United States Crude Oil Supply and National Security (Part 1)

The future availability of our US crude oil supply is part of the current unrecognized international economic war. The objective of this conflict is control of natural resources, especially crude oil and natural gas, technology, shipping lanes, markets, job creating facilities, wealth formation activities, military assets, cyber security, etc.

From a strategic viewpoint, there are major decisions being made in Washington DC today which will negatively impact our future supply of crude oil. What politicians seem not to understand is that the oil industry must have long term planning, decades in the future. Administration-based oil industry decisions to change taxes, royalties, fees, limit access to offshore production and drilling on federal lands, increase regulations, impose environmental restrictions on coal fired power plants, emphasize Green Energy, etc. will create unpredictable, often unstable conditions for United States oil industry development.

Historical perspective is necessary, and our nation forgets that in 1940 Japan received 30 million barrels or 93% of crude oil and 90% of its gasoline from the United States. Our Japanese oil embargo was one of  several  factors which encouraged their military regime to decide to attack Pearl Harbor. Crude oil today is as important as it was in 1940.

In 1977 the Department of Energy was created to make the US less dependent on foreign sources of crude oil. However, the reverse has happened, and today we are substantially more dependent upon foreign crude oil.  Today the US consumes about one-fourth of the world oil consumption with well over 50% of our crude oil being imported. This has a strongly detrimental impact upon the stability and value of our dollar and on our balance of trade.  There are many forms of energy that the US could theoretically use in the near future which could lessen the dependency on foreign oil.

For example,  the US has a couple hundred years of coal reserves, but several states are restricting building new coal fired power plants for environmental reasons. The restriction of coal- fired power plants  will increase US dependency on foreign crude oil.

There are expectations renewable energy will substantially decrease our dependence upon foreign crude oil. In twenty years renewable energy from wind, biomass, solar, waste heat, and other green energy will not be a dominant percentage of our energy use in their current developmental state. Still, some New England states plan to replace all their current heating oil usage with renewable energy, especially wind energy. The viability of these ambitious plans is yet to be proven, and the economic cost of renewable energy will be high. For example, production of wind energy will never be consistent or predictable, so it will need to be supplemented with another source of energy.  Also, wind farms often are in remote locations with high transmission costs, and currently the transportation is relatively inefficient.

This leads to the reality that in the future the US must rely upon all sources of energy: crude oil, natural gas, coal, nuclear, renewable energy, hydrogen, atomic power, hydroelectric, etc.

The great change in the past few decades is that international large crude oil reserves are now controlled by National Oil Companies ( NOCs) which can fix prices and select buyers. Several nations, especially China, are gaining control of these oil reserves through joint ventures and development contracts. China has contracts to develop massive fields in Iran, Venezuela, Angola, etc. There is no longer a level field for contracts in many nations since some nations do not have anti-corruption restrictions, while other nations do not have a profit incentive. The predictable consequence will be that in the coming decade the US will have less and less access to international crude oil reserves at any price.

Offshore oil is the key to a stable US oil industry. The great giant undiscovered oil fields are offshore, either in shallow or deep water. There have been discussions to allow drilling off the US West Coast, East Coast, and Florida. Following the British Petroleum Gulf of Mexico deep water well blow out, drilling in these US offshore areas may not be allowed. The current debate over the federal deep water moratorium is just how it will financially impact drilling companies, labor forces, state taxes, and oil service companies. To survive, how many of these U.S. offshore oil companies and service groups  will be forced to go overseas?  Offshore domestic oil industry is the future of a strong, stable US oil industry, yet the proposed Senate CLEAR Offshore Drilling Regulation and the House HR 3534 bills will create great industry instability. Forcing our US offshore industry overseas will not foster a vibrant US domestic oil industry. A stable domestic US oil industry, especially an Offshore oil industry, is unequivocally essential to our national security and a strong dollar.