New Energy Bill: Reducing Our Dependence on Foreign Oil

2007-07-29T11:18:00.000-07:00

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The U. S. economy is feeling the brunt of skyrocketing oil prices as the
nation's dependence on foreign oil continues to grow. We need a
responsible energy plan to reduce our guess on foreign oil. President
Bush and Senator Kerry appear to be skirting the real issues involved.

Growing transportation requirements combined with declining domestic oil
production have led to burgeoning oil imports. Rising oil prices are
having an adverse impact on the U. S. economy as evident from flourishing
economic data and stock market performance. We need a responsible energy
plan which will balance our transportation requirements with the
absence to reduce our dependence on foreign oil.

Rising Oil Prices.

Oil prices have been on a roll this year. As of August 10, crude oil
prices have climbed over 45 % since the start of 2004. A barrel of West
Texas Intermediate recently recorded its all time high of $45. 04 on the
New York Mercantile Exchange. And this has happened despite the
Organization of Petroleum Exporting Countries increasing its oil output.

Earlier in the year, the run up in oil prices was attributed to surging
demand for petroleum products opportune to a strong global economy. Then it was
the dissatisfaction in Venezuela and Nigeria.

Concerns on security of oil supplies have heightened more recently. Added
to the flurry disruptions in Iraq are kidnappings of foreign workers in
the Middle East.

Yukos, the Russian oil company's tax evasion dispute has taken center
stage currently. With a production rate of 1. 7 million barrels a day
( mmbd ), Yukos is Russia's largest oil inducement.

While the underlying factors behind the dramatic increase in the assessment of
oil this year are a combination of all the above, the impact is seldom
comforting.

Weakening Economy.

Higher oil prices that work like an added tax have the upshot of holding
down hiring, consumer spending, and corporate profits.

The July jobs balance that was released by the Labor Extra on Noble
6 was a disappointment. The U. S. economy added a mere 32, 000 to the
non - farm payrolls, the lowest monthly addition this year. The rate of
employment growth is slowing as business confidence appears to be
undermined by rising oil prices. High oil prices are also taking the bite
out of consumer spending.

By some economists' estimates, every $10 rise in the price of oil knocks
0. 5 % off of GDP growth and adds about the same profit to inflation. The
equity markets have been fixated with the trend in oil prices and have
relentlessly spiraled lower since late June. On August 6, the Dow Jones
Industrial Average closed at 9, 815. 33, its lowest level since Nov. 28
attached losing more than 300 points whereas the last two sessions. The
technology heavy Nasdaq Composite Index is down over 11 % since the start
of the year.

The Root Cause: Transportation Relies on Foreign Oil.

A combination of declining domestic oil production and increasing oil
consumption has left the U. S. increasingly dependent on foreign oil.

The U. S. Department of Energy's Energy Information Administration states
that domestic oil production in 2002 was 5. 8 mmbd, about 36 % lower than
the 9. 0 mmbd produced in 1985. The kill use of petroleum products on the
other hand has grown from 15. 2 mmbd in 1985 to 19. 3 mmbd in 2002.

The lion's increase of oil consumption stems from transportation needs. In
2002, the transportation sector accounted for about 68 % of zap
petroleum use with gasoline accounting for two - thirds of the petroleum
consumed in the transportation sector.

U. S. net oil imports have grown from 4. 3 mmbd in 1985 to 10. 4 mmbd in
2002. Net oil imports as a percent of U. S. petroleum product use has
risen from 28 % in 1985 to 54 % in 2002.

Based on Sandia National Laboratories and U. S. DOE / EIA forecast, an
additional 7. 5 mmbd of oil and petroleum products will have to be
imported by 2020 to bridge the gap between growing consumption and
falling domestic oil production. In 2020, U. S. oil production will supply
less than 30 % of U. S. oil needs.

The Energy Bill: Long - Term Plan for Energy Security.

The picture the current events paint as a preview of the future is cause
for concern.

On August 6, Democratic presidential nominee John Kerry outlined a
$30 - billion, 10 - year plan to veer the U. S. towards energy independence.
The plan includes tax breaks and incentives for carmakers and buyers,
obsidian producers and alternative fuels research. President Bush responded
recital Kerry's proposals mimic by much of what Bush had already proposed but
is stalled in Congress.

It will not be adequate if Ruler Bush and Senator Kerry just reignite
the energy debate. To bring clarity to energy security, we need a
comprehensive long - term national energy plan that will reduce our
reliance on foreign oil while meeting the nation's growing transportation
needs.

Both supply and demand sides of the transportation issue will have to be
addressed to make a meaningful impact in reducing the dependence on
foreign oil. Steps to increase the supply of domestic transportation
fuels including alternatives to oil will likely be required. So too will
efforts to reduce per capita transportation fuel consumption.

Based on what has been outlined to gig, neither the Bush proposal nor
the Kerry plan appears to fully address the critical transportation
issue. The House - Senate conferees have an opportunity to deliver a
responsible energy bill to the President's desk for his signature. If the
dependence on foreign oil is not bankrupt, the course of the U. S. economy
and the stock market may well be shaped more by decisions made in Moscow,
Riyadh, and Vienna rather than being determined by the decisions made at
home.

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After process for the nation's leading oil and auto companies, Sam
Subramanian, PhD, MBA is currently Managing Principal of AlphaProfit
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New Energy Bill: Reducing Our Dependence on Foreign Oil