The circular logic of energy independence
High Country News
Jonathan Thompson | Dec 27, 2011
“From its beginning 200 years ago, throughout its history, America has made great sacrifices of blood and also of treasure to achieve and maintain its independence. In the last third of this century, our independence will depend on maintaining and achieving self-sufficiency in energy.”
President Richard Nixon said this back in 1973, after oil producers in the Middle East, angry about U.S. support for Israel, cut us off. Nixon planned to achieve energy self-sufficiency by 1980. He didn’t. Carter tried, too. No dice. Since then the cries for energy independence have only grown louder.
The latest round comes mostly from the energy industry, which is managing to talk the American public into believing that the Obama administration has put up a wall of regulations on drilling, and that that wall is the only thing standing between industry and energy independence.
Dustin Bleizeffer picks the latest ruse apart in a spot-on analysis at WyoFile. He cites authoritative sources, who point out that regulations aren’t holding things up (rig counts are as high as ever these days) and that the whole idea of energy independence is, well, a bit artificial.
When Nixon, Carter, Bush and Obama strive for energy independence, what they really want is a cheap, stable (meaning not from countries that may turn on us) supply of fuel for the nation’s planes, trains and automobiles. Until we convert our cars to natural gas, figure out a reasonable way to turn coal into gasoline or cover the entire midwest with ethanol corn, that fuel will be petroleum.
In 1973, we imported 36 percent of our oil, or 6 million barrels per day. Despite three decades of energy independence rhetoric, we were importing more than twice that in 2005. Now we’re back down to importing 9 million barrels per day -- thanks largely to a decrease in U.S. consumption -- meaning about 50 percent of our oil comes from foreign* sources.
It’s a pretty simple equation, then: All we have to do is produce another 9 million barrels per day domestically, and voila! Energy independence! Or not. From the WyoFile story:
So, what if the industry were to be granted its wish of a moratorium on additional regulation and get a green light to drill unfettered by what WEA and others regard as regulatory over-reach? Would it actually result in getting America on the road to energy independence?
“The easy answer to that is no. It does not matter … Anytime you hear somebody — a politician or otherwise — speak of energy independence, that goes against the statistics,” said John Curtis, director of the Potential Gas Agency at the Colorado School of Mines.
But let’s put aside these trifling little facts, and pretend for a minute that it is feasible to produce enough oil at home to offset all of those imports. We still haven’t achieved energy independence. Why? Because true energy independence doesn’t work in our free-market economy. The base premise of energy independence is the notion that we started importing oil because we didn’t have enough of it here at home. That’s about as accurate as the idea that Walmart fills its shelves with China-made items because the U.S. is unable to produce those things.
In fact, we get oil from all over for the same reasons we get tomatoes, avocados and cheap electronics from all over the place. It’s not always pretty, and it doesn’t always make sense on some levels -- shipping apples from New Zealand to Colorado just seems wrong -- but it makes sense to the market. Chesapeake says that spending $400 billion per year on foreign oil is “fiscally insane.” Yet the U.S. will also spend $400 billion on a variety of exports from China this year, not to mention the billions more we’ll spend on food, clothing, cars and electronic devices from a myriad of other countries. No one calls that fiscal insanity, nor do we hear politicians calling for iPhone independence. Again, from Wyofile:
University of Wyoming economics professor Timothy Considine, who has studied shale gas development, said ... “The energy independence idea, from an economic standpoint, a lot of economists don’t feel it’s that relevant … because countries trade all of the time.”
Indeed, the only reason these companies are now starting to drill like crazy in the U.S. is because the global market has dictated it. Thanks to burgeoning global demand, driven by places like China, oil prices are now high enough -- hovering around $100 per barrel -- to make drilling for costly-to-extract unconventional sources like oil shale profitable. (It doesn’t hurt that a Chinese oil company bought into Chesapeake’s shale gas & oil holdings in the U.S., helping to fund the latest drilling frenzy).
World oil prices
According to the energy independence theory, all this new U.S. drilling will cause supplies to go up and prices to go down (as happened with U.S. natural gas). But oil prices are dictated by global supply and demand, meaning the U.S. drillers would have to offset not just domestic demand, but also global demand in order to significantly lower prices. And if that happens, then all that unconventional drilling becomes less profitable. Domestic drillers will either have to find a higher price for their oil overseas, or stop drilling so much to keep prices high, and then we’re right back where we started.
Sure, this sounds a bit crazy, but the dynamic’s already in place. Amidst all this year’s talk of energy independence, we also exported** more refined petroleum products than ever before. Why? Because we’re good at refining petroleum products, while other parts of the world are good suppliers of crude oil. The same is happening with natural gas. We had plans to import LNG until all of the domestic drilling glutted the domestic market; now we’re going to export natural gas. It’s how a global market works.
It’s time then that we stop talking about the mirage of energy independence and instead focus on energy efficiency, renewables and weaning ourselves from carbon-spewing, finite fossil fuels. Otherwise, we’re just going in circles.
*It’s worth noting that about 60 percent of our imports come from non-OPEC countries, and our biggest foreign oil supplier is Canada.
**Strangely enough, we also export more petroleum products -- refined ones -- to Canada than to any other country.
Jonathan Thompson is a contributing editor at High Country News and a 2011-2012 Ted Scripps Fellow in Environmental Journalism at the University of Colorado Boulder.
http://www.hcn.org/hcn/blogs/goat/the-circular-logic-of-energy-independence
