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The U.S. recently increased our naval military forces in the Persian Gulf.  This action was in response to increased Iranian military activities within the Strait of Hormuz area and renewed threats to shutdown all oil transport through the Strait.  If the Strait of Hormuz is shutdown 20% of world crude oil supply would be cut off, including 15% of total U.S. imports.  The impacts of this lost crude oil supply could subject the U.S. to another major energy crisis and plunge the economy back into recession.

Remember the 1970’s – Early 1980’s Energy Crises– In response to the U.S. support of Israel during the 1973 Yom Kippur War, the Arab OPEC members embargoed all exports to the U.S.  This resulted in loss of about 1.0 million barrels per day (MBD) of U.S. total crude oil imports.  Based on total oil consumption in 1973, the Arab OPEC Oil Embargo caused a 5% shortage in total U.S. petroleum supplies.  Those who experienced this energy crisis probably remember the long lines at service stations, even-odd day rationing, and the dreaded fuel pump posting: “Out of Gas”.  Besides the Public burdens created, the energy crisis quadrupled oil prices and led the U.S. into the 1973-74 economic recession.  The U.S. experienced a second energy crisis from the 1979 Iranian revolution.

U.S. Future Oil Import Embargo Mitigations – Following the 1970’s – 80’s energy crises the Federal Government implemented many regulations to mitigate the impacts of future oil supply disruptions.  The regulations included increasing domestic oil production, increased energy efficiency, and replacing petroleum with alternative fuels.  In addition, the U.S. built the Strategic Petroleum Reserve (SPR).  Despite all energy independence or security regulations implemented over the past several decades current total U.S. net oil imports have increased; 45% of total 2011 petroleum oil consumption vs. 35% in 1973.

The SPR provides emergency crude oil storage for use when domestic production or imports are disrupted.  The SPR was filled to a maximum of 727 million barrels (MB) in 2009.  As a result of the Administration releasing SPR oil last year (a non-U.S. supply disruption decision), the current inventory is 697 MB.  The SPR has a maximum design transfer capability of about 4 MBD.  At current crude oil consumption rates, the SPR can supply up to 30% of total refining crude oil feed for about 5 months.

U.S. Crude and Petroleum Oil Imports – The U.S. imports are supplied by OPEC and non-OPEC countries.  The security or risk of oil imports from different countries varies due to logistics reliability (pipeline vs. marine, shipment distance, etc.), and the export country’s government stability and relationship with the U.S.  Generally, the longer the marine shipment and the more unstable or hostile an export government is towards the U.S., the lower the reliability or higher the security risk of the imported supply.  Today the U.S. imports crude and petroleum oil from over 90 countries.  The largest import volumes come from OPEC and seven non-OPEC countries. Refer to the following table.

Total U.S. Imports =

MBD 11.36

Total U.S. OPEC Imports =

MBD 4.53

Total Imports 40%

Total U.S. Non-OPEC Imports =

MBD 6.83

Total Imports 60%

 
 

 - - - - - - - - - - - -   U.S. OPEC Imports   - - - - - - - - - - - -

- -  U.S. Non-OPEC Imports  - -

 

Persian Gulf Countries

MBD

% Total Imports

Non-Persian Gulf Countries

MBD

% Total Imports

Non-OPEC Countries

MBD

% Total Imports

 

Saudi Arabia-

1.20

10.5%

Venezuela-

0.94

8.3%

Canada-

2.71

23.8%

 

Iraq-

0.46

4.0%

Nigeria-

0.82

7.2%

Mexico-

1.21

10.6%

 

Kuwait-

0.19

1.7%

Algeria-

0.36

3.2%

Russia-

0.62

5.5%

 

United Arab Emirates-

0.01

0.1%

Angola-

0.35

3.0%

Colombia-

0.42

3.7%

 

Qatar-

0.01

0.1%

Ecuador-

0.19

1.7%

Brazil-

0.25

2.2%

 

Iran-

0.00

0.0%

Libya-

0.02

0.1%

Virgin Islands-

0.19

1.6%

 

Sub-Total

1.86

16%

Sub-Total

2.67

24%

United Kingdom-

0.16

1.4%

 

Other Non-OPEC-

1.28

11.3%

 

DOE/EIA MER gross crude and petroleum oil imports, annual average data for 2011.

The most secure and the largest import volumes come from North America.  Canada, the U.S.’s largest and most important trade partner is also the largest supplier of U.S. oil imports.  Mexico is the second largest supplier.  Canadian and Mexican oil imports are essentially as reliable and secure as average U.S. domestic production.  Due to Iran’s threats to shutdown the Strait of Hormuz, the OPEC Persian Gulf imports have the highest risk of disruption and lowest security level. 

If Iran does shutdown the Strait of Hormuz this would lead to an immediate loss of 1.86 MBD of U.S. oil imports.  Based on current petroleum consumption, this action would result in an immediate loss of 10% of total U.S. petroleum oil supplies.  Compared to the 1973 Arab OPEC Oil Embargo of disrupting 5% of total U.S. petroleum oil supplies, future shutting off all Persian Gulf imports could have a much larger impact on the Public and economy.  Fortunately the U.S. has the SPR emergency oil supply.

Mitigating a Strait of Hormuz Shutdown with the SPR – The SPR is located in storage terminals along the Gulf Coast; within Texas and Louisiana.  The terminals can supply U.S. refineries via inland pipelines/barge transport or by loading tankers for transporting crude oil to the East and West Coasts.  The SPR current inventory and maximum transfer capacity into existing pipelines/marine terminals is over twice the level of potentially lost OPEC Persian Gulf imports.  However, existing logistics constraints will not allow reliably supplying all U.S. refining centers during a supply emergency.

The SPR can readily supply the Mid-continent and Southeast Coast via existing pipelines/inland barges.  Northern and Rocky Mountain States oil imports come from Canada and are unaffected by OPEC imports.  The areas at greatest risk to lost Persian Gulf imports are the Northeast and the West Coasts.  The East and West Coasts could experience immediate losses of crude and petroleum oil supply of 2% and 14% respectively.  As countries around the world compete for the remaining 80% of non-Persian Gulf crude supply, the East Coast will likely experience import losses much greater than the 2% of total supplies.  Unfortunately the East and West Coasts cannot be reliably supplied from the SPR.  The reason for SPR supply constraints to both Coasts is due to limited availability of marine tankers. The Jones Act requires all shipments made between U.S. ports must be carried in U.S. built, owned, registered and operated tankers.  The cost of Jones Act shipping is much higher than average world market foreign flagged tankers, which has caused limited availability of U.S. flagged Jones Act tankers.  Oil companies can apply for Jones Act waivers that allow foreign flagged ships use between U.S. ports.  Besides the time required for waiver requests approval, the availability of world market oil tankers will delay SPR marine shipments.  Most tankers have longer term charters and unscheduled availability is uncertain.  The West Coast SPR oil shipments will also take more time due to the longer Panama Canal shipment route and the Canal ship size restrictions.  These factors will subject the West Coast to an energy crisis substantially worse than the in the past.

Immediate Solutions to U.S. Energy Security – 70% of all U.S. petroleum is consumed by the Transportation Sector.  The ultimate solution to U.S. energy security is reducing the need for petroleum by making all forms of transportation substantially more efficient (CAFE), replacing most private/commercial vehicles with hybrids and electric vehicles (HEV/EV’s), replacing petroleum use with alternative fueled vehicles (AFV’s), increased renewable biofuels and possibly encouraging Residents to significantly reduce annual miles traveled (AMT).  Based on the progress made in all these areas over the past 30 years, the U.S. will realistically require well over another 30 years to accomplishing some of these envisioned improvements.  During the interim the U.S. must continue to use petroleum fuels to support the economy and the current average Resident’s standard of living.  Effective and immediate U.S. energy security improvement in the interim will require eliminating the need for the highest risk oil imports from all OPEC and possibly some non-OPEC countries.  This can be reasonably accomplished by maximizing oil imports from the most secure non-OPEC countries, further expanding domestic oil production, replacing petroleum with commercially proven alternative fuels such as natural gas, and more significantly reducing consumption.

The most secure sources of crude oil imports come from Canada.  The Keystone XL pipeline project has been stalled for years.  Identified environmental issues can be effectively and quickly addressed if the politics were removed from the permit process.  Building the Keystone XL could rapidly increase Canadian imports up to 1.0 MBD.  The next source of U.S. crude oil supply can come from domestic sources.  Besides the revolutionary production from shale oil, there are other opportunities for expanded lower-48 and off shore production, and ANWR.  With the depletion of ANS reserves, the existing Alaskan pipeline system has capacity to ship about 1.0 MBD of ANWR crude oil production.  ANWR can effectively become the West Coast’s SPR and eliminate nearly all West Coast crude oil imports.  Shale oil and known off shore reserves will also feasibly increase domestic crude oil production by an additional 1.0 MBD.

U.S. Energy Policy Improvements Needed for Increased Security and to Facilitate Cleaner Energy Supply

The combination of increased Canadian imports and Lower-48/ANWR crude oil production can reduce U.S. imports up to 3.0 MBD.  These increased North America petroleum supplies will eliminate the need for all highest risk OPEC Persian Gulf imports and about 2/3’s of total OPEC imports.  The 1.5 MBD balance of remaining high security risk OPEC imports can possibly be eliminated by reduced consumption of petroleum oil products.  This can be achieved by future large CAFE improvements, substantially increased HEV/EV fleet levels, increased commercial natural gas AFV’s, feasible biofuel increases and possibly reduced total AMT.  By eliminating most historic CAFE compliance loopholes, making needed improvements to HEV/EV battery technology, strongly supporting natural gas AFV’s, improving biofuel technology development research and possibly changing consumer behavior towards personal AMT, the U.S. can feasibly reduce the Transportation Sector petroleum fuels consumption by 0.5-1.0 MBD within about 10 years.  Further Transportation petroleum consumption reductions take will longer. 

The Residential and Commercial Sectors consume almost 1.0 MBD of petroleum heating oil, LPG and kerosene.  Reducing consumption these petroleum fuels presents an additional opportunity to reduce total U.S. petroleum imports and increase alternative cleaner energy supply.  Replacing the use of current space heating petroleum fuels with natural gas or electric HVAC heat pumps, in addition to further efficiency improvements (insulation, ‘smart’ thermostat’s and possibly changing consumer behavior towards heating/cooling settings) will feasibly reduce U.S. petroleum consumption by 0.5 MBD within about 10 years.

 The combination of increased very secure imports, increased domestic production, and reducing petroleum consumption within the Transportation, Residential and Commercial Sectors will be critical to substantially increasing U.S. energy security.  These improvements should effectively eliminate the risk of future energy (supply) crises and make substantially increased progress towards replacing petroleum with cleaner energy.  All of these strategies can provide an excellent outline for a future effective and comprehensive U.S. energy policy needed to substantially increase our energy security and increase alternative cleaner energy use.

Future Probability of Iran Shutting Off the Strait of Hormuz – The clock is ticking for the current diplomatic efforts to stop Iran’s nuclear weapons program.  Despite endless talks and recent economic sanctions, the probability of these efforts actually persuading Iran to abandon their nuclear ambitions remains highly questionable.  Meanwhile, Israel sits nervously on the sidelines waiting for real progress to protect their country from future Iranian nuclear weapons.  Israel has a history of preemptive first strikes to protect their country from known and potential threats (Re: Iraq nuclear reactor 1981).

The U.S. Navy can readily handle any country’s ‘conventional’ weapons and forces.  It’s the unconventional, small independent forces that present the greatest threat to Strait of Hormuz oil shipments.  Iran only needs to attack one or two oil tankers to stop all shipment through the Strait.  No responsible shipping owner or operator will put their crews and fleet at risk to a known threat.

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