The United States, like any forward-thinking investor, needs to diversify its energy portfolio. The country is not going to be able to drill its way out of this energy crisis; oil will not save us.
First, there is the simple fact that we consume about 7.7 billion barrels per year, far more than the 1.8 billion we currently produce. In addition, there has been a steady decline in domestic annual production from our 1970 peak level of 3.5 billion barrels.
Our proven reserves, defined as oil that can be recovered with known technologies under current economic conditions, are only 21.7 billion barrels. Do the math -- that is only a dozen years at current production rates, less than three years of total consumption.
Of course, proven reserves are not a fixed number; they can increase with new exploration, improved recovery technologies and higher oil prices. But despite rising oil prices, U.S. proven reserves declined by almost a quarter from 1986 to 2006. And while we might be able to expand reserves by relaxing environmental restrictions on exploration and development, voters have been clear that they are not willing to go down that path.
So, can we do what every household does when it needs a product it does not produce itself -- go to the market?
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Of course we can, though relying on international production raises the question of whether the United States is drilling its way out of the energy crisis or buying its way out.
More important, it raises economic and security issues. Last week light, sweet crude was trading at $134.86 per barrel. Many analysts are projecting prices approaching $200 per barrel before long. Have we really avoided an energy crisis when we pay these prices for our imports?
Perhaps world oil prices will come back down. After all, while world consumption is currently running at 31 billion barrels per year, proven reserves are more than 1,300 billion barrels, more than a 40-year supply at current consumption rates. It is possible that the current high prices are a function of temporary conditions: production capacity constraints, political unrest, and speculation in the market place.
A closer look suggests that while these factors are important, there are underlying -- and more permanent -- forces at play. Most significant, the growth in demand in the two most populous countries, China and India, is staggering.
While they currently consume a relatively small percent of total world oil production, their inevitable growth in consumption will dramatically alter the world oil market over the coming decades. World demand for oil is expected to increase by1.4 percent this year alone.
And although world production of oil has increased steadily over the past couple of decades, there are signs of potential glitches. Oil production in the North Sea is declining. Mexico's output is dropping. And Russia, one of the great sources in output growth over the past decade, just hopes to stabilize production in coming years.
Meanwhile, some of the largest reserves in the world are held by countries that are unpredictable trading partners at best -- Iran, Iraq, Venezuela, Libya, Nigeria, and Russia. Twice this year President Bush visited Saudi Arabia and pleaded with King Abdullah to increase production. This places a great nation in an untenable position.
The alternative to trying to drill, or buy, our way out of the current situation is to think our way out.
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We can invest heavily in developing new alternative technologies that draw on solar and biomass energy. We can develop better energy storage technologies that will facilitate the spread of plug-in electric hybrid vehicles and wind energy.
On the policy front, we can substitute taxes on pollution and energy consumption for taxes on labor and capital. And most important, we can rethink how we use energy -- we can be more efficient.
Kenneth R. Richards is the associate director of the Lugar Center for Renewable Energy and an associate professor of the School of Public and Environmental Affairs at Indiana University in Bloomington.
