Various measures of US energy
security indicate that the US might be heading for an energy crisis.
Many of the warning signs that existed before the energy crises of 1973
and 1979 exist today and they indicate that the current situation could
be even worse. US dependence on petroleum imports has grown steadily
for over a decade and has been at record levels for several years.
Petroleum inventories are low and the ability of Strategic Petroleum Reserves
(SPR) and commercial petroleum stocks to cope with an interruption in imports
matches the historic lows preceding the 1973 and 1979 energy crises.
The potential for an energy
crisis has never been higher. Oil prices have recently exceeded $30 per
barrel and they may continue to increase. The disruption of Venezuelan
oil supplies has increased the US dependence on Middle Eastern oil and
made the US more susceptible to supply interruption. With the crisis in
Venezuela, the capacity of OPEC to meet any additional supply interruption
is limited and a war with Iraq would put OPEC at its limit. Any energy
crisis in the near future will hinder President Bush’s efforts to stimulate
the economy through tax cuts and other fiscal measures. An energy crisis
could cause a recession, inflation, and higher unemployment.
In this article we will discuss
various measures of energy security, import dependency and vulnerability
to assess the current US energy situation.
II. What Constitutes an
Energy crisis is a situation
in which the nation suffers from a disruption of energy supplies (in our
case, oil) accompanied by rapidly increasing energy prices that threaten
economic and national security. The threat to economic security is
represented by the possibility of declining economic growth, increasing
inflation, rising unemployment, and losing billions of dollars in investment.
The threat to national security is represented by the inability of the
US government to exercise various foreign policy options, especially in
regard to countries with substantial oil reserves. For example, the
recent disruption of Venezuelan oil supplies may limit the US policy options
Looking at the two energy
crises of 1973 and 1979, we find some common elements between the two.
1. started with
political turmoil in some of the oil producing countries.
2. were associated with
low oil stocks.
3. were associated with
high import concentration from a small number of suppliers.
4. were associated with
declining US petroleum production.
5. were associated with
high dependency on oil imports.
6. were associated with
low level of oil industry spending
7. led to speculation
8. caused an economic downturn
9. limited US policy options
in the Middle East
|The same indicators
and warning signs that existed prior to the energy crises of 1973 and 1979
exist today: a political crisis in Venezuela that halted most of
the Venezuelan oil exports, the threat of war with Iraq, stocks at their
lowest level in twenty six years, imports nearly record high, more concentrated
imports than ever, and low upstream expenditures. However, the current
problem is even worse than the previous two energy crises because, unlike
the 1970s, we are starting from a case of low economic growth. The massive
stimulus package that is planned by the Bush administration could exacerbate
the situation by increasing the demand for oil.
Some experts argued in 2000
that the US was heading for an energy crisis at that time. Although the
crisis did not happen because not all the warning signs existed at that
time, the current situation is much worse because US production is lower,
import dependency and import concentration are higher, and world excess
capacity is lower and matches that of the 1973 crisis.
III. Measures of Energy
There are five principal
measures in evaluating petroleum security from a national perspective:
domestic production capacity, dependence on imports, the degree of import
concentration, petroleum inventory relative to imports, and the ability
to second source petroleum imports in the event of an interruption from
one or more suppliers.
1. Domestic Production Capacity
US oil production is currently
at a record low and has been steadily declining since 1986 as shown in
Figure (1). Although the US oil production reached its peak in the
1970s, the increased production in the second half of the 1970s came in
large part from Alaska. Production from Prudhoe Bay came on line in significant
volumes causing Alaskan production to increase from 464,000 barrels per
day (b/d) in 1978 to 1.6 million in 1980 and peaked at 2 million b/d in
Petroleum production in the
lower 48 states dropped from 9.0 million b/d in 1973 to 7.5 million b/d
in 1978. Only the development of oil in Alaska prevented an even higher
dependency. By 1980 the production decline halted and there were very modest
gains that extended through 1985. The US domestic oil industry experienced
a greater rate of price increase than the rest of the world as domestic
prices were deregulated.
The collapse of oil prices
in 1986 wiped out many of the stripper wells, especially in Texas, Oklahoma,
Louisiana, and Colorado. The US lost 1 million b/d in production between
1986 and 1989. The aftermath of the Kuwait invasion raised oil prices
and halted the declining trend temporarily until 1992. The US oil
production suffered another major setback in 1998 and early 1999 when world
oil prices approached $10 b/d. However, higher oil prices since 1999
led to relatively stable US petroleum production of approximately 5.7 million
b/d, about 60% of the US production in 1973.