A fossil-fueled future: Growing oil dependence puts U.S. on a slippery slope

Consumers in the United States who dislike $4.00-a-gallon gasoline had better get used to it. Despite 35 years of talking about the United States becoming energy independent, the U.S. is more dependent than ever on foreign oil — and there's no end in sight. "The future as we look out at the next 25 to 50 years will be dominated by oil," said Joseph P. Kalt, professor of political economy at Harvard's John F. Kennedy School of Government. Kalt delivered his assessment of the future of global energy markets on June 11 during a forum called "Powering Arizona: Choices and Trade-Offs For Electricity Policy." The forum was presented by The Communications Institute with sponsorship from Arizona State University, the W. P. Carey School of Business and the Thomas R. Brown Foundation.

Consumers in the United States who dislike $4.00-a-gallon gasoline had better get used to it. Despite 35 years of talking about the United States becoming energy independent, the U.S. is more dependent than ever on foreign oil — and there's no end in sight. The prices likely will rise and our dependence on oil will grow. "The future as we look out at the next 25 to 50 years will be dominated by oil," said Joseph P. Kalt, professor of political economy at Harvard's John F. Kennedy School of Government.

"We can talk, we can invent, we can cajole each other to be conservationists. "We can invent new technologies, but it's a future that will be dominated by the world oil market, a market that, in terms of supply, will become more and more concentrated in the Middle East." Kalt delivered his assessment of the future of global energy markets on June 11 during a forum called "Powering Arizona: Choices and Trade-Offs For Electricity Policy."

The forum was presented by The Communications Institute with sponsorship from Arizona State University, the W. P. Carey School of Business and the Thomas R. Brown Foundation. Oil issues will be further complicated by the political instability of the Middle East and growing pressures to contain carbon output, he said.

Kalt admits it's a pessimistic view, but one that he feels is necessary to acknowledge in order face the challenges of the coming decades. In fact, Kalt suggests, there may be no solution — at least not the kind of fix Americans expect. "Maybe you can't solve it," he said. "What do I mean by that? This is like a heresy thing. We Americans expect our leaders, expect our nation to solve problems. But that might be a little cultural conceit on our part."

Driving demand

The main force behind the run up in the price of oil over the past nine years is increased demand from developing nations. China and India are home to about one-third of the world's people and the economies of both nations are growing rapidly. China's gross domestic product has grown at least 7 percent every year since 1992.

A report issued in June by the World Bank forecasts that growth in China will slow to 9.4 percent in 2008, down from 11.9 in 2007. And, since 2004, India's economy has been growing at an annual rate of 7.9 percent or better. By contrast, the United State economy is considered booming when it is experiencing annual growth of 3-4 percent. From the time China made a major oil discovery in 1959 until 1993, the country was a net exporter of petroleum.

Today it is the third leading importer, behind the United States and Japan, the CIA World Fact book reports. India is the 10th leading importer. But the economic growth in developing world is not limited to China and India, Kalt said. "In the developing world, including Africa, incomes are up about 40-45 percent in real terms since 1980,' he said. "It's a wonderful thing that economic development is taking over.

It's raising the standard of living of people who are living on $100 a year." But as the world's standard of living goes up, the demand for energy rises as well. "One of the first things people want as their income rises is a vehicle," Kalt said. "It's a human trait. We like to be mobile. The other thing we like is things like lights."

Growing market

Of the approximately 6 billion people in the world, about a third have what Americans consider basic access to energy — regular motorized transportation and reliable electric service. Another third have intermittent energy — for example a generator in a village is turned on for a few hours a week or a bus comes every few days.

The other third are relying on firewood and animal power to meet their needs, Kalt said. While population growth estimates vary, Kalt said the consensus is that we will add another 2 billion to the world population by 2030. And if they can afford it, they are going to want the type of energy conveniences that the developed world takes for granted.

Supply and demand

The economies of the United States and the world are overwhelmingly fossil fuel-based. In 2007, for example, U.S. fuel consumption was about 85 percent from oil, natural gas and coal. About 8 percent came from nuclear power and the remaining seven percent from renewable sources, such as hydroelectric, and from non-traditional sources. Those percentages hold in the world economy as well, Kalt said.

"Those fossil fuels? They don't make them any more,' Kalt said. "The dinosaurs died a long time ago. Whatever made that natural gas, petroleum and coal — we're not making it anymore." With demand rising rapidly and supply relatively fixed, the law of supply and demand leads to one outcome: the price will rise. Right now we're seeing record energy prices throughout the world.

Energy independence

Energy independence has been a popular theme with Democratic and Republican administrations for mor than 30 years, Kalt said. In October 1973, Middle Eastern exporters cut off oil supplies to the United States and other western nations for supporting Israel in the Yom Kippur War, Kalt said. Gas prices in the United States nearly doubled and the era is remembered for lines at the pump.

In his 1974 State of the Union address, Richard Nixon called for the United States to be independent of foreign sources for energy needs by the end of the decade. Kalt recalled that as a junior researcher in the Ford Administration, he attended a meeting on energy policy in which the subject was a carton character called "Energy Ant" who was going to be used in public service announcements to spur conservation.

"We've been doing things like that — 'Don't be Fuelish' campaigns — for more than three decades now," Kalt said. The progress report is not good. The U.S. imported about a third of its oil in 1970. Today it's two-thirds. "We're becoming more, not less, dependent on foreign oil,' Kalt said. The country has made adjustments. Production of coal, natural gas, and hydroelectric power is up dramatically, as it is for other sources such as solar.

There has been massive conservation — or increased efficiency. "Without conservation since 1970, the United States would using about 70 percent more energy than it does today," Kalt said. "That's an amazing accomplishment." No one can quantify any effects of "Don't be Fuelish" and other education efforts, but, the main force behind the conservation is price, Kalt said. Similar conservation has occurred throughout the industrialized world.

The developing world, however, is less bullish on conservation. The reason is that developed nations are able to conserve by developing and investing in more efficient machines. Third World counties don't have that luxury. "The developed world, for example, shifts all of its used, high-fuel using airliners to the developing world,' he said. Population growth and emerging economies are more than offsetting conservation efforts. He said it is estimated that in the next 25 years, the world will use 50-60 percent more energy than it does now.

Middle East

"Somehow we're going to have to find and develop more oil around the world," Kalt said. No one is sure where that's going to come from, he added. "Go to Thailand,' he said. "I don't know." Brazil made a major offshore discovery last fall and two days after Kalt made his remarks, the South American nation said it had made another major find. But there's one place with known, developed oil resources — the Middle East.

By 2030 about two-thirds of the world's oil production will be concentrated in the Middle East, Kalt said. And that has some uncomfortable implications. "A substantial portion of the money that gets shipped daily from the United States and Western Europe leaks into the hands of people who really don't like us,' he said. That tension has already led us down the path of war in three instances.

In 1990, Iraq invaded Kuwait. Saddam Hussein said Iraq was reclaiming homeland. Kalt said diplomatic traffic at the time showed the Iraqi leaders were angry that Kuwait was violating OPEC production limits. The U.S. responded by driving Iraqi forces out of Kuwait. The invasions of Afghanistan and Iraq came after the Sept. 11, 2001 terrorism attacks masterminded by the son of a prominent Saudi family. "The politicians can dress up it and say 'It's not really about oil,'" he said. "But it's about oil."

Climate change

The United States faces these problems with increasing pressure at home and abroad to limit greenhouse gas emissions. "The problem with climate change policy is basically what political scientists and economists call the 'prisoner's dilemma,'" Kalt said. If a nation regulates its carbon emissions for industrial production, its costs go up.

But if other nations — say China and India — don't, then they gain or increase their price advantage, he said. "We'd all be better off if we could agree and solve the problem,' he said. "But everyone has an incentive to cheat on the other guy."

Bottom Line:

• Consumers who are facing record gas prices may be facing them for a long time. The demand for petroleum products worldwide is increasing.
• Economic development in Third World countries is raising living standards and giving people the income to convert from animal and firewood power to fossil fuels.
• In the past three decades, the United States has become more dependent on foreign oil.
• The Middle East has the largest known and developed oil reserves in the world. This politically unstable area will become more important as an energy source in the coming decades.