Dependence on Oil...Good or Bad?

Sam Mutasem | Mar 01, 2012

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Many in the energy industry, due to varying reasons and drivers, express a great need to reduce or eliminate our dependence on foreign oil as quickly as possible...a matter of National Security. I agree the lower the dependence on foreign oil would eliminate many of the economic uncertainties associated with political unrest around the world, disruption of supplies, and the continually increasing demand. These factors impact the cost of living of the American consumer and may squeeze corporate profits.

With the world getting smaller and the economies are interdependent, commodity price in the US will follow the global price. So whether we depend on foreign oil to some extent or eliminate it all together the domestic price of oil will be set by the global market and if the price is up companies will certainly not sell it for less just because we are not importing any oil. As it is, the US imports 20% of its needs from Canada and only 8% from the Middle East. The remainder is produced domestically.

On the other hand, if we drive to reduce the global dependence on oil, until we find an alternative, we will negatively impact the US economy and the US consumer.

One fact that most do not realize is that all the oil traded globally is nominated in US dollar. What does that mean? As the demand on oil increase so does the price. As a result the demand on the US dollar will increase and so will the purchasing power of the American Consumer. The Dollar...remains King!

Therefore the drive to reduce dependence on oil may have its benefits, but it will come at a cost that should be mitigated as an integral part of the strategy to reduce dependence on oil. Reducing dependence on oil cannot be approached with a tunnel vision strategy because the lower the dependence on oil the lower the demand on the dollar and the lower the purchasing power of the American consumer. So, what is more...a matter of National Security?

In my opinion there is no alternative to a diversified strategy particularly when it comes to energy and natural resources. This includes diversification in the fuel mix we use, the sources of the fuels, and the markets we target. Although we should continue to develop and advance renewable energy, there is no question in my mind that oil, natural gas, and coal will remain the dominant fuels for the foreseeable future because these fuels are abundant and economical. What we need to focus on is making these fuels more environmentally friendly by aggressively investing and developing new technologies to accomplish that. Yes, with such a strategy, there will remain uncertainties that we will have to deal with. However this approach will mitigate our risks and help...Keep the Dollar as King.

The question for those who advocate to eliminate our dependence on oil, how do you propose maintain the value of the dollar as the demand on the dollar and our purchasing power decrease?

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Comments

I agree that reducing oil imports will have very little effect on the price of oil, because that is set globally. I also agree that pursuing uneconomical sources of oil and alternative fuels to achieve energy independence could hurt the US economy. However, there are still many good reasons to strive for energy independence. Three of the most important are: 1) to reduce the balance of payments deficit (since the US currently spends about $300 billion annually for oil imports), 2) to reduce US dependence on oil from countries that could be on the other side of potential military confrontations, and 3) to stimulate economic growth in the US by investing in domestic resources. Three examples of "good" ways to reduce oil imports are 1) allow drilling in the Arctic National Wildlife Refuge (ANWR) so the Alaska oil pipeline runs full again, 2) expand shale gas production (such as in the Bakken and Eagle Ford formations), and 3) import more oil from Canada (as the oil sand production increases). This latter example does not reduce imports, but it is almost as good, because the US and Canadian economies and military objectives are closely linked. An example of a "bad" way to reduce oil imports is to mandate greatly expanded ethanol production and government subsidies. (If fact, many people believe that the current level of ethanol production is too high.) In summary, I believe that the US should promote "good" approaches to reduce oil imports, but eschew "bad" approaches that will hurt the economy or seriously harm the environment.

The worldwide available amounts of fossil fuels when completely consumed will increase the greenhouse effect by 18 °C according to a recent study.
In other words, the foreseeable future will see the end of civilization.
Since the oceans take 20 years to reach the equilibrium temperature that goes with a given greenhouse gas level, we are today seeing the results of the CO2 level of
1992.
The four gentlemen aspiring to be president of the US have never mentioned the most urgent task mankind needs to tackle: Climate Change.
Amerika the greatest Nation on Earth?

E. Stoyke

The author writes:”As it is, the US imports 20% of its needs from Canada and only 8% from the Middle East. The remainder is produced domestically.” This is a grossly inaccurate statement. I hope it is only a typo, but it should not be allowed to stand.

The author writes: “On the other hand, if we drive to reduce the global dependence on oil, until we find an alternative, we will negatively impact the US economy and the US consumer.”

“…until we find an alternative (to oil)” I think Perry Mason would leap to his feet and object to this as incompetent and a statement not entered into evidence. (Yes or no, do you still beat your wife?)

We have had a myriad of solutions proposed to the oil problem over many decades. Some have a modicum of merit but none even suggests a replacement of oil.

In 1930 the oil industry was an American industry. Cars were American. World population reached an astounding 2 billion. In man’s history we have had only a few leaps in energy: the horse collar (more than 0.3 billion people could be fed!), fossil fuels, and nuclear fission. What percentage of us 7+billion people have energy from wind mills, solar panels, or the solution of the day. Sure the Danes have lots of wind turbines but they are few and they already had electric service for all beforehand.

Eckhart Stoyke. Good points.

I see the threat to our civilization differently. TOO MANY PEOPLE. (Climate change might be seen as a subset so maybe we are not really so far apart.)

I cannot comprehend how good-hearted people cannot understand that do-gooders are not exempted from plain old arithmetic – because my heart is pure suspend the rules for me.

Today perhaps 20,000 children died of diarrhea. A few drops of laundry bleach might have saved nearly all of them.

Presidential candidates can do almost nothing about climate change. Such as the Chinese and Indian populations dictate our fate.

I'm sorry Don, but you and many other persons seem to keep making a certain mistake. I dont know how many wind turbines the Danes have, nor do I care, but they get less than thirty percent of their electricity from wind. If wind in Denmark was so great, they would be able to do better than that.

Something else, Don. I stand on a street corner here in Uppsala, and more than fifty percent of the people passing are staring into some kind of hand held device that does something. That's why we cant teach people anything useful about energy.

With or without the oil market, the dollar will likely still say king. But only by default. Despite the (fundamental) economic problems with the U.S., they are still less severe than Europe (EURO), and Chinese is simply not open enough with the Yuan to be trustworthy. That whole country just might be a huge Ponzi scheme by itself. That leaves, what? The Yen? Nope. Their lost decade is going on 20 years now. The Pound? No. Two small.

So the dollar wins (for now) by default. Oil or no oil.

Denmark is "Energy Smart"? Think Again.

http://www.usnews.com/opinion/articles/2009/12/17/denmark-is-energy-smart-think-again

Mr Hirschberg, you keep saying that the problem is "too many people," in all caps, like you think you know the solution. Perhaps you should expand on that a bit. Firstly, exactly where in the world are there "too many people?" Secondly, what is your solution to that particular problem? Some very infamous people in recent history thought that they had a "Final Solution" to their perceived problem. Is that the kind of process you wish to implement?

If your answer to the first question is that there are "too many people" in places like Africa or India, then I assume you to be a racist white person. Here is my solution to your perceived "problem": you and your family can volunteer to go first. Did you procreate? If yes, then you are part of your own stated problem. Have any grandkids? If yes, then your children were also part of the "problem."

Here's a better idea. Why don't you get off the 40+ year old phoney "too many people" issue and instead, work on helping your fellow man to solve various real issues regarding the needs of those who are struggling. If you are an engineer, then join Engineers Without Borders and go help a few villages obtain clean water supplies.

That's all I'll say about that.

I must agree with Mr. Hanson's comments above. Don habitually criticizes many others' posts on this website for ignoring his stated real problem of "too many people" as the root cause of other problems discussed here.
Unless he can propose a practical and non-criminal remedy that can reduce the population, and identify where it applies, he should put a lid on it.

Well Darby, I think that the dumbest teacher at the Stockholm School of Economics - and that means DUMB - knows that we have crossed some kind of line where population is concerned, and we have crossed it going in the wrong direction. Without bringing race, creed or color into the conversation, it very definitely is likely that the carrying capacity of our planet is going to be badly overstressed unless some drastic changes take place, and I really doubt if things would be made better if Don Hirshberg were sentenced to join Engineers Without Borders or some other silly caucus.

What do I mean by drastic changes. Well, I taught economics at the engineering school in Singapore about twenty years ago, and I must say that I was impressed by what they have achieved in that resource poor country. I was also there a month or so ago, and it was even more prosperous and dynamic. They have the answer in Singapore, and as smart as I am, I cannot understand why so many people refuse to accept it.

Care to enlighten us all Fred? - What answer has Singapore found that so many of us refuse to accept? I'm sure many of us have never visitied Singapore and have no idea what life is like there.

In reference to Don's comments, core to humans surviving/thriving is the cost of protein? Is it still going down or is it going up. If it's still going down, is it going down faster than the world population is increasing? If not, then we are having a problem as Don indicates.

I suspect the mid-term cost of protein will go up, as we seem to be overfishing our oceans. I don't really know how one can take Darby's comment seriously when it's an established fact that we overfished and crashed the Atlantic Cod population in the 90's. A single population crash is not necessarily significant. But we seem to be crashing fish populations faster than they are recovering. It's left as an exercise to the reader as to where humanity will get all its protein when the oceans can no longer provide their share.

Me too, Professor, I don’t much care how many wind mills the Danes have. The point I was trying to make is that given a very salubrious set of conditions (wealthy, small, homogeneous population, peaceful, cooperative neighbors who sell them electricity, lots of favorable wind, mild weather, etc.) you point out yet they only manage to get 30% from wind. All the Danes together would only make a large suburb of Mexico City or Tokyo, or if sprinkled over India or China might go unnoticed. I don’t want to brag about my maternal Danish genes lest it turns out my Danish ancestors raped and pillaged my Gaelic and Anglo-Saxon ancestors.

Darby asked:”Mr Hirschberg, you keep saying that the problem is "too many people," in all caps, like you think you know the solution. Perhaps you should expand on that a bit. Firstly, exactly where in the world are there "too many people?" When perhaps 20,000 children PER DAY die from diarrhea when a few drops of bleach might have saved almost all there are too many 2012 people. (I am not going to respond at length just because you ask for a dissertation. I have been snookered before.) Never before in man’s history has there been more suffering and malnutrition, desease, rape and killing than there are today. (Only one thousand years ago there had never been more than 0.3 billion people. When I was born there were fewer than 2 billion. Today there now 7 billion and likely more than 2 billion are in dire straits.)

You ask for my solution. I have been giving my solution for about 50 years. Too bad, I and others were ignored. There are no redeals. You got to play the hand you have, and if I were to bet, I’d bet on it being too late for a solution. Something like 50 years too late. I’d love to lose that bet.

And Darby, bless his heart, associates me with Hitler. Final Solution, indeed.

If you will give me your definition of racist I will tell you if I fit into it. But don’t bother if you subscribe to “all men are created equal.” Thomas Jefferson is a hero of mine but this a very stupid statement. “No two men were created equal” comes closer to the truth, aside from the problematic word “created.”

You suggest I do volunteer work to solve the population problem. How utterly fatuous!! If I went to a village and improved their food production and chlorinated their water and vaccinated their children, etc. do you think the population would go up or down? The places where population is not going up are places like Italy where despite their predominate religion (that had its origin when world population was a mere 0.3 billion, and admonishing us to go and populate the earth) responsible people act responsibly. Look what a minuscule percent of the population has produced such a high percentage of our scientists, astronomers, mathematicians, musicians, explorers, as well as poets, opera, literature and the list goes on.

Yes, Darby,I actually do have quite a few who call me Dad, grandpa, papa, and Pa-Don. None has my genes.

Bob says: “Unless he (me) can propose a practical and non-criminal remedy that can reduce the population, and identify where it applies, he should put a lid on it.” Since I disagree so profoundly with this statement that there is no common ground from which to start. See the third paragraph above. I don’t think I have ever been so arrogant as to tell someone to “put a lid on it.” Actually I got it the first time you said it. By far the most enlightened population program was the earlier Chinese limit on births. Did even one country endorse and recognize the program. They only got hated for it. For me, who took plenty of fire from the Chinese and took part in killing more than a million of them in Korea says it was the greatest social program ever. It could have worked. If the Chinese had never had a birth limitation program the world population today would be perhaps a couple billion more than it is. They actually gave us more time and we did not use one second of it.

If you want to know about Singapore Bob A., just get the latest Spectator, because they have an article on that city-state.

Outside of that, lets compare it with a certain small state in the Middle East that has received billions and billions and billions of US dollars. When the Singapore politicians go abroad they do not take their begging bowls with them, assuming that they have any, nor do they waste their valuable time singing the blues to underachievers like George W. and Obama. When I worked in that country I cant remember seeing a policeman in uniform, but was told that any criminal or anti-social behavior behavior on my part would bring me into contact with them. Like that other country - and Switzerland - they have compulsory military service, and that is the smartest thing that any country can have, although it is not sufficient to get the kind of result that I want. I saw no slums either in Singapore, and when foreign university teachers failed to produce, they bounced them the ____ out of the university system. And good riddance.

Of course, among my university colleagues there was considerable talk about freedom and democracy, but when I came through there a few years later those ladies and gents were long gone - long gone back to where they could enjoy democracy and freedom, and their students could suffer their imcompetence. I mentioned compulsory military service above, but they have something else to my taste: the people who manage and teach in the primary and secondary schools mean business.

Singapore is mostly Chinese, and I remember thinking when I was there that if they could create the country that they had, then the Big China couldn't be stopped. And that is the way that things have turned out.

from the article--------" On the other hand, if we drive to reduce the global dependence on oil, until we find an alternative, we will negatively impact the US economy and the US consumer."---------

We already have alternatives. We can use petroleum, some petroleum, or no petroleum at all.

If we do not use petroleum, it does not matter what the price of petroleum does.

from the article--------" In my opinion there is no alternative to a diversified strategy particularly when it comes to energy and natural resources. This includes diversification in the fuel mix we use, the sources of the fuels, and the markets we target. Although we should continue to develop and advance renewable energy, there is no question in my mind that oil, natural gas, and coal will remain the dominant fuels for the foreseeable future because these fuels are abundant and economical. "---------------

That is completely, absolutely and totally false. The more we cycle away from the use of coal and petroleum, and the more quickly we do it, the better off we'll be.

from the article-------" I agree the lower the dependence on foreign oil would eliminate many of the economic uncertainties associated with political unrest around the world, disruption of supplies, and the continually increasing demand. These factors impact the cost of living of the American consumer and may squeeze corporate profits."-----

It also kills people. Thousands of people.

Don says "See the third paragraph above. I don’t think I have ever been so arrogant as to tell someone to “put a lid on it.”"

On the contrary, it you Don who in seething in arrogance.

The problem with Don is he CRITICIZES everyone else on this website for proposing solutions to energy problems because they don't acknowledge the world population problem as being the root cause of all the other problems. He doesn't belong in this forum because his advice should be directed at government leaders, not energy professionals.

Doing what the Chinese government did to limit family sizes is a pretty simple concept, but good luck getting our western governments to pay attention to even considering it Don.

"the more quickly we do it, the better off we'll be."

This may very well be true Fred L., however it is not practical. Millions of vehicles in transportation and thousands of petrochemical products all depend on using oil. Although there may be alternative technologies available today that don’t use oil, the cost to replace all of them is so astronomical, it will take decades to get off oil.

Don’t believe me? Just ask your neighbor if they are prepared to sell their new car in the driveway to replace it with an electric vehicle. 99% will say not today but maybe years from now, and that’s assuming the price of electric vehicles comes down substantially.

Conventional wisdom concludes that oil is a world-wide commodity, thus we can not influence the price at the pump, and therefore increasing our own drilling is a waste of time.

So is the price of gasoline the same all over the US? Nope, not even close. Factors involving supply and demand are in-play; localized economics are unquestionably at work.

Is the cost of natural gas in the US the same as say in Europe? Nope, not even close.

“Globalization” is not as powerful as the conventional wisdom crowd believes.

My point is that striving for energy independence and the continued use of our own fossil fuels are to our economic advantage. Further, I have to question the motives of those who dismiss such a strategy. To wit, the “green-energy” mafia lining their pockets at everyone else’s expense:

P.S. I had enough of those who bleat about the evils of fossil energy. Flip the coin over. How many folks are alive because mankind uses fossil energy? The benefits exceed, by huge orders of magnitude, the downside.

Fred L.

Natural gas conversion equipment for automobiles’ and other vehicles’ engines has been around for many years. Historically, and even today, NG is several times lest costly to use as fuel instead of gasoline or diesel. It is also cleaner burning with less emissions, and less wear and tear on engine combustion chambers.

Back in the 1980's and 1990's our Ontario provincial and Canadian federal governments provided large direct consumer rebates to encourage this technology's adoption for any new or used car, if the NG conversion was done by the consumer within 6 months of purchasing a vehicle. Pressurized NG tanks would be installed in the vehicle’s trunk as an aftermarket retrofit, and lines run to the engine, set up to run a dual gasoline-NG system. The driver could flip a toggle switch mounted on the dash board to switch between normal gasoline tanks or the NG.

The conversions typically cost $2500 and were sold by our NG distributors in Ontario. Government rebates amounted to $500 from the feds plus up to $1000 of provincial sales tax rebate on the vehicle’s purchase, totaling a rebate of up to $1500. Net cost to the consumer was therefore only around the $1000 mark, which could easily be recovered by the consumer in fuel savings within many months depending on their mileage per year.

But the program was a dismal failure for most of the public because a) people don’t like the relatively large bulky pressurized NG tanks taking away their trunk space, and b) more importantly from the inconvenience due to the lack of a widespread NG refueling station infrastructure. In essence NG could not compete with the wide network of gasoline stations in place. True, off-the-shelf NG compressors are available that consumers could hook up and refuel at home with given many Canadian homeowners have a direct NG supply for hot water and furnace heating. But they cost several hundred dollars plus installation charges, so these never became widely popular either.

Only commercial fleets like buses have ever widely adopted the NG conversions in Ontario. I’m sure this is the case in much of America too.

So you see Fred, unless the savings from switching to NG became much greater, and it was made much more convenient to refill, it is very tough to motivate consumers to switch. It will take much more economic pain from skyrocketing oil prices before we see any substantial changes to get away from oil dependence.

I see that this thread is still active, so I'll share a theory I remember from my small community college Econ class in the late 1980's. I don't recall seeing it discussed on this forum. The professor told the class that the US government's general policy was to use up all or most of the oil from other countries. Then, at some point in time, the US would have an advantage over everyone else, since the US had put most of its remaining oil reserves "off-limits" via environmental and other concerns.

It almost makes sense, except that I don't usually associate such long-range planning as being a core strength of our government. The Chinese seem to be much better at such planning.

By the way, demographics indicate declining populations in almost all "western" ethnic groups. At least that has been the subject of several books over the last few years. I have not read any of these books, but I have listened to the authors when interviewed about the subject. The declining groups are the Japanese, Russians, most western Europeans, those of us of European descent in North America, and perhaps a few others that have become relatively affluent in general.

Therefore, it would be best to promote liberty, opportunity, and wealth creation everywhere. Generally free and prosperous people tend to prefer cleaner environments, and they tend to have fewer offspring (no need to have more kids to help scrape a living from parched earth). I do NOT think we need to go around "nation building". That only seems to create further problems. The people need to decide for themselves that they no longer want to be ruled by despots. The despots are the ones keeping them from obtaining adequate food and clean water. The assumed 20,000 children dying per day (if true it would be about 7.3 million per year) is mostly a political problem, not a population problem. That's what it looks like from out here in the middle of nowhere, surrounded by idle farm land.

Best regards.

Bob A.------" So you see Fred, unless the savings from switching to NG became much greater, and it was made much more convenient to refill, it is very tough to motivate consumers to switch. "-------

Driving the same distance using methane(natural gas) costs about 40% less than driving the same distance using gasoline now.

The price of petrol is going up.and supply is going down.

The price of natural gas is going down, and supply is skyrocketing.

The price of oil is six times the price of oil in the early 1980s.

1980 was over thirty years ago-------it's a whole different world out there now.

Funny isn't it, how some very intelligent and highly educated people don't get it. Here I can point a finger at Mr Obama, who put an ignoramus in the director's chair at the US Department of Energy, and that gentleman can't tell people like Fred Linn (and a few others) how the global energy economy functions on the micro and macro levels.

Isn't it clear that some of these remedies we hear about for saving our energy bacon are strictly stupid, while others - which may be OK in the long run - do not fill the bill at the present time.

"The price of oil is six times the price of oil in the early 1980s." ..."1980 was over thirty years ago-------it's a whole different world out there now. "

Fred L., indeed it is a different world out there now. Oil prices may be 6 times higher today than in 1980, but vehicle engines on average are getting 3 to 4 times better gas mileage than in 1980 too, and they continue to get better.

It should be obvious that there are many forces at work to KEEP us consumers hooked on using oil as long as possible Fred.

The point I think Don is making is that the population growth of human beings on the planet is on an apparently unstoppable exponential trajectory. This is simply mathematics and it does not take a genius to figure out that all those people striving for a western style standard of living is not sustainable with out current technology.
The worlds resources such as copper, iron, silver, nickel coal oil gas are getting harder and harder to find. A hundred years ago you could pick up 60lb nuggets of copper in Utah. Now to produce the same 60 lbs of copper takes 7.7 tons of rock hauled up from the mine bottom by truck 4000 feet below grade level and put onto a five mile conveyor belt to be crushed into dust and refined into copper.

While I am more of an optimist than Don and believe these problems can be solved we appear to be turning a blind eye to it.

Don is saying we have a very big elephant in the room called population and unless we curb that growth rate and do something about it we will all be doomed to scratching out of the earth what little resources it has left.

Our politicians are stupid for the most part and focus on their next re-election campaign. Their horizon is 4 years. To solve this problem needs careful long term planning - a feat we in the west have got dismally poor at.

Malcolm

We can lament that governments do not do long term planning. Who ever said they should? Where did this idea come from? It’s never been done before. It’s the kind of stuff Presidents for Life rant about. Here we are talking about more term limitations. The closest examples that come to mind are Hitler’s Thousand Year Reich and Japan’s Co-Prosperity Empire – and poor Alexander crying because there was only one world to conquer, and OPEC, and NATO and they are not close at all. Can anyone tell me how many wars are going on today? Some of the bloodiest wars have not been reported: India and Pakistan, and in several in sub-Saharan Africa. More people are killed in Mexican drug wars than we lose in our southern Asian wars. So let’s all sit down together and decide who gets what in the long run. Surely we cannot leave NKorea and Iran out.
One has only to look at history to see that nothing, nothing was planned long term. Ever.
Sorry folks, comments have unfortunately goaded me to show more arithmetic on population. If we say population was 2 billion in 1930 and 7 billion in 2012, then the average rate of growth was 3.5^(1/82)=1.01539 or 1.54% per year. The exact rate is debatable. (This calculation is very easy on a slide rule. Put 82 on the C scale over 3.5 on the LL3 scale and read answer (1.0154) on the LL1 scale.)
During these 82 years we have had the worst starvation in China during the 30’s and later in the USSR in all history. We had World War Two and the Holocaust. And many other wars. These barely registered a blip. The point is that if population grows at about the 82 year average rate we can expect about 0.1 billion more this year. Wars and present starvation rates don’t come close to stabilizing the population growth.