April 10, 2005
Economic theory
All right, before your eyes glaze over, I was thinking about something today. It came from the
intersection of three tangential factors. I was out looking for a chair for my front stoop (if one can call it
that), and in the back of my mind I had all the talk about Wal-Mart I've done lately and how they are so-called "unAmerican" when they import most of their stuff. And today I also had to go out and put gas in
my car, to the tune of $2.079 a gallon for regular unleaded.
Well, I did find a nice metal chair much like ones my mom and dad have, it lets me rock back and forth. I
have never been able to sit still and I'm 40 years old, I may as well deal with it. I have a rocker/recliner in
my living room, I'm going to have a rocking chair outside on my porch well before retirement. Bought
this one at Home Depot, and best of all it was made somewhere here in the US of A. (By the way, the
chairs I saw at Target and Lowe's were the ones made in China, Wal-Mart's chair was made in Indonesia.)
There was a time I refused to buy anything from China when they shot down our plane a few years back.
Unfortunately, I didn't have a lot of choice in some matters but I try to avoid buying things made in a
place that has missiles aimed at us.
Anyway, this all got me to thinking about something I heard awhile back, that China was now importing
such an amount of oil that it was putting a squeeze on our supply and driving up gas prices. They have to
use some energy to build all these things they export here.
But I never associated China with having a lot of oil. I know when OPEC sneezes, Japan catches a cold
because they have very little oil. So I had a theory about China and what could be its oil problem. This
led me to look up some facts that I thought could back it up. Keep in mind, I'm no Dr. Walter E. Williams
or Thomas Sowell.
But here are the parameters I found.
In total daily oil consumption, the U.S. uses 20.4 million barrels a day, China 5.56 million. They are
expected to increase to 12.8 million bbl./day by 2025. Meanwhile, I wouldn't expect our usage to increase
to that extent, I'll say 25 million barrels for us. Still double their usage (or more if usage increases faster),
even in 20 years.
Proven reserves: China is #10 in the world with 23.7 billion barrels in proven reserves, the U.S. is #11 at
21.9 billion barrels. So if either were forced to "go it alone", the U.S. would be in trouble a LOT sooner.
I'm thinking that this does count ANWR and Gulf of Mexico drilling. Top countries in reserves: Saudi
Arabia, Iraq, Iran, Kuwait, UAE, Russia, Venezuela, Nigeria, Libya, then China and the U.S.
I was reading recently where China is getting friendlier with Latin America. This spells trouble for us as
well since 2 of our top 4 suppliers are Mexico and Venezuela. The other top suppliers for us are Canada,
the Saudis, and Nigeria. I would say only one is a stable supplier, that being Canada.
The U.S. has a refinery capacity of 16.9 million barrels a day and consumes 20.4 million. We import
about 60% of our oil from the suppliers noted above. Note that neither Canada nor Mexico are among the
top 10 in oil reserves.
Where the U.S. does have the advantage is in natural gas. Our reserves are 6th in the world, 187 Tcf of
gas compared to China's 53.3 Tcf.
So it looks like these things need to happen if we don't want to lose the oil war, and by extension the
economic one.
1. In the short term, we need to maximize our drilling and exploration. Try and cut as much importation
from these unfriendly nations as possible. That means drill ANWR and the Gulf. Pump as much oil as we
can out of those suckers. It's not as dirty as the environmentalists think, Mother Nature has a way of
surprising us and bouncing back quickly (remember the Exxon Valdez? It's almost like it didn't happen now.)
2. I have heard that deriving oil from shale is cost-effective after $30 a barrel. Well, let's go. It's domestic
product, from out in the Rockies as I recall.
3. We need to increase our refining capacity for both oil and natural gas. Now, I know that the NIMBY
crowd will go nuts and I don't blame them. I used to call East Toledo the "stinky part of town" because
that's where the Sun Oil and BP refineries are and you certainly knew when they were in operation. But
I'm sure somewhere there are people who could sacrifice dealing with the offensive odor for a bunch of
well-paying jobs. Even if the refineries were to expand existing operations it would help.
4. We need to be sneaky as well. I know as well as anyone that OPEC countries are notorious for stating
an output goal and watching each member blow it off and overproduce. We need our "friends" to step up
and tell OPEC to screw itself, we're selling more. We liberated Kuwait and Iraq, time for some payback
for about 15-20 years.
5. Wherever we can, we need to start thinking of substituting natural gas for oil. I'm really surprised more
effort hasn't been made to get more true "gas" pumps out there. Maybe $60, $70, $80 a barrel oil will
show some entrepreneur that a market is possible. It certainly could revolutionize the trucking industry if
someone made an engine that ran on natural gas but could provide the power of a diesel. Time for some
private sector partnerships between the trucking industry and the natural gas industry.
I started this out by thinking China would run out of oil before we did, but that theory is all wrong. With
higher proven oil reserves and lower consumption, they could outlast us for decades in the oil business.
And with many of our suppliers being on not-so-friendly terms (think Hugo Chavez in Venezuela
wouldn't like to stick his thumb in our eye and supply his Communist buddies in China?) we do need to
think about an eventual alternative. But in the short-term, we need to work to maximize our supplies.
We in America came up with the greatest modes of personal transportation known to mankind. Now it's
time to come up with the next generation of transport. And just like the last time, no government agency
need apply. Let the private sector do its magic!
As far as I'm concerned, that was a nice exercise in getting me thinking. Not bad for an amateur
economist.