The U.S. consumes 25% of the world’s oil annually, but has only 2% of the world’s reserves. As shown at right, 62% of the world’s proven oil reserves are located in the Middle East. As a result, world oil production increasingly will be centered in that region.

 

 


“Keeping America competitive requires affordable energy. And here we have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world.” – President George W. Bush

U.S. oil imports have steadily climbed as consumption increases and domestic production declines, as shown at right. Imports now supply about 60% of total U.S. consumption.

 

 


Transportation accounts for about two-thirds of all U.S. petroleum use, and oil supplies 96% of the energy consumed by transportation. Thus, the U.S. transportation sector could not operate without oil.

This dependence translates into military and foreign policy risks because of the importance of protecting access to needed oil reserves in unstable areas. President Jimmy Carter put it clearly in the 1980 State of the Union address when he said: “An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.”


“The prices that people are paying at the gas pumps reflect our addiction to oil. Addiction to oil is a matter of national security concern … [S]ome of the nations we rely on for oil have unstable governments, or agendas that are hostile to the United States. These countries know we need their oil, and that reduces our influence, our ability to keep the peace in some areas. And so energy supply is a matter of national security.” – President George W. Bush

The oil trade has resulted in an enormous transfer of wealth to oil-producing states – half a trillion dollars in 2006 alone. This cash flow has financed corrupt and repressive regimes opposed to American interests. Columnist Thomas Friedman and others have observed that there is “an inverse relationship between the price of oil and the pace of freedom,” and that the U.S. is “funding both sides in the war on terrorism."

Unfortunately, diversifying the sources of U.S. oil supply does not materially affect the economic risks of dependence. Because oil is a global commodity, freely traded, the price of oil is determined on the world market. It responds to the forces of supply and demand and to political events, no matter where they occur. Even if the U.S. shifted all of its oil imports to relatively safe sources, such as Canada and Mexico, it would not be protected from a price shock – whether caused by politics, war, or terrorism. The only way to reduce the risks associated with oil is to reduce the demand for it – in other words, to increase the efficiency of oil consumption and increase the use of alternative fuels.

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Biofuels could significantly reduce the amount of oil needed to fuel American cars and trucks, which constitutes two-thirds of the nation’s total demand for oil. Together with efforts to improve fuel economy, biofuels could reduce U.S. gasoline consumption to nearly zero.

There is no guarantee that biofuels will directly displace imported oil; biofuels will also displace some domestically produced oil. However, biofuels will give consumers something they have never had – a choice – and thus will be a damper on both the volatility of oil prices and the effect of those swings on the U.S. economy.

Skeptics are quick to point out that the U.S. could not possibly grow enough corn to replace all of the nation’s petroleum use. Indeed, the limit of ethanol production from corn is generally estimated to be 15 to 20 billion gallons per year. However, the use of additional feedstocks will allow the replacement of a larger share of gasoline demand, now running at 140 billion gallons per year.

Secretary of Energy Samuel Bodman recently announced a goal of making cellulosic ethanol a practical and cost-competitive alternative by 2012 (at a cost of $1.07 per gallon) and displacing 30% (60 billion gallons) of gasoline by 2030. This is consistent with the joint study published by the U.S. Departments of Energy and Agriculture on the future potential of biomass feedstocks. Others have suggested a goal of 100 billion gallons a year.

Of course, supply provides only half the answer to reduced oil dependence. Increased vehicle efficiency also reduces total oil consumption and enables a given amount of biofuels to displace a larger share of petroleum. Thus, doubling the fuel economy of the vehicle fleet in the U.S. – for example, through the widespread introduction of plug-in hybrids with flexible-fuel capability – would not only reduce by half the amount of oil consumed, it would also double the share displaced by biofuels.

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