sizable discoveries of stateside oil in the recent years:
- The U.S. Geological Survey (USGS) estimates that the Arctic may hold 90 billion barrels of oil. About a third of the oil is in Alaskan territory. Yet another USGS study concludes that North Dakota and Montana “have an estimated 3 to 4.3 billion barrels of undiscovered, technically recoverable oil.”
- RAND estimates that Colorado, Utah and Wyoming sit atop a goldmine of oil-shale deposits, once thought to be too expensive to convert into petroleum. These states hold between 500 billion and 1.1 trillion recoverable barrels—the equivalent of three times the amount of oil in Saudi Arabia, according to an AP report. As RAND’s James Bartis explains, “We’ve got more oil in this very compact area than the entire Middle East.” Already, the Canadian province of Alberta is converting its oil sands into 1.31 million barrels of oil per day.
- The American Petroleum Institute (API) reports that opening up new outer continental shelf areas “could lift domestic crude production by nearly 1 million barrels per day.” And if onshore areas were developed, “output could rise by as much as 2 million barrels a day by 2030.”
- In the U.S. swath of the Gulf of Mexico, British Petroleum estimates a new reserve could yield 6 billion barrels of oil. Just off the coast of Louisiana, Chevron has found an oil field with perhaps 15 billion barrels of oil.
The Energy Information Administration has published findings that indicate the U.S. has 30.4 billion barrels of oil—a figure that does not include the untapped oil reserves mentioned above.
Some will use last year’s oil spill in the Gulf as reason to block new offshore drilling or even phase out drilling altogether. To do so would be to abandon a vital economic resource for which there is simply no replacement (at least not yet).
Yet at a consumption rate of 20 million barrels per day, America’s substantial oil reserves are not limitless.
Hence, it is in the national interest to pursue multiple paths to energy independence. That includes nuclear energy; hybrid, hydrogen and battery technologies; conservation strategies; bio-fuels (if they can be weaned off subsidies); and especially fossil fuels from right here in America. But don’t misunderstand “energy independence” as isolation or total self-sufficiency. “The point of independence is not to be an economic hermit,” former CIA director James Woolsey has argued, “but rather to be a free actor.”
As a range of disparate realities continually remind us—the chaos and wars of the Middle East, the capricious behavior of lawless leaders, the limitations of our own distribution channels, the growing energy needs of India and China—we are not really a free actor. Instead, we are just a Mideast crisis or homeland hurricane away from the sort of disruptions that wreak havoc with our economy, play games with our foreign policy and put our troops in harm’s way.
Moreover, the world’s oil safety net, Saudi Arabia, is not always going to be capable of simply turning on the spigot whenever disruptions occur. A diplomatic cable published by Wikileaks in February suggests that Saudi officials privately believe the country’s reserves may be overstated by 40 percent.
By increasing domestic output and production, we can decrease dependence on unstable, undependable regimes and rebalance America’s supply base. AIP concludes that taking full advantage of domestic oil reserves could decrease foreign oil imports by 79.7 percent.
It’s a matter of will, and it’s about time.
Alan W. Dowd writes on defense and security issues.