Oil Importation Effects on

U.S. Economy

Muhammad Mustafa Hussain

Objective

1.Why is this issue or technology important to the energy situation?

2.What is the technical background? What are the technological challenges?

3.What is the economic feasibility?

4.What are the government policy issues?

U.S. Oil Scenario

While U.S. oil production is declining,consumption is increasing at a rocket pace

Proven Oil Reserves Through 2005

Oil supply is increasingly determined by a small number of nations that wield a near monopoly over

world production

Daily U.S. Spending on Oil Imports in 2004 (in Millions of Dollars)

In 2004, every day the U.S. pays out $390 million for foreign oil

What’s the effect?

• The total economic penalty of U.S. oil dependence, including loss of jobs, output, and tax revenues, is estimated to be between $297 and $305 billion annually [1]

• Federal Reserve Chairman Alan Greenspan has called the higher value of imported oil a tax on U.S. citizens that has cost them three quarters of a percent of their economic output in 2004, and warned economic impacts for the U.S. will intensify if current trends in oil demand and prices continue [2]

[1] National Defense Council Foundation. "The Hidden Cost of Imported Oil," September 2003, as cited by the Institute for the Analysis of Global Security in Energy Security Bi-Weekly, October 30, 2003, http://www.iags.org

[2] Federal Reserve Chairman Alan Greenspan, October 15, 2004 and statement before the National Italian American Foundation in Washington, D.C. on Oct. 15, 2004

Oil politics – its all about dollars

• Since December 2003, OPEC has spent $13.3 million on federal lobbying– The immediate result of these contributions is

an energy bill currently before Congress that would invite oil drillers into some of America's last pristine wilderness areas to eke out a relative trickle of oil, while severely shortchanging conservation and efficiency efforts

• The U.S. has just three percent of know oil reserves

How the oil is consumed in U.S.?

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Automobiles Households Electricity Industry

Nevertheless, cutting U.S. oil imports in half would have a major favorable affect on the sensitivity of the U.S. economy to global oil conditions. To do that would require cutting gasoline consumption substantially, with the possibility of additional help from a further

reduction in the use of oil for residential and commercial heating.

Can technology help?

• Non-petroleum carbon fuel– Shifting the stock of U.S. cars from gasoline a compressed natural gas

(CNG) technology would eliminate all of the petroleum used by automobiles • More than 100,000 vehicles on U.S. roads powered by CNG

• Hybrid car– Powered by a combination of electric batteries and a small internal

combustion engine powered by gasoline • With a 12 gallon fuel capacity, it can go more than 500 miles on a tank of gas (list

price of Toyota Prius $20,000 – 20% more than a comparable regular Toyota)

• Hydrogen fuel– Electric energy is created when the hydrogen that is carried by the car is

combined with oxygen from the air – The electricity needed for this process could come from nuclear power or

renewable sources like wind and hydro • Ford, General Motors, Daimler-Chrysler and BMW are all developing such cars

Summary

• U.S. economy is harshly affected by continuous oil import

• Technology may help to reduce oil consumption– How quickly policies are adopted to move toward this oil-free

technology will depend on how concerned governments are about the risks associated with oil dependence