Plan to Dethrone BRICS dollar energy crisis coming
All signs that existed before the energy crisis of 1973 and 1979 exist today.
Various energy security measurements indicate that the potential for energy shortage is high.
As presented to the Oil Gas Journal for publication February 3, 2003.
James L Williams President, WTRG Economics Email Telephone 479 293-4081.
An F Alhajji, Ph.D. University of North Ohio Email Telephone 419 772-2080.
Various US energy security measurements indicate that the United States could lead to an energy crisis Many warning signs that existed before the energy crisis of 1973 and 1979 still exist and indicate that the current situation could be the United States dependence, worse on oil imports has been growing for over a decade and has been at record levels for several years oil stocks are low and capacity of strategic reserves SPR oil and commercial oil stocks to cope with a disruption of imports corresponds to the previous historical lows of 1973 and 1979 energy crisis.
The potential for energy crisis has never been higher oil prices have recently exceeded 30 per barrel and may continue to increase the disruption of oil supplies from Venezuela increased US dependence on oil from the Middle East and in addition to the United States may provide an interrupt with the crisis in Venezuela, OPEC's ability to meet any additional power supply interruption is limited and a war with Iraq would put OPEC at its limit any crisis energy in the near future will hamper the efforts of President Bush to stimulate the economy through tax cuts and other fiscal measure energy crisis could cause a recession, inflation and rising unemployment.
In this article, we will discuss various measures of energy security, import dependency and vulnerability to assess the current energy situation in the United States.
Energy crisis is a situation in which the nation suffers a disruption of energy supplies in our case, oil accompanied by a rapid increase in energy prices that threaten economic and national security threat to the economic security is represented by the possibility of declining economic growth, increasing inflation, rising unemployment, and losing billions of dollars in investments threat to national security is represented by the inability of US government to exercise various foreign policy options, particularly with regard to countries with substantial oil reserves, for example, the recent disruption of Venezuelan oil supplies may limit US policy options toward Iraq.
Looking at the two energy crises of 1973 and 1979, there are common elements between the two events 1 began with political turmoil in some of the two oil-producing countries have been associated with oil stocks down 3 were associated with concentration import of a small number of suppliers 4 were associated with oil production declining US 5 were associated with high dependence on oil imports of 6 were associated with low levels 7 of the oil industry spending has led to speculation 8 caused a downturn 9 United States limit the policy options in the Middle East.
The same indicators and warning signs that existed before the energy crisis of 1973 and 1979 exist today a political crisis in Venezuela that has stopped most oil exports from Venezuela, the threat of war with Iraq, inventories at their lowest level in twenty six years, the near record imports, imports more concentrated than ever, and low expenses upstream However, the current problem is even worse than the previous two energy crises because, unlike 1970, we start with a case of weak economic growth the massive stimulus package that is expected by the Bush administration could aggravate the situation by increasing oil demand.
Some experts argued in 2000 that the US was heading for an energy crisis at that time Although the crisis did not happen because all the signs existed at that time, the current situation is worse because the production of the United States is lower, import dependency and import concentration are higher, and excess global capacity is lower and corresponds to that of the 1973 crisis.
There are five key measures to assess the safety of oil from a national perspective capacity of national production, import dependence, the extent of import concentration, oil inventories relative to imports, and the ability to import second oil source in case of interruption of one or more suppliers.
US oil production is currently at record levels and has declined steadily since 1986 as shown in Figure 1 Although US oil production reached its peak in the 1970s, production increased in the second half of the 1970s is largely due to the production of Alaska Prudhoe Bay came on the line causing large volumes production from Alaska to increase by 464,000 barrels per day in 1978 to bd January 6 million in 1980 and reached a summit to 2 million in 1988, bd.
oil production in the lower 48 states fell 9 in 1973-7 0000000 bd bd 5 million in 1978 alone oil development in Alaska prevented an even higher dependence In 1980, the decline in production and interrupted ago had very modest gains that extended until 1985 the national oil industry in the United States experienced a higher rate of price increase than the rest of the world that domestic prices were deregulated.
The oil price collapse of 1986 and the many dashing stripper wells, particularly in Texas, Oklahoma, Louisiana and Colorado The United States has lost 1 million comics in production between 1986 and 1989 following the invasion of Kuwait increased oil prices and ended the temporary trend downward until 1992, US oil production suffered another major setback in 1998 and early 1999 when world prices oil prices approached 10 bd However, the rise in oil prices since 1999 has led to the production of US oil relatively stable around 5 ld 7 million, about 60 US production in 1973.
Figure 1 Thousands US Oil Production b d Vs nominal oil price of US oil production has declined steadily since 1986 Source Energy Information Administration.
The dependence of the US on foreign oil has reached record levels over the last two years and fell slightly after September 11, the US dependence on foreign oil has increased steadily since 1986 as shown in Figure 2 Figure 2 measures the percentage of oil imports relative to the total supply of oil, which is probably the best overall measure of dependence on significant changes in imports are usually related to changes the US economy and the US oil production.
At the time of the October 1973 Oil Embargo, the US has received just under 35 of its imports of oil supply in response to higher prices, total oil demand fell 15 8 million bd in 1973 14 of 9 million bd in 1975 the US oil consumption is resumed, and in 1978, total oil consumption on average 17 1 million bd, 8 higher than 1973 imports as a percentage of supply oil rose more or less constant rate of 35 in 1973 to about 42 in 1978 and exceeded 50 in a few months dependence on imports grew faster than consumption.
The rapid increase in oil prices from late 1978 led to the only extended period of decline in US dependence on imports in the period after 1973 Embargo Two factors led to the decline over production of US oil and lower consumption caused by the substitution, conservation, increased efficiency and fuel switching.
Dependence on imports has increased from 35 in 1973 to 42 in 1978 due to the factors described, fell to 27 in 1985 with the oil price collapse of 1986, the dependence is on its way again up to 55 in 2001. the impact of rising prices and persistent events of September 11 have led to a slight reduction to 53 in 2002, the causes of the increased dependence on imports in the last 15 years are almost the mirror image of the previous decline and are characterized by declining production and growing demand for transport fuels petrol, diesel and jet fuel account for most of the increase in consumption oil the only respite from climbing function were during periods of the Gulf war with Iraq and the post-September 11 attacks.
Figure 2 US oil import dependence net oil imports Vs rated supply oil prices Source WTRG Economics, Energy Information Administration.
Many experts believe that the degree of dependence has no impact on energy security as a form of reliable sources is imported foreign oil However, if the degree of dependence on insecure sources increases, security energy would be in danger in this case, the vulnerability of the United States will increase and the economic and national security will be compromised data indicate that the vulnerability of the United States is at a historic high, higher than any of the previous energy crises .
We look at the percentage of imports from the top five suppliers as a measure of vulnerability to supply disruption by one or more key suppliers This is an important measure of the vulnerability of the United States to supply disruptions, because it shows the high level of concentration of US imports by importing some suppliers Figure 3 shows that the vulnerability of the United States to supply disruptions has increased to record levels recently that the percentage of its imports oil of its top five suppliers from 62.
2001-76 during the first ten months of 2002 comparing this number to the previous energy crisis, we see that it is higher than 63 8 and 53 4 concentration ratios in the first and second energy shocks respectively is also much higher than the concentration ratio during the Gulf war in 1991 when the United States was forced to buy oil outside the Gulf areas due to the loss of Iraq and Kuwait crude oil.
The recent experience of Venezuela teaches us an important lesson about reliable sources It tells us that reliable sources are temporary and they change the policy change in policy change is faster than the change in the life of an oil field exploration depletion the problem is that oil supplies are time to grow and consumers and producers are looking for long-term commitments therefore the best security policy is taking diversification extreme rather than to classify sources of oil as safe and non-secure Iraqi oil is classified as non -secure the source, but the United States is the largest consumer of Iraqi oil.
Figure 3 vulnerability of the US to the disruption of oil has recently increased the percentage of oil imports from the top 5 suppliers in the US Oil prices vs. nominal Source WTRG Economics, Energy Information Administration.
commercial oil stocks in the US are at their lowest level in twenty-six, a common measure of energy security is the number of days when the oil in the SPR can replace imports of either crude oil or petroleum crude and oil products We have a broader view and consider oil stocks as a whole, including the crude oil in the SPR, commercial stocks and use the number of days these stocks can replace imports Today US total oil stocks in terms of days of coverage are as low as they were during the first and second energy crisis, as shown in Figure 4 Our measure suffers from the weakness that it does not rule stocks down by minimum working stocks, but it is a consistent measure of relative short term current commercial stocks are near the security level at which the occasional shortages may occur.
It is obvious, judging capacity to replace imports with current stocks, the US did better shape to handle a power interruption that was when the oil embargo of 1973 Iranian revolution that began in 1978 or Iraq -Iran war that began in 1980 in 1985, our measure was essentially twice the current level causes are relatively easy to identify declining production in the United States, the more consumption high, weaker trading stocks and no increase SPR at a rate proportional to our growing demand.
Although the SPR level has increased since President Bush ordered his fill after September 11, the RPD's ability to eliminate the crisis is limited, it can provide a cushion for a number of days, but it will not solve the problem on the product market if the refiners are running at full capacity, however, SPR release may have an impact on world oil markets and achieve its objective of avoiding energy crisis if President George Bush announces the release of more than 1 million bd until the end of the crisis or during a period of time rather than specifying the total amount to be released also, it can have a significant psychological impact and reduce oil prices if the President announced that a portion of the oil released from the SPR will be exported to other countries, the impact of the release could be larger if it is coordinated Ave. c release in the SPR countries that are members of the International Energy Agency Although this release can help prevent an energy crisis, it c ould be a temporary measure if the release is the wrong time.
The premature release of SPR may jeopardize US national security in case of further political problems in oil producing countries and weakens the ability of the US to respond to additional shortages premature release of SPR stocks can reduce incentives for companies private to maintain and more US stock cushion increasingly vulnerable to supply disruptions.
Figure 4 Total Security US Oil Inventories net oil imports Vs nominal oil prices Source WTRG Economics, Energy Information Administration.
The world excess capacity today is similar to that of the first energy crisis in 1973, significantly below capacity during the second energy crisis in 1979-1980, and slightly lower than the excess capacity in 1990, when Iraq invaded Kuwait as shown in Figure 5, the current world surplus oil capacity is the lowest in thirty years if we exclude 1991, when the Iraqi capacity of Kuwait and were withdrawn from the market because the Gulf war.
Just as the energy crises in 1973 and 1979, the current excess capacity exists in very few OPEC countries, mainly Saudi Arabia OPEC data indicates that the current level of excess capacity is similar to that of previous energy crises.
The Saudi ability to increase capacity of 500,000 barrels will not help the United States in case of immediate oil shortage because it takes a long time to get that oil to the United States for two reasons: First, takes sixty to ninety days to bring this capacity on second line must be 4-6 weeks for the oil to the United States in addition, some experts believe that the statistical capacity of OPEC as reported by the US Department of energy DOE are overestimated in fact, the DOE in its most recent reports revised downward its estimates of some excess capacity in Kuwait and Indonesia.
In conclusion, global spare capacity is at a record high, capacity is concentrated in a few member countries of OPEC, and it takes time for oil in the US These three reasons can exacerbate shortages in the US and create a potential crisis.
FigureFigure 5 million worldwide overcapacity b d Vs nominal oil prices Source WTRG Economics, Energy Information Administration.
For all oil security measures or vulnerability that we examined, the United States is also vulnerable, and in most cases more, that at the time of the 1973 Embargo Domestic production is about half, dependence on imports is 50 higher, the number of days that stocks can replace imports is less than 5, and a higher percentage of imports is concentrated in a small number of suppliers further action in Iraq would lead to the elimination most of the excess capacity of the world indefinitely.
An energy crisis is a situation in which we disruptions in oil supply which increases energy prices quickly and threatens our economic and national security shows us the experience of the Gulf War that vulnerability indicators many areas themselves.
Does not mean that there will be an oil crisis, but the current measures do not indicate that the potential is historically high.
The lack of public information regarding the amount of storage by Saudis and others in the Caribbean, it is difficult to make forecasts regarding the amount of inventory available to US markets Actually if the rumors about large storage build up in the Caribbean are correct, the United States may suffer a period of high prices of oil, but the supply may be sufficient for the return of Lake Maracaibo drivers to work in Venezuela lead also an additional offer also the normal seasonal decline in spring May 2-2 bd soften the impact of any supply disruption from Venezuela, Iraq, or any other country If there shortage, the lessons we learn in the coming months have the potential to shape energy policy in the United States for years to come.
Copyright 2003 James L Williams and A F Alhajji.
The energy crisis coming, come, energy, crisis, crisis 1973 1979.
22100 Como, Комо, Италия