The current oil boom is creating economic benefits for the US, but it wont shield the country from the price volatility that is inherent in the global oil market, according to a new report from business and former military leaders on the Energy Security Leadership Council (ESLC), a project of Securing Americas Future Energy (SAFE).
The ESLC report examines the notion of energy independence, which is typically defined as ending reliance on foreign oil, in light of the renaissance in domestic liquid fuel production, rising demand from developing nations, and increased geopolitical tensions in oil-rich regions of the world.
While the new oil boom will alleviate our trade deficit and be an important source of domestic employment growth, unfortunately it wont break our nations dependence on the highly price-volatile global oil market, said Herb Kelleher, co-founder and chairman emeritus of Southwest Airlines. Energy independence for the United States is an admirable goal, but even if the US were to produce enough oil to meet our demand, the domestic price is still set on the global market, meaning a potential supply disruption anywhere can impact the price of oil everywhere.
The report comes at a time when the US energy landscape is experiencing a tectonic shiftespecially in the outlook for oil imports. The US now imports less than 50% of its oil (Fig. 2), which is down from more than 60% in 2005. This growth in domestic production will help reduce the trade deficit and be a source for job growth in the US. However, the report details how a dramatic increase in domestic oil production wont shield consumers from the economic damages inflicted by high oil prices and price volatility.
For example, countries that produce more oil than they consume (like Canada and Norway) meet the typical definition of being energy independent. Yet, because the oil market is global, these exporting nations still must pay the going price for oilcurrently around $100 per barrel. This dependence on the global oil market demonstrates that the true measure of energy security is not how much oil a nation produces, but how much it consumes. HP
Fig. 2. US petroleum source by origin, 1950 to 2010.