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The U.S. goal of energy independence, typically defined as complete self-sufficiency for indigenous energy requirements, is an ill-conceived and unachievable objective. This holds for the foreseeable future and most likely beyond. A more realistic -- and achievable -- goal is to reduce and diversify energy dependence on any one fuel, geography, or technology. This route, of reducing and diversifying energy dependence, is also likely to pay more dividends in terms of the environment, the economy, and national security than the achievement of complete energy independence.

There are innumerable lessons to be learned from the current financial and economic crises. One lesson -- and an old one at that -- is that a diversified portfolio of assets provides a greater measure of security in a crisis than a highly concentrated portfolio. Energy supply is no different. The hue and cry surrounding energy is largely driven by populist anger against rising gasoline prices and the belief that those price increases result from the manipulation of oil supplies by Middle East countries that have a stranglehold on the supply of oil we consume. Therefore, energy independence means weaning ourselves completely off imported oil. And imported oil is synonymous with OPEC and the Middle East. But, as many who follow the industry know, the story is not so simple.

What Do We Use?

Talk of energy independence typically surrounds the import of oil and petroleum products. This is a logical place to start but it is not the complete picture. For a country with 4.5 percent of the world's population, the U.S. is projected to account for approximately 20 percent of total worldwide energy consumption in 2010(1). Energy is used for a variety of purposes and the sources of energy take multiple forms, including; Petroleum (and other liquid fuels), Natural Gas, Coal, Renewable Energy and Nuclear Power. The relative amount that each source contributed to total 2007 U.S. energy consumption and how much of that source was imported is depicted in the exhibit below.

Note that petroleum was the source for almost 40 percent of U.S. energy consumption, over two-thirds of which was imported. And the transportation sector was responsible for approximately 70 percent of the total petroleum consumed, hence the widespread and immediate reaction to rising prices. Dependence on foreign oil is a legitimate concern, however the U.S. dependence and/or independence with relation to other fuels is often ignored. For example, the U.S. imports close to 90 percent of the uranium required to fuel the nation's 104 nuclear reactors(2). The absence of calls to dig our way out of this nuclear fuel shortfall despite a fivefold rise in world uranium prices since 2004 is the result of two factors(3). The first is that dependence appears only to be important when we feel financial pain, and since nuclear fuel is not a significant component of the cost of electricity, we are essentially indifferent as to its source. The second factor, of course, does relate to the source. Surveying the world, it is Australia and Canada, two long-time friends of the U.S. and stable democracies, which respectively hold the greatest uranium deposits and are the largest producers(4). Neither country -- obviously -- is in the Middle East. Not surprisingly then, U.S. dependence on imported nuclear fuel is back page news.

Who Provides It?

U.S. fuel dependency is a study in extremes. Coal provides over 22 percent of the country's energy needs, is completely indigenous, and has estimated reserves that are practically inexhaustible. Natural gas, on the other hand, represents approximately the same amount of U.S. energy consumption (over 23 percent in 2007) but has limited reserves and a significant import component -- almost 20 percent. But since approximately 90 percent of natural gas imports are from Canada, the situation warrants little attention. The source of uranium supplies, as discussed, is also largely ignored. Sources of oil, of course, are not.

Clearly, the price of oil and its ostensible sources are flash points in discussions of energy independence, national security and economic growth. It is easy to form the impression from news reports and politicians that Middle East countries are the main sources of oil consumed in the U.S.. Not true. They are a significant source of imports, but not the main sources. The following exhibit depicts the relative amounts of oil imports from OPEC, the Persian Gulf (a subset of OPEC) and non-OPEC countries(5).

A few key points bear noting. First, as noted, approximately two-thirds of oil consumed in the U.S. in 2007 was imported. OPEC provided 44 percent of those imports (the Persian Gulf region supplied about 36 percent of OPEC's total), with the balance of imports -- 56 percent -- provided by non-OPEC suppliers. In terms of country suppliers, Canada and Mexico are the largest oil exporters to the U.S., followed by Saudi Arabia. Canada provides approximately 2.5 million barrels per day to the U.S., slightly over 12 percent of domestic demand. Saudi Arabia provides about 1.5 million barrels per day, or slightly over 7 percent, the same as Mexico.

Second, oil is a global commodity. High oil prices benefit Canada and Mexico as well countries we deem less friendly or stable. Finally, and perhaps most importantly, the price of oil reflects a balance between global supply and demand. High demand causes high prices. But demand need not move much -- in either direction -- to cause a significant price movement. Prices did not spike in 2007 and early 2008, then collapse later in the year because demand changed considerably. The run-up in prices was caused, partly at least, by a relatively small percent increase in demand over forecasted levels, and the subsequent collapse in prices can be traced to an opposite reaction. It is critical, therefore, to recognize that effects at the margins of supply and demand -- e.g., a reduction in U.S. oil imports, or consumption, by a few percent -- can impact on the price of oil. There is no need -- and certainly no ability -- to precipitously end our consumption of imported oil or become completely energy independent. We cannot replace over 13 million barrels per day -- and rising -- of imported oil under any realistic scenario in any reasonable time frame. But we can and should take action.

What to Do?

First, ignore the rhetoric and do not confuse issues. Energy independence is related to but not synonymous with climate change. Note that coal is a major source of energy in the U.S. and its supply is almost completely domestic. At current production rates, the U.S. has reserves to last 200 years or more. That said, coal is a major contributor to greenhouse gas emissions and is under fire from many quarters. So, while reduced use of coal may help alleviate climate concerns, it may do nothing for energy independence.

Second, focus on what matters. The critical need is reduce the use of oil, imported or otherwise, at the margins. The U.S. does import enormous quantities of oil and import levels are projected to increase long term. And the Persian Gulf region has by far the world's greatest amounts of reserves. But remember that the recent drop in U.S. (and global) demand due to record high prices and economic contraction contributed to the price collapse. In fact, U.S. total consumption of liquid fuels in 2008 declined by 6.1 percent from that of 2007, and liquid fuels consumption for 2009 is projected to fall by a further 2.2 percent(6). The U.S. does not consume all of world oil production, but it does consume almost 25 percent. Changes in U.S. domestic demand can have an effect on oil prices. As the economy recovers, energy demand from all sources will follow. Prices will rebound. Just as the high prices of 2006 to 2008 did not represent a new paradigm, the relatively low oil prices will not last.

Third, we need to support the diversification of supply sources as well as concentrate on demand reduction. That means encouraging renewable energy production, particularly of new generation bio-fuels and increasing transportation efficiency standards. Increased domestic and off shore drilling for both natural gas and oil has the potential to influence prices at the margin. If this can be done in an environmentally sensitive way, it should be supported. But it should not be posited as the answer to the problem (which it most assuredly is not), or detract from other initiatives.

Finally, continued, even accelerated, support for technological development and implementation in both transportation and renewable power can make a huge difference. For example, breakthroughs in battery technology will advance the market for hybrid and plug-in hybrid cars. Once again, the effects need not be exceptionally high levels of market penetration, but simply enough to assist in restraining the increasing demand for oil. But new technologies are not immune from their own energy dependency concerns. The demand for lithium, a key element in lithium-ion batteries, can only be met by imports and, by some estimates, almost half the world's supply of lithium is found in Bolivia(7). Not the Middle East, but not domestic, either.

A goal of energy independence for the U.S. that involves the replacement of the 30 percent of our current energy supply that is sourced from imported oil, and almost all of our uranium supply, is unachievable. Recent calls for energy independence are effectively calls for price stability. A focus on domestic supply enhancement through targeted increases coupled with a continued focus on demand reduction can and will mitigate price volatility. A stable, global, diversified supply portfolio will benefit the U.S. economy, enhance our security, reduce our risk, and have beneficial environmental effects. It will also benefit our trading partners by providing the same stability and predictability that we desire. Energy independence is not practical -- achieving greater energy supply diversity is.

References

1. International Energy Report 2008, Reference Case, Table A1; http://www.eia.doe.gov/oiaf/ieo/ieorefcase.html
2. EIA, http://www.eia.doe.gov/cneaf/nuclear/umar/summarytable1.html
3. http://www.uranium-stocks.net/uranium-spot-price-85lb/
4. http://www.world-nuclear.org/info/inf75.html & http://www.world-nuclear.org/info/inf49.html
5. EIA, http://tonto.eia.doe.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbblpd_a.htm
6. EIA; http://www.eia.doe.gov/emeu/steo/pub/contents.html
7. In Bolivai, Untapped Bounty Meets Nationalism, February 2, 2009; http://www.nytimes.com/2009/02/03/world/americas/03lithium.html?pagewanted=1&_r=2&hp