Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Ban Crude Oil Imports for Energy Security?

Commodities / Crude Oil Mar 01, 2011 - 06:21 AM GMT

By: Dian_L_Chu

Commodities

Best Financial Markets Analysis ArticleI came across an interesting editorial at Houston Chronicle dated Feb. 26 written by Yale Graduates Energy Study Group discussing energy security and independence.

In the article, the authors propose a federal policy (the "limits" policy) to withdraw U.S. crude and products imports from the world oil market, for example, in a 10-year period. During that period, all imports would be phased out to zero except Canada, whose pipelines run almost exclusively south into the U.S.


Consumer Loss vs. Producer Gain

According to the article, the limits policy would serve the national interest, reduce the costs of disruption in domestic markets due to attacks on foreign oil producers, and help more effective expansion in domestic oil and alternative energy production.

The authors further suggest, based on their cost-benefit analysis,

"...limiting imports from 2011 to 2021 would cost $40 billion in consumer losses, but generate $227 billion in producer gains from selling more domestic products."

In The Case Of $400 Oil

A $400 per barrel oil price scenario is also discussed if occurred before all imports are eliminated:

"...such a disruption would produce a total loss to the economy of $234 billion from a six-month shock under business as usual. Over the decade of the limits policy, these costs decline to zero for a disruption in 2021, even without including the producer gains during years when the shock does not occur."

Eliminations of defense spending on protecting shipping lanes and friendly oil-producing nations, and gains in U.S. employment and tax receipts for federal and state governments are two of the fringe benefits that could result from the "limits" policy.

Full article here at chron.com, and the following are some of my thoughts. 

Bridging the Oil Supply Gap?

Based on the EIA data, liquid fuel net imports (including both crude oil and refined products) accounted for 57% of total U.S. consumption in 2008, and fell to 49% in 2010, primarily because of the Great Recession, and rising domestic production.  And T. Boone Pickens said the U.S. spent $475 billion on foreign oil in 2008 alone, and projected over the next 10 years the cost will be $10 trillion

With staggering numbers like these, the idea of achieving zero foreign oil imports is intriguing as to the potential positive impact on the trade imbalance, budget deficits, etc. It is also the Holy Grail probably every country in the world is striving for. 

However, regardless how the U.S. has come to be so oil and imports dependent, it is nevertheless a fact that needs to be taken into account whenever you are moving one of the energy chess pieces.  As such, one thing that's glaringly missing in the article is addressing how to bridge the oil supply gap (Fig. 1), before, during and after the imports phase-out period.


A Drastic Move

Moreover, the proposal seems a bit drastic and might have the process backwards.

That is, instead of using the “limited” policy as a way to push for more effective domestic oil and alternative energy production, alternative replacement sources need to be secured before cutting off imports to avoid the potentially disruptive effect (e.g., the wealth transfer effect of the $40-billion consumer loss; the initial $234 billion loss from the $400 oil shock) and the economy as a whole (consumer spending still accounts for around 60-70% of U.S. GDP.)

Natural Gas, Coal…and Other Imports?


Let’s take a look at the possible replacement sources of the imported oil.

The U.S. dometic oil production is on the decline as pointed out by the EIA.  In its Short-Term Energy Outlook released on Feb. 8, EIA noted domestic crude oil production, around 5.51 million barrels per day (bpd) in 2010, is projected to decline by 50,000 bpd in 2011 and by a further 190,000 bpd in 2012 due to production decline in Alaska, Gulf of Mexico, which would only be partially offset by the increase in production from onshore lower-48.

Renewables so far have only been able to provide a small portion of total U.S. energy consumption, and their collective role (along with nuclear power) as a major energy source would remain limited (Fig. 3) as compared with conventional sources, albeit with the fastest growth rate.

Oil shales, such as the Bakken formation in North Dakota, hold great promises; however, the steep production decline after the initial ramp-up has added some uncertainty in its role as a long-term reliable energy source.

These factors, coupled with limited domestic proven oil reserves (around 22.3 billion barrels) suggest in the zero oil import scenario, the U.S. would most likely need to rely more on natural gas and coal (Fig. 2), which there are ample domestic supplies, to replace the imported oil.

Furthermore, just as part of the natural resource depletion process, the shortfall is or will be so significant that it could still be necessary, one way or another, to import non-oil energy sources.  Now, conceivably, the U.S. could import from more stable regions, but it is pretty hard nowadays to find places with enough resource that are completely immune to unrests and geopolitical tensions. 


Can’t Live Without Yet

For now, EIA is projecting liquid fuel net imports (including both crude oil and refined products) will average 9.6 million bbl/d in 2011 and 10.0 million bbl/d in 2012, comprising 50% and 51% of total consumption in 2011 and 2012, respectively.

Elimination without Replacement = Disaster

World energy supply and demand outlooks from various agencies all pretty much tell the same story (Fig. 3)– we need all kinds of energy sources, fossil, renewables, other alternative technologies, etc. just to continue our social and economic development. Eliminating one source without having a plan for replacement could be disastrous.



The United States currently gets about 45% of its oil from the Middle East and North Africa, these regions hold over two thirds of the oil reserves worldwide.  So, until the day renewables or other alternative technologies could successfully replace crude oil and products on a long term sustainable basis, oil most likely will remain one of the world's most important commodities, and foreign oil probably will be one piece of the U.S. energy pie for some time to come.

Meanwhile, I would be interested in learning more detail about the Yale Group’s study, as well as what readers think about their zero-oil-imports proposal.

Dian L. Chu, M.B.A., C.P.M. and Chartered Economist, is a market analyst and financial writer regularly contributing to Seeking Alpha, Zero Hedge, and other major investment websites. Ms. Chu has been syndicated to Reuters, USA Today, NPR, and BusinessWeek. She blogs at http://econforecast.blogspot.com/.

© 2011 Copyright Dian L. Chu - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in