Posted by
Dave Smith on Tuesday, August 12, 2008 1:01:59 AM
In a famous (and much-maligned) statement last week, Barack Obama
announced his bid for mechanic-in-chief, exhorting American drivers to
get tune-ups and inflate tires to the proper air pressure in a bid to
reduce domestic consumption. Doing this, he claimed, would conserve
more gasoline than could be produced through additional drilling for
domestic oil; moreover, drilling in the Outer Continental Shelf (OCS)
and the Arctic National Wildlife Refuge would take 5-12 years before
oil would make it to the marketplace. Thus, he said, we should focus
on conservation and alternative energy rather than drilling for more
oil.
Taken at face value, such an idea seems to be a
non-sequitor; obviously, keeping one's car running at its highest
efficiency is a good idea at any time, more so with gasoline prices at
a near all-time high. However, pursuing greater efficiency and
conservation instead of increasing production seems rather like
promoting the use of sunscreen and stopping smoking as opposed to
investing in cancer research or production of anti-cancer drugs --
prevention and conservation are pieces of the puzzle, not the entire
solution.
Likewise, dissing oil production because of a 5-12
year timeline in favor of alternative energy sources seems a bit of a
forced choice, since basically every alternative to the gasoline
combustion engine seems to be even farther in the future as a
widespread, mass-scale option. Toyota is minting money with its hybrid
vehicles, but hybrid cars still use some gasoline, and as the economy
continues to grow, oil demand will continue to increase. "Plug in"
electric cars and fuel cell vehicles still are years away from
economical mass-production.
So on the basis of the intuitive
test, Obama's tire inflation idea doesn't pass muster. But it is
informative to look at it from a more objective, factual basis as
well. Do the numbers add up? It is also informative to look further
into where all that "foreign oil", as T. Boone Pickens like to call it,
comes from. How much oil is there in the OCS and ANWR, and how much do
we use?
Currently, the United States produces about 5.1 million
barrels/day of crude oil and imports 13.5 million. Of that 13.5
million bbl/day, approximately 6 million comes from OPEC countries:
1.49 million from Saudi Arabia, 1.36 million from Venezuela, 1.13
million from Nigeria, and 0.48 million from Iraq, plus others. The
other 7.5 million bbl/day come from non-OPEC countries, including 2.46
million bbl/day from Canada and 1.53 million from Mexico. Yes, our
biggest suppliers of "foreign oil" are our NAFTA neighbors, not Middle East oil states.
Looking
at consumption, we are using 9.29 million bbl/day of gasoline; thus,
approximately 50% of our crude oil imports are used on gasoline.
Obama's campaign has stated that his tuneup and tire inflation "plan"
would result in savings of 3-4% on gasoline usage; assuming the maximum
4% reduction, that would result in a net savings of 0.37 million
barrels of gasoline per day. Using the same proportion of barrels of
gasoline per barrel of crude, that results in a net savings of 0.74
million barrels per day of crude oil.
Current official estimates
of US oil reserves are 21 billion barrels. Official estimates of oil
reserves in ANWR are 5.7 to 16 billion barrels, with an expected volume
of 10.3 billion. For the OCS, the estimates are 66.6 to 115.3 billion
barrels, with an expected value 85.9 billion barrels; looking at both
together, basically tapping the OCS and ANWR would increase known
reserves of US reserves by over 450%.
On the production side,
the expected production from ANWR alone is 1.0 to 1.35 million barrels
per day. Even more modest production from the OCS compared with ANWR
(and current operation) would seem to produce at least that much oil at
the most conservative and inefficient estimate. At any rate, tapping
into ANWR and OCS would produce enough oil to counter what we get from
Saudi Arabia or Venezuela, and possibly both. This would seem to
reduce their oil-price leverage on the world market.
All of
this, of course, is based on static analysis; it seems unrealistic to
assume that gasoline and crude oil demand is going to remain flat over
the next few years, especially as India and China continue to modernize
their respective economies. As demand continues to increase, prices
will continue to rise unless new supply is brought to the market. This
makes those known reserves even more valuable, especially as long as
the majority of the world's reserves continue to be controlled by
nationalized oil companies (those "Big Oil" companies only control
about 20% of current known reserves).
At some point, an
entrepreneur is going to perfect an alternative engine or fuel that
replaces the gasoline-powered internal combustion engine, and in doing
so, make a mountain of money (ironically, in doing so, perhaps become a
target of the government for some sort of "windfall profits"
taxation). Until that time, we should pursue our known resources. No
sane person is against keeping tires inflated properly or cars well-tuned; however, no serious person can credibly state that these steps are an alternative to tapping those oil reserves. Government should stop its official policy of purposely maintaining high oil prices.