Think Again: Energy Independence

High oil prices have everyone talking about energy independence again. But a look at the numbers reveals the vaunted goal is an illusion. And conservation isn't the answer, either. The sooner we realize it, the sooner we can talk about real solutions to the energy crisis.

BY PHILIP J. DEUTCH | NOVEMBER 9, 2005

"The West Can Stop Relying on Imported Oil"

Not in this lifetime. When people call for energy independence, they usually mean ending reliance on imported oil. Energy independence, we are told, would avoid dangerous disruptions in supply, ease entanglements in the Middle East, force corrupt petrostates to reform, and dry up terrorist funds. It may be a noble statement of ultimate intentions, but as a practical matter, energy independence is absurd. The amount of petroleum imported by the United States and other countries is so enormous that operating without it over the next several decades will be impossible for any advanced industrialized economy.

The trend lines clearly indicate that Americans are becoming more energy dependent, not less so. In 1973, the United States imported 35 percent of its oil; by 2003, that proportion had jumped to 55 percent. In 2004, the United States consumed an average of 20.4 million barrels of oil per day, more than half of which was imported. Ending dependence on imported oil would mean replacing about 4 billion barrels of oil every year. To put that number in perspective, assuming no major new discovery of oil deposits, the United States would burn through its oil reserves in four to five years without imports. Worse, U.S. demand is projected to grow 37 percent in the next 20 years. At that point, oil imports will likely account for 68 percent of petroleum supply.

The picture is no different if you consider other major industrialized countries. In 2004, Japan consumed an average of 5.4 million barrels a day -- almost all of which was imported. Ninety-three percent of Germany’s daily oil demand of 2.6 million barrels is imported. And France already imports nearly all of its oil. Energy independence is a distant dream for all of these countries.

"Less Foreign Oil Means Lower Prices"

Wrong. Oil is a global commodity, the price of which is based on worldwide supply and demand. Events influencing supply and demand in one country affect prices in another. In the wake of Hurricane Katrina, gasoline prices in Europe soared as a result of the damage to U.S. refineries, even though those facilities send very little to Europe. Even if the United States did not import one barrel of oil from the Middle East, the price U.S. citizens would pay at the pump would still be a function of worldwide supply and demand. Whatever one's opinion about U.S. or European oil policy, all indications are that worldwide demand -- and global prices -- will climb as China and India continue to grow. China, which imports about half its oil, is expected to double its oil consumption to 14.2 million barrels a day by 2025. India's consumption will likely jump from 1.4 to 5 million barrels a day by 2020. Global demand will cause the worldwide price of petroleum to rise nearly everywhere. No private oil company will sell oil to its domestic market for one penny less than it could realize in foreign markets, and the price that a barrel of oil commands will be based on pressures beyond any one government's control.

 SUBJECTS: ENERGY
 

Philip J. Deutch is managing partner of NGP Energy Technology Partners, a private equity firm that invests in companies developing technologies for the energy industry. The views expressed here are his own.