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TMFBlacknGold (99.35)

BlacknGold: U.S. Dependence on Oil

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January 09, 2012 – Comments (3) | RELATED TICKERS: BP , SWN , LNG

             Four short years ago during the presidential primaries several topics dominated the debates: the wars in Iraq and Afghanistan, the economy, healthcare, and alternative energy. Now in 2012 the Iraq War has officially ended (today actually), the economy is thawing, national healthcare seems to be an afterthought, and alternative energy is trying to hide the black eye named Solyndra. It is still early – too early for presidential anything in my opinion – but the national conversation has yet to shift to alternative energy. The hotter topic will probably be natural gas fracking in Pennsylvania and Texas. However, the mistake that is corn ethanol owes much of its existence to the presidential primaries. If the politically charged phrase “energy independence” is uttered in the coming months will be able to separate the facts from the politics? Here’s a helpful hint: they aren’t talking about solar, wind, or geothermal. They’re talking about 28% of our total energy consumption as a nation. They’re talking about oil.

 

How dependent is the U.S. on foreign oil?

            Is the United States dependent on other countries for transportation fuels? Yes, but think for one second. Would you expect the world’s largest consumer of oil to be independent? Well, we can all hope that day will come. While we are waiting let’s consider some hard numbers and see if it is really as gloomy as we are led to believe.

            In 2010 the United States consumed crude oil at a clip of 19.1 million barrels per day (MMbd) – more than any country in the world. Everyone knows that, but brace yourself. We were third in production with 5.5 MMbd with net imports of 9.4 MMbd, or 49.2% of consumption. Therefore, the United States provided 50.8% of its liquid fuels from domestic production. Given all the gloom and doom, fire and brimstone talk surrounding our oil dependence I am willing to bet some of you are a little surprised. Best part? We aren’t done yet.

            Approximately 49% of all imported crude oil (11.8 MMbd) originated in the Western Hemisphere. Only 18% was pumped from the sands of the Persian Gulf. The 2010 top five:

       Canada (25%)

       Saudi Arabia (12%)

       Nigeria (11%)

       Venezuela (10%)

       Mexico (9%)

 

Coming Back to Earth

            Now, before you go and shower in the stuff because you think the United States is “just fine”, let’s consider some sobering realities. The financial fiasco of 2009 resulted in the lowest consumption totals of energy for the United States since 1995 and the lowest consumption of transportation fuels since 2002. The year of 2010 was on par with 2003-2004 – quite a considerable drop given the momentum behind fuel consumption patterns. Unfortunately, the world will likely never see such low consumption again. Although this writing is not focused on the cost of crude oil, dwindling world reserves coupled with a roaring China and India will push prices higher. There are not any easily accessible or economical oil fields left to find.

           The discussion about fuels and crude oil cannot take place without serious consideration of peak oil, crude oil prices, biofuels, and other macro and micro movements. These topics and more will be given the time they deserve in future posts. Leave comments, feedback, and questions below. Fool on!

These statistics were provided by the U.S. Energy Information Administration.

BlacknGold

3 Comments – Post Your Own

#1) On January 10, 2012 at 12:29 PM, TMFBlacknGold (99.35) wrote:

http://caps.fool.com/Blogs/my-new-caps-focus/657535

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#2) On January 10, 2012 at 12:58 PM, Melaschasm (88.50) wrote:

I have enjoyed reading your analysis of the US energy markets so far.  However, you made a common mistake in this article.

"There are not any easily accessible or economical oil fields left to find."  

This is a phrase frequently spoken, but so far has always proved false.  In the past few years several significant new oil finds have been made, such as the offshore oil fields near Brazil and Isreal. Predicting that there is not any additional major oil fields not yet discovered is the kind of hubris that tends to blind far to many people to the potential of the future.

A similar sentiment is often made regarding much of the known oil in the world.  The idea that it is not recoverable because it is to expensive using current technologies does not mean it will always be to expensive to extract.  Technological improvements in addition to oil price increases will vastly increase the amount of known oil that is recoverable.

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#3) On January 10, 2012 at 1:13 PM, TMFBlacknGold (99.35) wrote:

Ah, there have been a handful of major discoveries in the last decade, with Brazil being the largest. However, it is much more expensive to set up a rig than it is to pump it from the easily accessible sands of the Persian Gulf. I was thinking of those fields when I wrote "easily accessible", but I should have been more clear. 

You make another good point about technology and innovation. This is one of the major flaws in Michael Ruppert's arguement about future oil finds. Without horizontal drilling, for instance, the natural gas in the Marcellus Shale would be labeled "uneconomical". This was exactly the case less than ten years ago. I was careful not to discount human ingenuity and innovation. After all, I am planning on attending the University of Texas at Austin to develop a next generation fuel feed stock.

I have let down Nassim Taleb by phrasing a predictable statement about the unpredictable. In truth, we don't know what oil there is left to find in deeper waters or under the arctic. However, there is good reason to believe that these possible future discoveries will not be enough to meet future demand. I will devote several posts to Peak Oil - in which I will discuss these very issues.

Thank you for your feedback! Please continue to be critical of my posts. I am trying to produce the best possible content for readers in my attempt to make a splash on the new Motley Fool Blog Network.  

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