The Fallacy of Energy Independence

By Maxxwell A.R. Chatsko - August 29, 2012 | Tickers: FSLR, HES, MRO, STO | 0 Comments

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It's election time again in the United States, which means politicians from both sides of the aisle are strengthening their arguments about important issues (those deemed important by the media, anyway). Undoubtedly, when politicians can find time in their busy mudslinging-filled schedules they find a camera and talk about “energy independence.” These sound bites yield variations of the following phrases:

• “We need to lessen our dependence on foreign oil from dangerous countries X, Y, and Z.”
• “We can drill here to fuel our energy needs.”
• “Renewable energy (can/cannot) make us energy independent.”
• “We can achieve energy independence by the year ____.”

(However, you won’t find words like “climate change.” Ok, ok, Just kidding.)

Before we get into the numbers you should remind yourself that these energy plans and promises are nothing more than words – regardless of party. How do I know? Presidents have been speaking of the “critical moment at hand” to seize our independence for decades. Have a look at this excerpt from Luis Aponte’s book Death of a Gas Guzzler with quotes on the issue from every president since Richard Nixon.

Can domestic production ever meet demand?

Developments by companies such as Hess (NYSE: HES), Statoil (NYSE: STO) and Marathon (NYSE: MRO) have increased domestic oil production in recent years. As of April the total production from the Bakken and Eagle Ford formations was 545,000 barrels per day (bpd) and 520,000 bpd respectively. Yet despite projections that Bakken could hold up to 24 billion barrels of oil (or more), it is unlikely that total domestic tight oil production will ever exceed 2.5 million barrels per day (MMbd). Why? There are physical limits to how quickly oil can be pumped from the ground.

According to the United States Energy Information Administration (EIA), domestic oil production was 5.7 MMbd in 2011 and is expected to grow to 6.7 MMbd in 2013. Although that represents a level last seen decades ago, it is not enough to outpace consumption. Last year the United States consumed 18.8 MMbd of petroleum products with net imports representing 8.4 MMbd. Using 2011 numbers, the United States would need to increase production 147% to 14.1 MMbd. That’s 46% higher than the best year on record (1970, 9.64 MMbd). With what we know today we can safely say that domestic oil production will never make us completely independent.

How dependent are we on foreign oil?

Many people are surprised to know that the United States imported only 45% of its total oil production in 2011, which is down markedly from 60% in 2005. A combination of factors – horizontal drilling, the recession, increased efficiency, biofuels – has led to falling imports and consumption. These are all exciting trends that have had a positive impact on the economy and should continue for the next several years (according to EIA). Just don’t get too carried away. There is a limit to how much of our oil imports we can displace through these means in the next decade or two.

That leaves us with no choice but to import at least some of our oil. So, where are all of these “dangerous” countries we hear about? Consider the following table breaking down 2011 imports:

Source: EIA

As far as I am aware, none of the top five countries (72% of imports) exporting oil to the United States are a major threat to our sovereignty. 

Can renewables help us achieve energy independence?

As a bioprocess engineer it pains me to say that currently renewable energy does not produce a very large part of our country’s energy needs. Are there limits to its use? Yes. Does it have amazing potential to continue to grow? Yes. Will it surpass natural gas or coal anytime soon? Probably not. 

Let’s consider the numbers.

Renewable sources of energy – geothermal, wind, solar, biomass, and hydroelectric – made up only 13% of total electricity generation in 2011. Even worse, the total share is expected to decline in 2012 and 2013 thanks to the closings of several large hydroelectric power stations (8.19% of total 2011 electricity generation) and stagnant growth in other categories.

Technological breakthroughs (we don’t know what we don’t know)

Most people are aware that fracking and shale oil production is only possible today because of technological advancements made in the past decade – advancements that no one predicted 15-20 years ago. Similarly, in 2000 only 6 billion killowatts of wind-generated electricity flowed through the grid. Just 11 years later that number jumped 19-fold to 120 billion killowatts, again thanks to new technologies.

Commercial solar cells today have a theoretical efficiency of about 31%, but only convert about 10-15% of solar energy into electricity (even with the thin-film technology championed by First Solar (NASDAQ: FSLR)). Xiaoyang Zhu at the University of Texas at Austin is trying to change that with quantum dots. Lengthening the amount of time it takes for electrons to cool means a solar cell has more time to capture the energy. While quantum photovoltaics are still in development they have the potential to achieve efficiencies north of 60%. This “off-the-radar” technology could herald a new age of clean energy with far-reaching implications.

Foolish bottom line

The next time you hear a politician, or anyone for that matter, utter the words “energy independence” I hope a little part of you laughs. As it turns out, a president has very little control over all of the factors that contribute to oil consumption, technological developments, and of course the Senate and House.

The real discussion should be about lowering emissions. Unfortunately, that doesn’t seem to instill fear in people to make the courageous changes necessary to boost renewable energy output, which in the long-term could make a sizable dent in our energy needs. Until then I recommend watching this Daily Show video poking fun at presidential promises for energy independence.

Did you enjoy this article? Follow me on Twitter to keep up with my future posts on energy, sustainable chemicals, and biopharmaceuticals @BlacknGoldFool.

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