Course:ECON371/UBCO2011WT1/GROUP5/Article4
America May Not Need Middle East Oil After All
Summary
The idea of this article is mainly focuses on the consumption of oil in the United States for the past four decades because oil has been a compliment good for basically anything that can generate energy. Except for a short oil crisis of the 1970s, when fuel-efficient cars became all the rage, oil imports have risen steadily for the past four decades.
Based on the article, the net oil import of oil rose from 6025 barrels per day to 12,549 barrels per day, which is 60.3% of America’s consumption; however, until recently, oil consumption has begun to fall due to the development of new efficient technologies. When politicians were debating on regulations for the United States to become less dependent on foreign oil, technology became more advanced. Crude oil coming from the Gulf of Mexico has increased by 334,000 barrels per day. Based on Canadian Association of Petroleum Producer, oil sand from Canada consists of 1.47 million barrels of oil per day in 2010, which makes Canada the number one supplier (26.9%) to USA. One of the number one fuel burning goods are cars, and with the development of more efficient cars to use fuel more efficiently, demand for fuel has fallen. By 2025, an estimate of 2.2 million barrel per day will be saved by such progress of fuel efficient cars.
Analysis
The article does have some good points such as the fact that demand for oil in the United states is decreasing and Canada is producing more oil then before. But if you look at the numbers (if these numbers are accurate) 47% - 26.9% = 20.1% of the oil that the states imports is over seas from the middle east. What would happen if the middle east just cut off these oil wells from the US? Economically the US would put huge pressure on its other suppliers of oil to produce more faster, this in turn will rush the suppliers and as the past shows when people rush there is far more margin for error, meaning the possibility of more episodic spills. And with the increase volume of oil moving through pipes and in tankers these spills such as the BP spill could be magnified on alarming scales. Even with this oil prices will increase. But the other factor is that the government will see these increased risks of spills and leeks and put in place increased measures that the oil companies will have to go through to be able to produce. These policies in turn will increase the abatement costs of the company by having to put in things like higher efficient spill detection equipment, or stronger hulls on tankers so that spills are less likely. This in turn will increase oil prices rise even higher. With these higher prices people see there is a profit to be made even if it means destruction of a natural public good such as the national parks off the Queen Charlotte Islands where there is rumored to be a large oil field under the ocean floor. This is where there is a huge problem up to this point there has been a mutual Pareto efficiency equilibrium this equilibrium is where you cant do some change with out making someone worse off, so the policies put in place for new drilling have to be looked at really closely.
Conclusion
Overall, this article is fairly optimistic about the United States' ability to stop depending on Middle East oil. The facts and figures are convincing, but the article begs this question: why is the US so worried about decreasing Middle East oil imports? The answers are more likely political ones than economic ones, but the two tie together. Less dependence on Middle East oil means less dependence on Middle Eastern relations.
Realistically, the US could probably up its national production and increase its imports from places such as Venezuela and Canada to satisfy its oil needs. However, as pointed out above, this would lead to a wide array of economic problems, both environmentally or not. Any increase in oil production comes with an increase in risk. If the oil import system the US currently has is working, why take these risks?
Prof's Comments
I think that one of the big drivers for the reduction in the use of oil stems from the recent increases in price. Global demand is increasing, and the US is only one part of that.
8/10