Much has been written and said about the benefits accruing to the U.S., and other countries, from achieving “Energy Independence”. Thomas L. Friedman, the New York Times journalist and author, has been at the forefront of this concept. The consensus of experts in the energy industry is that for the U.S. to achieve total self-sufficiency in energy is an unattainable pipe dream, and even if achievable, the costs would far outweigh the benefits. However, there certainly are strong and valid economic and political reasons to lessen the dependence on foreign energy sources and to maximize the energy imported from countries that share our basic values (e.g. Canada).
The calculation of sophisticated estimates of the values for each of the effects are complex and require the skills of professionals in energy economics. The following is an outline of actions and decisions which could be taken by the government and companies in the energy industry to lessen the dependence on imported oil, and the effects.
I. Reduce Fossil Fuel Consumption:
1. 1 Automobiles:
1.11 Reduce miles driven, by increasing gas taxes, car pooling incentives, offer
more efficient public transportation.
1.12 Smaller, lighter vehicles – tax incentives
1.13 Switch to diesel engines
1.14 Develop and produce hybrid engines (gas and diesel)
1.2 Metro and Inter-City Public Transportation
1.21 Convert buses to alternate fuels (e.g. LPG or CNG)
1.3 Truck Transport
1.21 Higher fuel prices will reduce miles driven, providing incentives to switch to
rail for long haul transport (possibly increased taxes for longer hauls). There
are economic costs involved, e.g. increased delivery times.
1.22 Conversion to diesel + ethanol fuel mix.
1.31 Convert to ethanol blended diesel fuels.
1.51 Newer aircraft are more fuel efficient, long flights more efficient that short
commuter runs, which can be served more efficiently by rail networks.
2. Power Generation
2.1 Consumer incentives to reduce consumption, e.g insulation, etc.
2.2 Nuclear – Replace old coal and gas fired facilities with nuclear plants;
3. Industrial – Major users
3.2 Heavy oil production – tar sands, shale oil, tight sands, coal bed methane
3.3 Steel industry
3.4 Pulp & Paper Industry
II. Increase Domestic Production of Oil & Natural Gas
1.1 Exploration in “Off-Limits” areas: ANWAR, Atlantic, Pacific coasts, Eastern
1.2 Secondary and tertiary recovery from old fields
III. Decrease the Cost of Imported Fuels
1. Decrease the “Political Risk” component of oil prices and seek alternative sources of supply by developing new fields and producing Countries
2. Improve pipelines and mid-stream infrastructure
Quantifying the Exercise
There is a considerable “political risk” component in the price of crude oil, less in natural gas (including LNG). Decreasing energy imports lessens the political risk, thereby reducing the geo-political leverage of the producing countries. This reduced leverage will serve to further reduce political risk, putting further downward pressure of pricing. There is a compounding effect here:
a. Decreasing energy imports will substantially reduce the U.S. balance of payments deficit, while
b. Decreasing the deficit will strengthen the U.S. dollar.
c. A stronger dollar has many both positive and negative effects: it increases the cost of American exports and reduces costs of imported products. It decreases the value (purchasing power) of government debt instruments held by foreign lenders.
This is a solvable problem assuming that the government and the private sector are on the same page. However, that will require a reconciliation of their mutual objects, which will not easily be accomplished.
Byron K. Varme