Bringing oil intensity to the energy debate

America has also produced more oil here at home for three straight years, largely by the development of oil shale fields and our off-shore resources. A nearly two decade long moratorium on new off-shore development was lifted under President Bush and a policy opening new off-shore areas for leasing has been continued under President Obama (with the exception of the BP spill-related moratorium). Both administration’s have supported development of on-shore shale oil. We should also be expediting infrastructure that will relieve bottlenecks, like the pipeline from Cushing, Oklahoma to the Gulf Coast, just announced this week, while we continue to work on larger pipeline projects.

{mosads}These actions– better efficiency and increasing domestic production–are cutting US oil imports dramatically. U.S. imports dropped below 50% last year for the first time in 15 years, according to the Energy Information Agency, and will fall to 36% in next two decades, they predict. Falling imports are very good news because it will cut our trade deficit by hundreds of billions of dollars, limiting the wealth transfer from the U.S. to other nations.

Despite all of this, many Americans continue to struggle with the impact of high gasoline prices on their family budgets, and high prices threaten our broader economic recovery, as well. So there is still much more to do to change our long-term oil equation.

Production of domestic oil is a bright spot in the American economy and should continue to be encouraged. Shale oil production from places like the Bakken in North Dakota and greater off-shore production from the Gulf Coast and other regions is creating critical jobs and economic growth. We must look for more of these opportunities on federal lands and waters, including from many areas in Alaska.

But domestic production will only get us so far. We have to realize that America has little ability to control the price of oil, no matter how much we produce here at home. Oil is a globally traded commodity, and no country is invulnerable to the global market. This includes the U.S., which holds only 2% of the world’s proved crude oil reserves. In short, the U.S., like everyone else besides OPEC, is an oil price taker, not a price maker.

This means that our ability to protect the economy from oil price shocks is determined primarily by the amount of oil we use compared to the size of our economy; that is, by the oil intensity of the U.S. economy. 

Here again, we have been making steady progress. In 1975, America’s oil intensity was 1.2 barrels of oil for every $1000 of GDP; in 2010, we only used half a barrel of oil for the same amount of GDP (all figures in adjusted 2005 dollars).

This oil intensity metric will continue to improve as fuel economy and other efficiency measures increase, but efficiency alone may not keep pace with oil price increases.  Happily, efficiency is not the only option.  Going forward, the best way to cut the oil intensity of our economy will be to create viable alternatives to oil.

Here, America has not done as well. Oil still fuels 93% of our transportation sector needs. The 2007 federal energy bill did include aggressive production requirements for ethanol, and this production has helped cut our oil intensity. The next step is to achieve additional production from advanced (cellulosic) ethanol to meet our current target of 36 billion gallons of ethanol by 2022.

Many other oil substitutes are available if we will invest in them. Using newly abundant natural gas and propane, especially for trucks and buses, have the potential to reduce total U.S. petroleum use. Switching to more electric vehicles, which automakers are beginning to bring to market, and developing the needed infrastructure and electric grid transmission, likewise could significantly cut our oil use over time. Other alternative fuels including biofuels from algae could be transformative. In the long run, oil alternatives will be a key reducing our vulnerability to price shocks.

America cannot control the price of oil. But we can control our own energy destiny. An aggressive national energy policy that includes investments in domestic oil production, improving efficiency and creating more oil substitutes can insulate our economy and our people from the worst of coming oil price shocks. And doing that will go a long way toward making future Groundhog Days a lot less painful.

Former Senate Majority Leader Trent Lott (R-Miss.) and former Sen. Byron Dorgan (D-N.D.) are senior fellows at the Bipartisan Policy Center and co-chairman of its Energy Project.