Petroleum Supply in the USA - Term Paper Example

Petroleum Supply in USA The bulk of petroleum supply in the United s comes from imports from various countries including African nations and Middle East Nations. Although there are vast domestic sources of petroleum in the United States, it is evident that the nation depends highly on imported petroleum. This paper will analyze the in detail the issue of petroleum supply in the United States. It will evaluate the domestic and imported sources of petroleum, the petroleum market as well as consumption patterns. It will also provide various strategies for mitigating the problems related to petroleum supply in the United Sates. Introduction According to the energy sector of the United States, petroleum products meets about 40 % of the Americans needs and wants. Most of the American citizens worry about the harzoudous effects of oil on the environment and they would like the nation to keep moving and acquiring more sustainable oil sources. Additionally, there is controversy over the political stage management and the sources of the American oil, which is vital in meeting the demands of oil in the American state (Wisegeek.com, 1). In more than 200 million years, formation of oil beneath the surface of the earth occurs continuously. However, in 200 years time, the rate of consumption of the oil formed beneath the surface of the earth is high. Research done shows that in 40 years to come, depletion of the oil resources remaining would occur. The United States would still have other fossil oil like shale, oil, coal, tar, sands and natural gas. This means that even if depletion of all the oil resources occurs in the United States, they would still have other fossil fuels that would earn them capital. United States do not only depend on the sale of oil as their only source of income but they have other sources. However, most of these energy resources are too expensive and the process of converting them to transportable fuels for use would cause harm to the environment as they produce harmful emissions to the surroundings (Glass, 5). Between the year 1950 and 1970, the world demand for oil has increased from 11 million barrels to 57 barrel respectively. The United States consumes almost 20.7 barrels of oil, which is the most compared to other countries, which are the five next largest consumers of oil, which Germany, Japan, Russia, China and India. The United States remains the largest consumer of oil even though the world demand for oil has increased as the economies of China and India has developed (Wright, 1). In the year 2009, refineries used an average of 14.3 barrels of oil per day. The balance came from imports offered by Iraq, Mexico, Saudi Arabia, Canada, Nigeria and other smaller producers. Through increased production from oil sands, Canada has become the United States’ leading crude oil supplier (Andrews, 12). In the case concerning high oil prices, increased infiltration of Biofuels in the liquids market reduces the necessitation for imports of crude oil and petroleum products, which have helped in reducing the high prices. Projections point out that the net import share remains flat in the near term, and then rises to 56 percent in 2035. This is due to increased demand and the imports becoming cheaper than the crude oil processed domestically (Cordesman & Burke, 5). In states like Texas, Alaska, and California, about 40% of Americas oil comes from these oil fields. The nation sells some of this oil to other nations such as Japan. The other oil supply in the US, which is about 60%, is from foreign sources. However, contrary to popular belief, the US has different oil interests all over the world and obtains oil and petroleum products from almost of every continent on Earth. This miscellany within the US oil supply permits the manufacture of a wide range of petroleum products, using crude oil of various chemical make-ups (Wisegeek.com, 2). Domestic Sources of Petroleum in USA In opposition to the popular assertion, the United States still has the huge resources of oil and natural gas. Since the early 1980s, the Outer Continental Shelf (OCS), including parts that have been out of stock to drilling may hold much natural gas and 86 billion barrels of oil, about four times todays proven U.S. reserves. The U.S. Geological Survey recently predicted that the Bakken formation in North Dakota and Montana might hold 3.65 billion barrels, which are more than 20 times of the 1995 approximation. In addition, there is increasing of 2 trillion barrels of oil shale concentrated in Colorado. If only 800 billion barrels were recoverable, that would be triple Saudi Arabias verified reserves (Samuelson, 2). There is an estimated 2 trillion barrels of oil buried beneath parts of Colorado, Utah and Wyoming. Geologists, petroleum companies and the federal government have known about these massive deposits for nearly a century (Petherick, 1). None of these sources, of course, will provide oil or natural gas in the near future because projects can take 10 to 15 years. Oil and gas must still be located, which seems to be a costly and chancy process (Samuelson, 3) Most people deem that the shale deposits in the Green River region of Colorado, Utah and Wyoming holds the equivalent of approximately 1.5 trillion to 1.8 trillion barrels of oil. According to the petroleum companies and scientists, costly processing of oil involved and the depths of deposits buried beneath the Rocky Mountains cannot permit the recovery of oil with the existing technology (Petherick, 2). Hauling out of oil from shale requires heating of the shale and poses major environmental challenges. In addition, its economic feasibility remains uncertain. However, added oil could decrease dependence on imports, which is almost 60 % of the U.S. utilization. On the other hand, exploration and development would bring forth high-salaried jobs (Samuelson, 3). In the year 2008, the offshore production of crude oil accounted for about 30 % of the total U.S. fabrication of crude oil, which is a decrease from 35 % in the year 2004. Offshore fabrication has been divided between production in federal and state waters. In the group involving the federal waters production, 95 % of the crude oil fabrication comes from the Gulf of Mexico and the remaining 5 % comes from waters off the coast of California. The water off Alaska contributes a high portion of the offshore production, where 78 % of the stat offshore production of crude oil was in 2008 (Humphries et al, 5). Foreign supply of Petroleum in United States In the year 1948, the United States became the net importer of oil. The seven main companies of big oil headed the world industry. Those developing countries that owned the large supply of discovered oil all over the earth were strewn. These companies went ahead and built legal and business systems for extracting the oil and controlling supply (2). By the year 1970, the oil companies started experiencing shortages of supplies. The U.S. imported one-third of its utilization, while the rate of demand in the world was rising from 2-3 mbd per year and most of this increases came from the Middle East oil (Wright, 2). The nations that contribute to sizeable amounts to the U.S. oil supply include Saudi Arabia, Colombia, Angola, Iraq, Nigeria and Canada. Other imports of oil in America include Norway, Venezuela, Equatorial Guinea, the United Kingdom, Kuwait and Algeria. Other countries ship refined oil in the United States to compliment the output of American refineries. Although wrinkles in the supply chain could be challenging, the variety of US oil supply makes it complex to interrupt the countrys supply of oil altogether (Wisegeek.com, 3). The American energy companies have branched out their sources of imported petroleum by increasing imports from other continents such as Africa. In the year 2006, almost 22 % the Americas imported crude oil came from Africa whereas the gross oil imports in the year 2006, accounted for 17 % of Americas total oil imports, which came from Persian Gulf. According to the research done by the National Intelligence Council, by the year 2015, there would be an increase in the imports of oil by the United States from Africa by 25 % percent (Krant, 15). Most of the oil supplied in the U.S refineries comes from the member countries of the Organization of the Petroleum Exporting Countries (OPEC). Member countries work together to ensure that the prices of oil are stable and ensuring that all the countries all over the world have access to oil when they require it. However, the U.S. supply of oil is not constrained to OPEC sources of oil. The country can regularly import oil from countries that are not members of the organization such as Canada at changeable prices (Wisegeek.com, 4). United States depends upon Canada and Mexico for the supply of liquid fuels. In the year 2009, Canada and Mexico happened to be the largest suppliers of liquid imports in U.S., offering 2.5 and 1.2 million barrels per day respectively (Cordesman & Burke, 10). Most of the Canadian crude oil exported to the United States comes from the oil sands, which is an extra heavy crude oil that necessitates additional processing or addition of diluents for export. Oil sands fabrication is the only largest source of U.S. crude imports currently. With anticipated growth in oil sands production, Canadas position as a supplier of oil to the United States is likely to grow in both absolute volume and share terms (Posterous.com, 2). Mexico also happens to be among the top three exporters of crude oil to the United States along with Canada and Saudi Arabia. Between the year 1980 and 1990, the rate at which Mexico exported crude oil to the U.S. rose and in the year 2004, it peaked at 1.6 MMbbl/d. In the recent years, there has been a decrease in the exports in the United States, due to the Mexico’s decrease in crude oil fabrication and the increasing domestic demand. The future trends of Mexico supplying crude oil to U.S. will depend on the efforts of Mexico to increase fabrication via increased investments and reforms, including the recent acts that will permit for expansion in participation by global oil companies in the country’s oil sector (Posterous.com, 3). Nowadays, the United States imports more than half of the oil they consume, and it will go on increasing as the U.S. continue using up domestic resources. The Organization of Petroleum Exporting Countries oil cartel controls the majority of the world’s oil reserves in the Middle East, which is about 65 to 75 %. The U.S. depends on the oil for most of its transportation needs, which rages up to 95 %. The dependence of oil from foreign nations will continue to grow until alternative energy vehicles starts becoming more ordinary (Glass, 2). Most nations that contribute the bulk to supply oil to the United States are economically and politically uneven while the sources for American oil are countless. This has led to increased worries concerning the security of the U.S. oil supply, since major political disturbances could be overwhelming. For this reason, the US also upholds an oil reserve for emergencies and dedicates funds to the development of energy alternatives (Wisegeek.com, 5). The U.S. Petroleum Market The oil market is international in extent. Changes in demand and supply that take place are likely to have an effect on all customers. The key measure of price, in many cases, has reacted with high rising instability to increases in demand. This price behavior occurs due to the short-run inelasticity of demand for oil and petroleum products. In the short run, inelastic demand means that an increase in price will have lesser result on the amount demanded. This conclusion starts with a price change and traces through how the change affects quantities. The reverse logic is also true, which states that small changes in quantity can lead to relatively larger changes in price (Humphries et al, 8). Oil markets appear stranger than they are. Oil companies care more about those details since they are trying to get profit on each individual contract, but the national strategy relies on the general availability and overall price of oil. Because of the markets intricacy, media accounts proposes that oil markets move without a clear link to economic fundamentals and that irrational fears or the actions of the blurry governments drive price and product accessibility. The effects of purchasers’ fears and suppliers political verdicts can be tacit within a traditional market framework although they matter. Two major procedures that determine the prices of the oil include the forces of supply and demand and restrictions on those forces formed by political risk and cartel behavior (Gholz, 1). Between the year 2004 and 2008, U.S. experienced a period of high prices of oil. The comparative tautness in the light crude market, merged with the price discounts for heavy crude oil, encouraged the refiners to invest in facilities and processes that would make refineries more capable to process heavy crude oils and take advantage of these approving price spreads. After the fall in oil prices and the narrowing of the price premium, investments dropped in profitability. The decline in price went on until in February 2009 where the price declined to $ 1.93 per barrel and remained below $ 9 per barrel every month. By September 2010, the price spread was about $7.95 per barrel, which indicates decline (Andrews, 16). The oil industry and research development has a solid record of accomplishment for the rising supplies. Years of investment in exploration technology have made it easier to locate deposits. In addition, enhancements in extraction technologies have made it probable to recover oil from locations that were unattainable such as extraction of oil under deep waters. The fraction of oil recovered from fields has increased due to the improved extraction technology. Due to this, the average finding and development cost of a barrel of oil dropped from $21 in 1979-81 to six dollars in 1997-99 (Gholz, 4). The widely spread and debated fears concerning the international peak oil production may contribute to conjecture in the oil future markets. In mid-2008, some oil analysts associated the peak in oil prices to the dollar’s weakness at the time since the U.S. dollar acted as the reference price currency for oil in the world market. As a result, enunciation of the oil price rise was more less when compared to other major currencies (Andrews, 15). The oil prices not only affect the supply but they also play a major role in determining the international demand of oil. Demand does not change much in response to price variations in the short run. People require driving their cars while going to work and they will need to heat their houses even if the price of the oil increases. Therefore, they tend to reduce their expenses rather than going without oil. As the oil prices continues to go up, companies spend money on more competent equipment and production processes, and individuals buy cars that are more efficient and improve the insulation in their homes (Gholz, 1). Consumption and Usage of Petroleum in USA OPEC would gain political influence through independent activities even though the power has been based on the Americas dependence on fuel during the coming years. Between the year 1948 and 1972, consumption of oil amounted to 16.4 barrels from 5.8 per day. Societies in other parts of the world exceeded this three-fold increase, even though it seemed vital (14). The American consumers showed capability to overlook the lesson of restrictions. Utilization of petroleum continued to increase through the end of the 20th century. Even in the early 21st century, when prices increased to record highs, Americans went on to live a lifestyle based on the acuity of cheap oil (Black, 17). In the United States, the usage of oil in production of energy is very low. Instead of oil, they use other products like natural gas, nuclear, hydroelectric, coal and wind. Oil tends to be more expensive in the production of electricity compared to other fuels. Backup generators powered by diesel are cheaper (9). Due to this, it might be wrong to say that 100 % gasoline comes from petroleum. The chemical structure of the output varies, with part of the output best suited to gasoline when petroleum is refined. With the aid of further processing, it is possible to tweak the percentages but to a vital extent, the petroleum used as input determines the output (Theoildrum.com, 10) Most scientists concur that the petroleum age will near its end by 2050 as oil companies look for new supplies and customers begin to consider realistically other methods of powering automobiles. The modern technology permits the U.S. economy to account the timing of this event rather accurately. They may use 800 billion barrels during the petroleum era and the site of 850 billion barrels more, known as reserves, and they anticipate that 150 billion barrels more remain undiscovered (Black, 17). Strategies to mitigate Problems related to Petroleum Supply in USA The solution to the U.S. economy reliance on oil lies in their technological progress in developing alternative energy vehicles that seems to be friendlier to the environment and consume energy more effectively. Research continues to create more new energy sources to replace petroleum (Glass, 6). More tighter fuel effectiveness standards and higher prices for liquids fuels moderates the growth and development in liquids demand. The combination of higher prices and renewable fuel authorization leads to higher domestic production of both Biofuels and oils. As a result, the domestic production meets the growth in demand while the utilization of liquid fuels increases rapidly (Cordesman & Burke, 5). It is possible to decrease the role of oil in the economy with the technology that subsists nowadays and even more so with the technology that will be in use in the next years to come. Plummeting consumption of oil would make the U.S. economy less sensitive to international oil prices and thus leading to impacts in foreign international supplies. If oil plays a minor role in the economy, changes in world oil prices would have less effect on the domestic price level and on domestic economic output (Feldstein, 2). The US government is struggling to find a strategy response as consumers and voters are becoming more nervous and angry. The Current policy alternatives to the increasing energy problem look like the strategy responses of the 1960s and ‘70s. Some of the probable solutions in solving the problem are increased efficiency, maintenance and diversification of supply (5). Some of the current suggestions lie in four categories, which include increasing the oil supply, decreasing Middle East oil demand through effectiveness and alternatives, auditing Oil Company profits and subsidizing individuals hurt by rising oil prices (Wright, 5). Conclusion It is evident that the bulk of United States petroleum supply comes from imports from various countries around the world. The consumption of petroleum has been increasing in the United States as many Americans choose to live lavished lifestyles. In addition, despite much of the petroleum supply coming from imports, research shows that the United States has a wide deposit of oil resources. The major problem that occurs is that extraction of such oil especially shale oil requires improved technology and complex methods. The prices of petroleum in the United States have been fluctuating for several decades. The major drivers of soaring oil prices in the United States has been the weakening dollar as well as reduced domestic production. To mitigate such problems, use of alternative energy sources as well as employing efficient technologies are the most viable strategies. Works Cited Andrews, Anthony. The U.S. Oil Refining Industry: Background in Changing Markets and Fuel Policies. 2010. Web. Black, Brian. Petroleum history, United States. 2007. Web. Connectlive.com. Crude Oil and Natural Gas Resources and Supply. 2011. Cordesman, Anthony H. & Burke, Arleigh A. US Oil and Gas Import Dependence: Department of Energy Projections. 2011. Web. Feldstein, Martin. Reducing America’s Dependence on Foreign Oil Supplies. 2003. Web. Glass, Andrea. How Can We Decrease the U.S. Dependence on Foreign Oil? 2004. Web. Gholz, Eric. 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