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Americas Oil Dependency

Buy custom Americas Oil Dependency essay

Introduction

Oil is an international commodity that is greatly affected by the market forces at the global level. No single country can separate itself from the dynamics of the market elsewhere in the market or take action with indirectly affecting others (Bryce). The oil market is unique from other commodity markets due to the Organization of Petroleum Exporting Countries (OPEC) factor. This was formed in 1960 and since then, it has had considerable influence on oil prices due to its member nation quota system. Again oil market is susceptible to political instability and technical factors. Most of the major oil producing countries experience political unrests thereby affecting the production of oil. Psychological effects associated with or deemed to bring probabilities of market disturbances make the price of oil volatile.

The market is finally unique in that the settlement f oil market is in dollars which greatly affect the value of the dollar. (Pirog). The US has become more and more dependent on oil imports  for its liquid oils which has great significance on its economy and strategic plans. The U.S Department of energy forecasts a doubling of its oil imports by 2025 to 19.8 MMBb1/D. this will bne more than 70% of its oil requirements. Most of this imports according to DEO will come from OPEC countries which are known to detemine the price of crude oil in the world market. U.S will become more vulnerable to price shocks as a result of this, disruptions and shortages (Deutch, Schlesinger and Victor).

Oil Consumer Countries of are also increasing their demand for oil as their economies grow thereby putting more pressure especially from the OPEC to produce more oil. In this scenario and the OPEC's approach of accomodating all the growing demand, one is left to wonder whether the long term interests of the U.S are somehow blurr. This situation is made worse by the indication of a rooming  production peak according to Bryce. If this situation happens in the near future oil import-dependent nations will be competing severely for for diminishing resources which will drive the price to sky high levels. This puts the country in a very tight situation for over depending on imported oil for most of its energy requirements. Exploring diffferent options for energy sources especially the renewable sources is what the country needs and also emphasising on energy efficiency and domestic production of a wide energy mix. This is very feasible if the necessary effforts are made by all stakeholders.

The US National Energy Policy

In 2001, The Bush administration proposed a National Energy Policy that would see the country reduce reliance on imported oil and increase efficiency in energy use (Johnson, Crawford and Bunger). This was prompted by growing dependence on imported oil and the increasing political instability in the country's major suppliers and the hostility towards America exhibited in these areas, which threatened US economy and security. The proposal called for programs that will lead US to increase its domestic oil and gas production, efficiency in fuel use, investment in renewable energy and exploration of nuclear energy alternatives among others. The Department of Energy responded by drawing a Strategic Plan in 2003, which indicated the vulnerability of the country to price shocks, oil shortage and disruption because of reliance on, imported oil.  The strategic plan emphasized diversification of energy sources that are efficient, affordable, reliable and environmentally friendly.

In this strategy the Department of Energy projected that the US energy gap between demand and domestic supply would grow to 50% by 2020. This would mean 70% import of oil to meet the domestic consumption. In order to address the shortfall it suggested three alternatives for the country: import more oil, improve energy conservation and efficiency, or increase domestic consumption.  The plan concluded that in order to reach a long term solution and in order to meet the goals of economic stability and environmental conservation, the country has to make a fundamental change in the energy mix of options. The country should develop its oil shale which is currently untapped in order to increase domestic supply and reduce heavy reliance on imported oil (Hefner).

U.S oil requirements

US consumed 19.8 MMBb1/D of oil and oil products in 2002, 53% of this oil were imported (Johnson, Crawford and Bunger). This demand is still growing while domestic production is declining. This is occurring when competition for convectional energy from other countries has increased. This has added and will continue to add an upward pressure on prices of oil. This upward trend on the price of oil is projected to cost the economy of the country $1.1 trillion in Gross Domestic Product (GDP) by 2020 as Johnson, Crawford and Bunger continue to say. This will mean that the American consumer will pay more for petroleum products such as gasoline, diesel, heating oil and other products.

U. S Military oil requirements

The US military require maintaining strategic liquid fuel reserves for its air crafts, naval fleets and landing vehicles both at home, the sea and other places in the world (Beddor, Chen and DeLeon). With security being a major concern for the country the military need more than ever to maintain these secure reserves. This is because it can be required to protect the country when necessary, support US forces overseas and protect America's strategic interests and global commitments when called upon to do so. The strategic fuel reserves for the military are pre-positioned in the U.S and in other places around the world.

These are replenished when they run down from the global markets. These fuels are required to be available at any given time and if they are not the militarily capabilities are temporarily weakened, a situation in which the country does not want to find itself. In these times of import dependencies and supply interruptions, the country needs to assess its military fuel supply. The most important things to consider are supplementing decreasing domestic production, ensuring fuel performance for the legacy fleet and maintain low fuel costs as possible during peace time.

World petroleum situation

Oil demand

The U. S Energy Information Agency projected that by 2010, the world demand for crude oil would rise to 89.7 MMBb1/D (Johnson, Crawford and Bunger).  This is a 16.34% increase from the 2001 77.1 MMBb1/D in just nine years. These projections were based on Integrated Analysis and Forecasting National Energy Modeling Systems (NEMS), which is a market-based method of analyzing energy demands and supply as the above writers continue to point out.

In another report by NRDC in 2004, the competition for oil in the world market has increased and industrializing nations will double their demand by the next 12 years from the 15 million bpd they consumed in 2004 to 32 million bpd. All this increase in demand will require 118 million bpd by 2025 to be met.

Presently, China is the country that is driving oil demands to another level as a report by U.S. Energy Information Administration claims. It is second to U.S in the oil consumption according to the same report accounting for 40% of the increase in world demand. China oil consumption this year will add 600,000 barrels per day while U.S consumption will increase by 130,000 barrels per day. This is in consistence with a report by EIA in 2004(Pirog) projecting the demand for oil by China will increase tremendously only that compared to hat is happening, this a bit conservative. The oil consumption for china in 2004 was about 6% that of USA and this was likely to quadruple by 2020 from the 2004 figure of 2million bpd to 8 million bpd. This clearly shows the high competition for oil in the world market and therefore the need for US to implement its long overdue strategic plan to reduce overreliance on imported oil (Simon).

The Department of Energy in its forecast for 2012 reported that the global oil demand will increase by 2012 and non OPEC oil production will remain unchanged (Doggett). This will lead to increased oil prices by an average of $99 a barrel. The U.S is looking at tough times ahead due to these increased prices of oil. The situation will further be made worse by the losses experienced in the Gulf of Mexico as oil production would shrink by 180,000 barrels per day in the next year and the already 220,000bpd loss recorded last year. As if this is not enough a White house commission investigating the gulf situation recommended strict implementation of the drilling regulations.

The agency projects the world oil demand to grow to 1.63 million bpd or 1.9% by 2012 (Doggett). This will mean a record 89.65 million bpd compared to this years all time high of 88.02 million bpd. In each of the next two year this demand is expected to surpass the average 10 year demand of 1million bpd translating to 1.2% annual increase. This is greater increase than the mean increase per year. Much of this increase will come from the developing countries of China, Brazil and the Middle East becoming the biggest oil consumers. This increased demand for oil will increase price and competition for U.S importation. The price per barrel is expected to average $ 93 and $99 by late next year. The U.S consumes are going to feel this increase greatly as gasoline prices increase from the current $3.50 to probably $4 by August and September this year.

The U.S oil dependency

By the year 2000, the United States was consuming 19.6 bpd of oil which accounted for 25% of the world's oil consumption at 6.6 billion per year which has been increasing every year. This rate of consumption was increasing by 2% annually by 2000 (Natural Resources Defense Council). By the year 1970, US produced and its own oil to meet its needs. However a shortage occurred and importation of oil began in order to meet the increasing demand. The oil produced by the country for 2000 alone totaled 5.8 million bpd of crude oil which was a decline from the 1999 production which was 5.9 million bpd.

The declining trend began in 1985 and by 2000 it stood at 24%. This is made worse by the fact that there is no chance of discovering other onshore oil deposits in the country and offshore drilling is banned. From its onshore deposits along Texas Louisiana Gulf Coast stretching to Texas, Oklahoma and Kansas the country produces 12% of the world's oil. With the demand for oil increasing and domestic production declining the U.S has resulted to importing oil which increases per year as the demand rises. In the year 2000, the country imported 10.9 million bpd according to EIA (Hefner). This means that it imports 57% of the oil consumed in the country comes from other countries. By the year 2000 the major suppliers of oil were Canada with 168 million bpd; Saudi Arabia with 1.49 million bpd; Venezuela with 1.46 million bpd; and Mexico with 1.35 million bpd. This list of supplier has of course changed with time to include other countries like Nigeria which supplies the country with 4million bpd costing around $150 billion.

The consumption of oil by United States has continued to increase every year. In the year 2006, the country produced 10% of the world's oil and consumed 24% of the world oil at 20.1 million bpd becoming the largest oil products consumer in the world (Simon). Out of this consumed oil 13.7 million bpd were imported increasing our oil imports from the previous years and accounting for 58% of oil demand in the country. In this year also 50% of all imports were from North, South and Central America and the Caribbean. 16% of the imports came from the Persian Gulf countries of Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia and UAE. The rest came from Africa and other countries such as Nigeria which supplied 8.1%.

Implication of oil dependency

The current consumption of oil by America has many implications to the economy, security and wellbeing of the Americans and the world. One such implication is the threat to the economy. The National Resources Defense council (NRDC) reports that America spends $13 million per hour on imported oil and by 2004 had shelled out $249 of its per capita to foreign oil producers.  The gasoline consumption in the US accounted for 11% of world oil production this has greatly increased America's economy and security vulnerability. In 2004 trade deficit stood at $54 billion of which $12 billion was from imported crude oil (Deutch, Schlesinger and Victor).

This led the Federal Reserve chairman, Alan Greenspan to warn the country that if this increased importation of oil in sustained coupled with the rising demand and prices for oil in the world market, the country is going to find itself in an economic turndown, something that was witnessed recently (Beddor, Chen and DeLeon). High prices for goods and services will result from rise in oil prices as well as unemployment and low stock price at the stock exchange. The economic losses for oil dependence according to one economist, Philip Verleger is estimated to be between $297 and $305 billion annually since World War II(U.S. Energy Information Administration).

The country has also experienced a peculiar phenomenon not uncommon in the country. In the light of high oil demands and imports instead of finding a sustainable solution through legislation, legislations are designed to encourage more energy reliance and importation. The NRDC reports that countries which supply U.S with oil are spending millions in Washington to lobby for against legislations to find sustainable fuel sources and cut on importation of oil. The report says that OPEC block had spent $13.3 million on federal lobbying with Saudi Arabia contributing $6.6 million. The US energy companies are also becoming involved in the politics of oil by spending $59.4 million on lobbying and in the 2002 and 2004 elections campaigns which received $29 million. This has inspired an energy bill brought before congress that recommends drilling of oil in the country. This is likely to bring foreign governments into oil business in America exposing the country into greater security risks.

High vulnerability of America to security risks is a consequence of its overdependence not only of oil but imported oil (Deutch, Schlesinger and Victor). As a way of addressing the oil situation, i.e. increasing demand for oil in the  country, Increased reliance on imported oil , the Bush administration proposed a strategic plan in 2001(Johnson, Crawford and Bunger). This report NRDC says targeted eight countries as altenative oil suppliers.  Some of These nations  targeted like Angola, colombia, Nigeria and Nigeria are politically unstable and have been racked by numerous conflicts wwhere US send its military or other forms of aid. This has only put the country exposed to all manner of insecurities including terrorism. Further our dependence on oil especially from the Middle East constraint our foreign defense policies (Deutch, Schlesinger and Victor).

The political leaders in this region have used the country's oil dependence as leverage over US defense policies. This is the reason Sadam Hussein boldlyb attacked Kuwait. Other countries such as Saudi Arabia, Nigeria, Colombia, Angola and Kuwait are of friendly terms with US but they themselves are susceptible to radical elements within their own countries.  Example of suchh a country is Nigeria where political unrests due to oil money is the very common. In 2008 US imported  4million bpd  at a cost of $150 billion which went into unfriendly regimes which do not distribute it through to the people. This  only makes the country unstable and cases of kidnapping of nationa oil workers  and business people in oil related facilities have become common.

Climate and environmental costs is another implication of over reliance on oil in America (Bryce). Oil consumption as is known has wide and devastating impancts both direct and indirect on the environment.  From drilling to its transportstion and combustion, oil has greatly impaired the environment or totally destroying it. These have led to direct impacts such as pollution, destruction of vegetation leaving unhabitable desolate land and global warming. Feasibility studies for onssore and offshore oil reseves through sesmic wave testin g have interrupted the marine environment leaving it swildlife dioriented.

Another related disaster for the environment is oil spills both on land and in the sea. Spilled oil has contaminated the oceans leaving habitats for marine life destroyed  an example if the recent spill in Gulf of Mexico whre pipes cracked 33 miles offshore and spilled 63,000 barrels of oil. This damaged the delicate ecosystem that exists in the ocean poisoning wildlife and its habitats. Another significat effect is production of greenhouse gases  through combustion of the oil. These emisions have been proven to accelerate global warming to dangerous levels. Its aftermath is climate change which has greately affected many countries of the world  through effects sucg as drought, floods and rising sea levels among others.

What can be done?

Some people think the answer to Americas overreliance on imported oil is drilling our own domestic reserves. This is unfoutunately is not based on facts. The US known available oil reserves have declined over the years from 31.8 billion barrels in 1977 to 21 billion barrels in 2007 according to Beddor, Chen and DeLeon. If this is drilled it would last afew years. The lifting of the ban on the drilling in the OCS is not the solutions either as this according to experts say its impacts will not be known up to 2030.

Overdependce on oil is is a giant America has to tackle, it is a big pronbblem that will require all concerted efforts to develop a mix of alternative energy psources in practice and through necessary policies and effeciency in energy consumption. One such an alternative is domestic natural gas. The Energy Information Agency says that is is "by far the cleanest burinig" fossil fuel and America more than one-fifth  of all its energy (Bryce). This is said to produce one-third of global warming produced by petroleum using cars. This can be enhanced more iin this energy mix.

Shale gas reserves have been found to be abundant in Americas lower 48 states according to EIA with 1,770 trillion cubic feet  including 238 tcf of proven reserves (Johnson, Crawford and Bunger). This gas it technicall recoverable which means a renewable energy source and therefore quite safe. The potential of this gas as an energy alternative for America has been enhanced by development of an affordable new technology for harnessing it. The EIA says that with this recoverable gas the country can go for another 90 years without any dependence in oil as this will play a larger role.

Other measures include investing in the huge resources used to expand oil production in the persian gulf in innovative technologies in the factories  and farms in the US. This includes innovative technologies that will develop  renewable energy sources in the farms and also incentive to factories to make energy efficient products such as cars. This could include making gasoline -elctric hybrid cars (Simon).

The implementation of existing legislations that pormote energy effficieny and reduce oil consumption coiuld be taken advatage of to reduce overreliance on oil (U.S. Energy Information Administration). This includes the Clean Energy and Security Act of 2009. This was a bold move to curb global warming throuth reduction of oil use and efficiency.  This act brought several aspects of this such as investment in claen transportation technologies such as plug-in hybrid and natural gas fueled heavy vehicles combined iwht a concept of community resources that reduce that efficiently uses energy in their transportation; emphasise on efficiency such ass in appliances and buildings, increased incentives to states to adopt clean energy and energy efficint projects;  a cap-and-trade policy programs  that enusures limits for green house gases are adhered to; and acceleraetd innovation and deployment of clean energy technologies such as renewable enrgy equipment such as wind and solar power, electric vehicles, smart greeds among others.

Conclusion

The international oil market is a unique on due to the forces behind it such as ppolitical interferance and settlement of accounts using the dollar. It also affects every country directly or indirectly since oil is a an international commodity that is needed  by any country but only poroduced by a handful. The united states one of the major players due to its huge demands in oil by itss economy. Prior to 1970 the country relied solely on its domestic production of oil fromits reserves howevr with increased population and development, oil consumption has increased steadly since then. The domestic production can no longer support its consumption and therefore it has resulted to importation of oil.

In the recent years its consumpyionof oil has increased and domestic production decreased rendering it at the reliant on importation. Other countrie s of the world especially the deveoling ones are increasing their demand for oil especiallly China bringing a lot of competiton for oil in the market. This has the effcet of driving prices higher and higher leaving the US econmoy unstable. This is the reason a national Energy Policy was proposed by the bush administration. This was targeting to reduce the reliamnce in imported oil and increase energy efficiency. This did not do much since the country's oil imports continue to increase.

The overreliance of the country on oil as the major energy source and imported oil has posed huge of challnges to the country. These challnges include financial costs of oil importation as they bring a huge deficit in in its trade balance; increased vulnerability of the country's security since most of its suppliers are politically unstable nations thererefore undermines its foreign defence policies and environmental and climate efeects resulting from oil drilling, combustion and transportation. A good example of environmental  effects being the 2009 oil spillage at the Gulf of Mexico where 63,000 barrels oil spilled into the sea. Oil dependancy is not just about to go away queintly, America have a unique oppotuinity to remove this yoke off its should. This is due to the vast resources and potential for innovation that is available here.

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