U.S. Department of Energy officials drafting a national energy strategy should pay close heed to new numbers reflecting the country's energy health. By the measure that should be most significant to policy makers, the patient is ill and getting worse.
According to American Petroleum Institute, oil imports as a percentage of total deliveries reached 46% in 1989, just short of the record high 47.7% of 1977. Statistical adjustments to neutralize changes in stocks reverse the standings: Last year's dependency figure jumps to a record 46.7%, and 1977's drops to 44.8%.
DEPENDENCY GROWS
Even greater import dependency is in store this year. Oil & Gas Journal, in its annual Forecast/Review report beginning on p. 49, predicts imports will satisfy 48% of 1990's petroleum demand. The trend should worry DOE and compel any initiatives resulting from current energy strategy hearings.
Unfortunately, some analysts advocate official nonchalance over oil imports. U.S. petroleum trade partners, they say, are far less likely and far less able now than they were in 1973 to halt oil shipments in pursuit of political objectives. The reasoning is sound. The U.S. has more potential sources of supply than it had before the Arab embargo. And most foreign suppliers now have interests that an intentional supply disruption would contradict.
So what U.S. interests are at stake if there's no embargo threat? For starters, there's the trade deficit. Oil purchases from abroad represented 44% of the cumulative $101.7 billion trade gap of 1989's first 11 months. There's also foreign policy. As reliance grows on other countries for supplies of a strategic commodity, so grows the U.S. interest in security of those countries-and the likelihood that it would fight to protect that interest.
To be sure, the U.S. cannot escape its need for foreign oil. Energy strategy should aim not at eliminating imports but at finding economic ways to hold them in check. And that means either restraining consumption, or expanding domestic supply, or both.
The government cannot restrain consumption as efficiently as the market can and shouldn't try. Last year oil prices increased, and the slow demand growth of recent years stalled.
The market also works with regard to supply but isn't fully free to do so. Natural declines of a mature producing country no doubt had a hand in the record 553,000 b/d U.S. production drop API reported for 1989. They'll contribute to the 275,000 b/d slide OGJ predicts for this year. But those declines also reflect state, local, and
federal government policies discouraging activities that would bring new supplies on stream.
DISCOURAGING NEW SUPPLY
Environmental concerns have delayed production start from giant Point Arguello oil field off California. Tax changes following the Exxon Valdez oil spill hurt economics of large discoveries in Alaska. Environmental opposition mires federal leasing onshore. Federal leasing offshore has stalled outside the central and western Gulf of Mexico. And recent tax code changes discourage risky investments.
The federal government could at least slow the U.S. production decline by removing exploration and production tax disincentives, by living up to its leasing responsibilities, and by urging states not to deny the rest of the nation rightful access to a vital resource. A national energy strategy that lacked these basic elements would do little for domestic production and thus would foreclose its best opportunity to keep import dependency within manageable limits. And an energy strategy not principally concerned with import dependency isn't worth the trouble.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.
