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Is This What Energy Independence Looks Like?

by Michael Levi
April 17, 2013

The Energy Information Administration (EIA) is out with a partial release of its Annual Energy Outlook (AEO), a modeling exercise that looks at what the next twenty-five years or so might hold. One of the most interesting elements is a case where the United States achieves (by the mid-2030s) what some call “energy independence” – a state where its net import of liquid fuels drop to zero. To create this case, the EIA modelers pump up pretty much every assumption they can, trying to close the gap between U.S. supply and demand. Here’s what it takes:

  • Better vehicle efficiency, cheaper car technology, higher fuel economy standards through 2040, better batteries, and less driving
  • More natural gas in every transportation mode (truck, rail, etc), and more conversion of natural gas and coal into liquid fuels
  • All sorts of successes for biomass-based fuels
  • Shale gas and tight oil wells each produce twice as much oil as is currently expected and wells are able to be spaced much closer together
  • Colorado oil shale and Alaska tight oil get developed
  • There is 50 percent more undiscovered oil in the United States than currently believed

This is a pretty mind-boggling set of stars that would need to align. (And that’s setting the environmental consequences aside.) The EIA model, of course, only reflects one possible future; others surely will offer alternative schemes, including ones that push harder on the demand side and get less out of new supply. Still, it’s a useful reminder of how far away we are from energy self-sufficiency, and the leaps one needs to make to reveal a path that would take us there.

There’s also one more assumption that’s less prominently discussed in the EIA scenario: despite the spectacular turnaround in U.S. fortunes, the price of oil barely falls relative to the central case, remaining near or above $100 forever and reaching $220 in 2040. That’s essential to keeping U.S. demand suppressed while facilitating new supplies. In an excerpt from my forthcoming book published by Bloomberg View on Wednesday, I look at whether big gains in U.S. oil production could permanently crash world prices, and express doubt at that prospect. But if you take the sort of scenario that the EIA has outlined, and assume that other countries will see similar changes of fate, it becomes increasingly tough to see how the world can square that much supply growth with plausible world demand. At some point, something in the various scenarios that people are dreaming up will need to give.

One more interesting note on the EIA no-imports scenario, on which I’ll have more to say later: despite cranking up every source of petroleum under the sun, the scenario actually projects lower U.S. greenhouse gas emissions, a result of reduced fuel demand. The second Bloomberg View excerpt from my forthcoming book (the third will run on Friday) gives some insight as to why. It also gets briefly at the broader (and more fundamental) question of what the global consequences of growing U.S. oil output will be for climate change.

 

 

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