Crude Oil Imports and National Security

Transcription

1 Crude Oil Imports and National Security Yale Graduates Energy Study Group Robert Ames, Tyson Foods Anthony Corridore, Lafarge NA Edward Hirs, DJ Resources & University of Houston Paul MacAvoy, Williams Brothers Professor Emeritus USAEE Conference Calgary Canada October

2 Economics does not support Policy Among the Administration s Current Energy Policy Goals are Double supply of Renewable Energy Eliminate Carbon Emissions Eliminate dependence on foreign crude

3 What were past Policies? Nuclear Technology Clinch River Breeder Reactor Advanced Liquid Metal Reactor Program ( ) Global Nuclear Energy Partnership (2006)

4 What were past Policies? Coal Utilization US Synthetic Fuels Corporation ( ) Clean Coal Technology Program (1987) Clean Coal Power Initiative (2001) FutureGen (2003)

5 What were past Policies? Vehicle Technology Virtually pollution-free car (Nixon 1970) Reinventing the Car (Carter ) Partnership for a New Generation of Vehicles (Clinton ) FreedomCar (Bush 2003)

6 What were past Policies? Biofuels Alcohol fuels (Energy Security Act 1980) Oxygenated fuels (Clean Air Act Amendments 1990) Biofuels (EPAct 2005; EISA 2007)

7 What were past Policies? Crude Oil Mandatory Crude Oil Import Quota ( ) Crude Oil Price Controls (pre-1972 and post-1972; ) Strategic Petroleum Reserve (1973-now)

8 Why Worry? 94% of crude reserves are held by sovereign nations, not the US. World oil prices have risen during the greatest recession of the past 80 years. RAND estimates the probability of a significant, negative supply shock of at least 8% over the next decade.

9 6 Month Disruption Price $/bbl $400 $ Time Months ~$563 billion in consumer loss, calculated simply at million barrels per day X 6 months X 30 days per month X ($400 - $80)/2

10 Costs & Benefits 1. What is the ΔP for a shock loss of 10 mmbopd in a world with 80 mmbopd production? 2. What is the ΔP for the US economy due to gradually limiting imports of imported crude?

11 Prices with 10 mmbopd Shock With oil at $80/bbl and 80 mmbopd current world consumption YGESG s elasticity of demand = Shock Price = $330/bbl Nordhaus elasticity of demand = Shock Price = $746/bbl

12 Losses due to Shock Consumers surplus lost would be ΔP X Q Domestic producers of crude and crude substitutes would gain, but the US economy would have a deadweight loss equal to ΔP X Imports

13 Figure One Yr 10 No Imports Domestic Supply Curve Only P Yr10 $/bbl Yr 5 Reduced Imports + Domestic Supply Price with No Imports: Yr 10 P Yr5 Domestic Price: Yr 5 P W Domestic Demand World and Domestic Price: Yr 1 A B C MMbbl/day

14 Effects of Limiting Imports Source of Supply (Mbbl/day) ) EIA Crude Oil Demand/Production Forecast (March High Price Case) 1a. Domestic Crude Oil Production: 5.62 Mbbl/day 5.87 Mbbl/day 7.16 Mbbl/day 1b. Crude Oil Imports 8.02 Mbbl/day 7.49 Mbbl/day 5.44 Mbbl/day 1c. Crude Oil Substitutes 5.77 Mbbl/day 6.20 Mbbl/day 6.69 Mbbl/day Total Mbbl/day Mbbl/day Mbbl/day 2) EIA Crude Oil Price Forecast (2007 $'s - March High Price Case) $88.8/bbl $157.7/bbl $182.5/bbl 3) YGESG Crude Oil Demand/Production Forecast (Elimination of Imports Case) 1a. Domestic Crude Oil Production: 5.78 Mbbl/day 6.06 Mbbl/day 7.85 Mbbl/day 1b. Crude Oil Imports 7.63 Mbbl/day 5.54 Mbbl/day -.06 Mbbl/day 1c. Crude Oil Substitutes 5.89 Mbbl/day 7.71 Mbbl/day Mbbl/day Total Mbbl/day Mbbl/day Mbbl/day 4) YGESG Crude Oil Price Forecast (2007 $'s Elimination of Imports Case) $100./bbl $181.3/bbl $262.5/bbl

15 Elimination of Imports 2020 By 2020, under business as usual, the EIA projects imports of 5.4 mmbopd By limiting imports Demand is reduced by 1.06 mmbopd due to the higher domestic price, and the market clears with additional domestic supply of

16 Elimination of Imports 2020 Increased domestic Crude:.7 mmbopd Canadian tar sands:.96 mmbopd Biofuels: 2.6 mmbopd CTL:.2 mmbopd NGL:.05 mmbopd

17 Other Potential Sources Natural gas not until pipeline and infrastructure challenges solved US tar sands obvious resource but off limits for now Electricity for transportation possible, but faces infrastructure problems

18 Limiting Imports Costs & Gains From 2010 to 2020, limiting imports costs $40 billion in Consumers Surplus Over the same period, the US gains Domestic Producers Surplus of $227 billion The net gain to the US economy is $187 billion without considering costs of shocks!

19 Costs of a Supply Shock (billions) $B Business as Usual "Limits" Policy Consumers Surplus Lost Producers Surplus Gain Deadweight Cost Consumers Surplus Lost Producers Surplus Gain Deadweight Cost 2010 $566 $332 $234 $543 $328 $ $449 $277 $172 $403 $287 $ $400 $287 $113 $ 0 $ 0 $ 0

20 Benefits to Limiting Imports Less concern over Middle East National defense umbrella can be smaller Embedded crude oil price increases will encourage other fuels developments without taxes and subsidies More domestic employment, GDP and, of course, domestic tax collections Possibly greener

21 Crude Oil Imports and National Security Yale Graduates Energy Study Group Robert Ames, Tyson Foods Anthony Corridore, Lafarge NA Edward Hirs, DJ Resources & University of Houston Paul MacAvoy, Williams Brothers Professor Emeritus USAEE Conference Calgary Canada October