Director's Message: Fuel Price Solutions – The Long and Short of It

Over the past few months, high oil and gasoline prices have had pundits and politicians flailing away about what we should do.  On the one hand, some believe the United States is sitting on countless oil deposits, and the quickest, best solution is to poke holes in the ground and watch gas prices fall. On the other hand, weathered industry professionals, such as retired oil baron, T. Boone Pickens, realize an immediate need for independence from oil, whether domestic or foreign.  In Pickens’ recently purchased TV spots, he clearly states that “we can’t drill our way out of this emergency,” and in a recent interview with CNN’s Lou Dobbs he said America should utilize its cleaner, cheaper, abundant resources, such as natural gas, wind and solar power.

The U.S. consumes about 21 million barrels of oil per day (mbd) – roughly 25 percent of total world oil production.  We import almost two-thirds of what we use (14 mbd ) from foreign countries.  The cost of these imports is approaching $2 billion per day ($700 billion per year at $136 per barrel).  This is a significant drain, both on the finances of individual households and on our national economic security.

What are the near term (three to five-year) options?

For the drilling ideologues the answer is simple:  drill, drill, drill.  Supply and demand laws say that drilling will increase oil supply to the point that prices will fall.  However, this assumes that we can actually produce significantly more oil.  Yet, according to the U.S. Energy Information Administration (EIA), we produced almost 8.3 mbd in 1996, but only a little more than 6.7 mbd in 2006.  Domestic crude oil production dropped by 0.15 mbd each year during this 10-year period, even though oil prices were rising.

This decline in domestic oil production was caused by “oil field depletion.”  The fact is U.S. domestic oil production peaked in 1973 and has been in decline ever since.  And we can also reasonably expect existing domestic oil production to decline by at least 0.15 mbd per year, or by about 0.75 mbd over the next five years.

The U.S. Department of Energy’s Office of Fossil Energy provides estimates for new oil production rates.  In a 2006 study, they determined that on the three to five year horizon, “new” oil could provide about 0.80 mbd, just slightly more than we should expect existing fields to decline.  Based on these data, just staying even with today’s production rate will require new drilling, but there will be no net increase in domestic oil supplies as a result.

Throughout the years, there have been a number of proposals to relieve high gas prices and America’s dependency on foreign oil.  In the 1970’s, a national 55 mile-per-hour speed limit was imposed to increase our fuel efficiency, and decrease drivers’ trips to the pump.  Evaluation studies commissioned by Congress in the late 80’s showed that this resulted in a little less than two percent motor fuel savings.  Today, the savings from a 55 mph speed limit would be about 0.27 mbd.

The latest craze in alternative fuels is ethanol. The U.S. is the world’s largest producer of ethanol.  In 2002, the U.S. produced about 2.7 trillion gallons of ethanol. By 2007, that figure had increased by 100 percent, reaching 5.3 trillion gallons.  Total U.S. annual ethanol production translates to about 0.26 mbd of oil equivalent.  Just producing enough ethanol to run all our vehicles on E10 fuels (10 percent ethanol by volume) would require a four-fold increase in current cropland dedicated to ethanol feedstock production.

Another potential solution to high fuel prices that is proposed year after year is increased Corporate Average Fuel Efficiency (CAFE) standards.  CAFE standards, or average miles per gallon (mpg) of U.S. vehicle manufacturers’ fleets, were introduced in the 1980’s to combat high oil and gasoline prices.  Our penchant for SUVs in America, combined with a “light truck loophole” in the regulations, has led to average passenger fleet efficiency of about 20 mpg.  Increasing this efficiency by just five miles per gallon would net almost two million barrels per day in oil savings. That’s almost 10 times as much oil savings as we could get from a 55 mph speed limit and 10 times as much as our total current U.S. ethanol production. Imagine how much oil we could save if there was widespread use of ultra-efficient cars like the plug-in hybrid, which can obtain around 100 mpg.  We could practically quit importing oil and keep those billions of dollars circulating in our own economy.

As California Governor Arnold Schwarzenegger said during his speech at Florida Governor Charlie Crist’s recent Global Climate Change Summit, “America did not become addicted to oil overnight, and we won’t break free overnight either.”  Using more ethanol and increasing domestic drilling cannot provide the short-term results and quick relief at the gas pumps Americans are looking for right now.

The best short-term solution is to purchase less transportation fuel by making thoughtful new vehicle purchases and providing regular maintenance for existing vehicles. Governor Crist regularly mentions in his speeches that simply maintaining the correct vehicle tire pressure could lower personal fuel use by up to four percent.  He makes his point by asking us to think about how much more effort it takes to peddle a bike with flat tires than one with properly inflated tires.

It’s time for us to take this oil “emergency” into our own hands by choosing to make more fuel-efficient decisions. You can find additional information on how to be more fuel-efficient with your vehicle on our Web site.

James Fenton,
Director, Florida Solar Energy Center