Five Fundamental Observations about the U.S. Energy Problem

As a Citizen CEO, you want know the big picture, and then you want to know what the people who work for you, or who will potentially work for you, propose to do about it. In my last post, I summarized which U.S. Presidential candidates have an energy plan, so in this post I’ll provide some framework for evaluating which of these plans are better than others. In a near-term future post, I’ll begin to analyze the plans on the basis of this framework.

So I’m going to outline the fundamental U.S. energy problem in five points. Luckily, the U.S. Department of Energy’s Energy Information Administration (EIA) appears to do a fantastic job of gathering comprehensive information,  giving all kinds of charts, graphs, and data. I’m going to assume its as accurate as anything out there. The only issue is that its overwhelming. We want to know “What does it all mean as far as electing the president?”, not every detail at once. So the following will present some simple, fundamental conclusions, using some key data, because I think one doesn’t really get the real picture of how dramatically things are shifting until you see some graphs.

1. Energy consumption outstrips supply

Apart from environmental issues, the core of the energy issue is that demand is increasing, outstripping supply. This is true both within the U.S. and worldwide. As the chart shows, overall U.S. energy production is essentially flat, and the shortfall is being made up by imports. This has been happening since the late sixities.

2. Petroleum is the primary problem

Although consumption of many energy sources — including natural gas, nuclear, and coal — have all be been increasing dramatically, petroleum is the one that must be imported. This situation is caused by the increasing demand and and corresponding 50% decrease in U.S. crude oil production since the 1960s.

3. The increasing petroleum usage is mostly due to transportation

And by transportation, I mean trucking. See the graph. Its not personal vehicles, SUVs, or pickups but the larger trucks. More research is needed to undestand what that means, but it appears to relate more to commercial vehicles.

4. Increased imports means higher dependence on other countries.

The United States’ need to import evermore petroleum means a corresponding increase in dependance on certain petroleum producing countries. The major countries that the U.S. imports from are (highest to lowest in 2006) as follows:

• Canada
• Mexico
• Saudi Arabia
• Venezuela
• Nigeria
• Iraq

5. Some developing countries are increasing petroleum consumption at a dramatic rate

To further complicate the import situation, several developing countries are rapidly increasing their demand for petroleum. China in particular, has had a greatly increasing demand. Although the demand in the U.S. is still the highest in the world, many developing countries have greatly increasing demand. When one factors in the population of those countries, which are many times the size of the U.S., and figures that their demand could rise to a per capita consumption roughly comparable to that of the U.S., it is apparent that the potential demand for energy is enormous. When considering petroleum or natural gas specifically, which have fixed stocks, the picture becomes quite scary.

See these charts from the Wall Street Journal. The charts not only show the impact of rising global consumption, but the associated steep rise in price.

These five items presented in this post paint the broad strategic situation that roughly corresponds with the view held by the Department of Energy. To address them, the U.S. presidential candidates have made various proposals, many of which cover not only maintaining the supply of energy at a reasonable price, but also the effects of energy emissions on the environment and the contributions of energy usage to global warming. We’ll begin to deconstruct those in future posts over the next few weeks.