The United States' continuing addiction to oil presents a serious threat to our national security and economy. The United States is the largest consumer of oil in the world, accounting for 22 percent of global demand-principally to power our transportation system, which is 95 percent dependent on oil. About half of all U.S. oil consumption in 2010-3.5 billion barrels-came from foreign sources. Imports have declined from their peak of 60 percent of total consumption in 2005 but are still up from 42 percent in 1990 and 27 percent in 1985.
Oil and gasoline prices have been on a roller coaster ride over the past four years, and are predicted to remain at historically high levels for the foreseeable future, primarily as a result of rising global demand. Crude oil prices have increased by 250 percent over the last decade while gasoline prices have more than doubled. In just the last 3 years, the price of a barrel of oil has soared to $147, dropped to $36, and climbed back above $100 in 2011.
Experts agree that rapidly growing oil demand from developing countries is likely to result in sustained high prices for the foreseeable future. China, for example, alone is expected to grow its vehicle fleet from 40 million vehicles today to 350 million by 2035, according to the International Energy Agency (IEA).
Soaring petroleum prices have been a drain on the economy and have a crippling effect on American consumers. Nearly $1.3 trillion has been sent overseas to import oil over the past four years, while oil imports have grown to account for nearly half the U.S. trade deficit. Each $1 per gallon increase in the average cost of gasoline adds nearly $600 to an average American's annual transportation fuel bill. In addition, nearly 8 million American households rely on heating oil to warm their homes during the winter. These households face an expected average heating bill of $2,146 during the 2010-11 winter, 61 percent more than households spent on average 6 winters ago.
OPEC countries control 70 percent of estimated global oil reserves and account for 40 percent of global production. OPEC's share of global production is projected to continue to increase, reaching more than 50 percent by 2035. Moreover, investor-owned companies control only about 6 percent of the world's known oil reserves. By contrast, government-owned and operated companies in oil-producing countries, such as Saudi Aramco in Saudi Arabia or the National Iranian Oil Company in Iran, control most of the rest. Of the top 20 oil producing companies in the world, 14 are national oil companies (NOCs) or newly privatized NOCs. Although Canada and Mexico supply a substantial proportion of U.S. imports, OPEC countries control virtually all of the world's marginal production capacity and therefore have the ability to set the global price for this commodity. As a result, the United States' national security and economy is increasingly threatened by the potential for a supply disruption or market manipulation by sometimes unfriendly foreign governments.
Despite increasing calls to open the Outer Continental Shelf (OCS) and the Arctic National Wildlife Refuge (ANWR) to drilling, the facts make clear that we cannot drill our way out of this problem. While the United States consumes 22 percent of the world's oil, it has less than 3 percent of global reserves. More drilling will have little or no impact on prices consumers pay for gasoline and will not substantially reduce U.S. dependence on foreign oil.
The Department of Energy's Energy Information Administration (EIA) estimates that, even if the entire lower 48 OCS were opened to drilling, this would increase cumulative U.S. oil production by only 1.6 percent by 2030 and would have an "insignificant" impact on prices. As to the Arctic National Wildlife Refuge, EIA estimates that if the Refuge were opened for drilling, production would likely peak in 2027 at just 0.78 million barrels per day-reducing world oil prices by 78 cents per barrel in EIA's average price and resource case. EIA notes that "the Organization of Petroleum Exporting Countries (OPEC) could neutralize any potential price impact of ANWR oil production by reducing its oil exports by an equal amount."
In addition, there is currently no shortage of opportunities for drilling on federal lands in the United States. Oil and gas companies currently hold leases to nearly 68 million acres of federal lands and offshore areas on which they are not currently producing. From 2000 through 2009, the federal government has offered more than 517 million acres for lease offshore and leased more than 8,700 tracts. Onshore, more than 40,000 permits have been approved for drilling. Nearly 83 percent of technically recoverable offshore oil reserves offshore in the United States are located in areas already available for leasing and drilling.
Finally, regardless of U.S. oil production trends, there are serious questions about how increasing global demand will be met-and whether it can be met at all. Estimates of the total petroleum resources currently in the ground - both conventional and unconventional-vary from 14 to 24 trillion barrels. However, actual "proven reserves" that have already been discovered and are expected to be economically producible are much lower-estimated at between 1.2 and 1.3 trillion barrels worldwide. Chevron Corporation has estimated that humanity has consumed 1 trillion barrels of oil during the past 125 years, but that it will take just 30 years to burn through another trillion barrels. Proven U.S. reserves are estimated at 21 billion to 30 billion barrels, enough to meet U.S. demand for 3 or 4 years.
Generating new oil supply is proving increasingly difficult. Even with advances in technology, the average size of discoveries per exploratory well is around 10 million barrels, which is half the output of wells dug between 1965 and 1979. As a result, the IEA believes that crude oil output will not exceed the all-time peak production level of 70 million barrels per day (mb/d) reached in 2006. Instead, crude output plateaus around 68-69 mb/d over the next decade, while production of natural gas liquids and unconventional oil grows. The 87 day BP Deepwater Horizon oil and gas spill illustrates the inherent risk and increased environmental and safety challenges of pursuing ever more remote, highly pressurized, and difficult to extract hydrocarbon deposits.
In short, the shrinking margin between stagnant global supply and soaring demand provides yet another reason that the United States and the world need to begin to look beyond oil to meet our growing energy needs.
