1.3 Problematic Dependence on Foreign Fuel Sources
The US is highly dependent on crude oil to produce fuels for transportation. The figure below shows how the transportation sector is almost all oil-based and the other sources barely make a dent in the hold petroleum has. Up until the last few years, the US has been highly dependent on foreign sources of oil. In 2023, petroleum accounted for approximately 89% of the primary energy consumption in the transportation sector, but it contributed less than 1% to the primary energy consumption in the electric power sector. The chart below illustrates the various types and quantities of primary energy sources used in the United States, the primary energy consumption by the electric power sector and end-use sectors, and the sales of electricity from the electric power sector to these end-use sectors. The US was the world's largest petroleum consumer (EIA, 2012), but was third in crude oil production. Over half of the material that was imported into the US comes from the Western hemisphere (North, South, and Central America, and the Caribbean), but we also imported 29% from Persian Gulf countries (Bahrain, Iraq, Kuwait, Saudi Arabia, and the United Arab Emirates).
The top 5 sources of net crude oil and petroleum imports included 1) Canada, 28%, 2) Saudi Arabia, 13%, 3) Mexico, 10%, 4) Venezuela, 9%, and 5) Russia, 5%. According to CNN Money, the US was behind Russia and Saudi Arabia in oil production for the first three months of 2016. See the World's Top Oil Producers for additional information. However, this situation recently changed, and the US became the world's largest oil producer in 2018 for the first time since 1973 and held the lead position through 2022. U.S. oil refineries obtain crude oil produced in the United States and other countries. Based on EIA, crude oil is extracted in 32 U.S. states as well as in coastal waters. In 2022, five states together made up roughly 72% of the total crude oil production in the United States. In 2022, 98 countries collectively produced around 80.75 million barrels of crude oil, with five of these nations contributing approximately 52% of the global total. The top five crude oil-producing countries and their respective shares of world crude oil production in 2022 were: United States 14.7%, Saudi Arabia 13.2%, Russia 12.7%, Canada 5.6%, and Iraq 5.5%. See the following link for further information, see America is now the world's largest oil producer.
So, while oil is fairly available currently, there is extensive potentially explosive turmoil in many petroleum-producing regions of the world, and, in several places, the US's relationship with some oil-producing countries is strained. China and India are now aggressive and voracious players in world petroleum markets because of high economic growth (as pointed out in the previous section). Saudi Arabia's production is likely "maxed out," and domestic oil production peaked in 1970. While the US dependence on imported oil has declined after peaking in 2005, it is clear that if any one of the large producers decides to withhold oil, it could cause a shortage of fuel in the US and would cause the prices to skyrocket from an already high price (depending on the type of crude oil, the price of oil is currently $100-$106/bbl) (see U.S. Energy Information Administration). The figure below is a graphic showing the price level of oil from 1950 until recently. As you can see, there has been significant volatility in the price of oil in the last ~50 years. One of the first spikes came in 1974 when the Organization of the Petroleum Exporting Countries (OPEC) became more organized and withheld selling oil to the US. It was a true crisis at that point, with gasoline shortages causing long lines and fights at gas stations, with people filling up only on certain days depending on their license plates. It had a high spike in 1980, but a significant low in 1986. When the price of oil hit a significant low in 1998, the government took steps to lower the tax burden on oil companies. But when the prices went back up, the law remained in place, and currently, oil companies do not have to pay taxes on produced oil. When the reduced tax burden went into place in the late 90s, it made sense, but oil companies have continued to convince Congress with lobbyists that it should stay that way. What do you think?
As seen in the figure below, there were major fluctuations in gasoline prices in the last few years. As we will discuss in a later lesson, several aspects contribute to the price of gasoline including but not limited to the recent COVID-19 Pandemic. This is a graphic that shows the price volatility for gasoline from 1990 - 2024 (most recent data available) and the other figure below shows a breakdown of what goes into the price of gasoline.
In recent years, petroleum became less available and more expensive, and replacement alternative fuels emerged because the economics were beginning to become more favorable. However, due to lower demand and high petroleum supply, prices drastically dropped and may affect the development of alternative fuels. There is one factor that will most likely reverse this trend; energy demands will continue to increase worldwide. For future transportation fuel needs, most likely a liquid fuel will be necessary, and no one source will be able to replace petroleum. In the International Energy Outlook 2021 (IEO2021) Reference case, it is anticipated that, without major policy or technological advancements, global energy consumption will rise by nearly 50% over the next 30 years. While petroleum and other liquid fuels are expected to remain the world's primary energy source by 2050, renewable energy sources like solar and wind are projected to expand to almost the same level. It is important to note that Petroleum and other liquids includes biofuels.
Note: Petroleum and other liquids includes biofuels.