Saturday, 8 September 2012
Written By: Sanjay Patel
Here is a glimmer of good news for the U.S. Oil imports to the U.S., currently the world’s biggest oil importer drop, as efficiency gains reduce oil demand, and reliance on new supplies such as light tight oil is increasing. In this post, I would like to discuss America’s dropping oil dependency factor.
With less than 5 per cent of the world’s population, U.S. oil consumption, today, accounts for over 21 per cent of the world’s total oil consumption – and it remains by far the largest user of oil, consuming approximately 19 million barrels of oil each day. The U.S imports about 9 million barrels per day of oil and Canada is number one supplier of oil to the U.S. However, the U.S has come a long way since 1970s in imroving its oil consumption.
In one of the previous posts, we discussed the relationship between nation’s GDP and oil consumption. A positive correlation between higher GDP and higher oil consumption continues to hold initially, however, as mature economies have a tendency to become more efficient over time, and able to sustain economic growth while oil consumption slows. The U.S. is a good example of this process of optimization.
The below Figure illustrates the production volume of the U.S., measured by GDP, compared with the country’s oil consumption, measure in millions of barrels per day. In the chart, oil consumption for each year between 1950 and 2011 has been paired with economic activity in the same year, or real GDP. We can observe that between 1950 and 1979, the rise in oil consumption kept pace with the increase in economic activity. In the chart, you can see a steep slop – reflecting a high oil dependency factor to grow economy.
This lasted until the 1970s, when the Arab oil embargo of 1973, combined with peaking oil production in the U.S., led to two years of recession, followed by above average inflation that continued for a decade. Under pressure, the U.S. managed to cut its oil intensity by almost half. We can see that the slope between 1983 and 2007 is much shallower – reflecting a low oil dependency factor, indicating that a great deal of economic growth was achieved in this period with a smaller amount of additional oil.
Continued gains in the efficiency of the U.S. economy are to be expected. According to the International Energy Agency, the U.S. will gradually be able to reduce its oil consumption from 19 million barrels per day (2011) to 14 million barrels per day (2035), while its economy continues to expand. The data points are trending downward in the chart (2011-2035 period) – reflecting a zero oil dependency factor. In other words, zero new oil is required to grow economy. The optimism is justified, if we consider that other developed nations, including Japan and several nations in Europe, have been able to achieve this, we can expect others (China, India, etc.) to follow in the future.
(Note: Opinions expressed here are my own and not that of Suncor)