US Oil Dependence Predicted to Decline

Markets work. And so does policy. That's the optimistic message from Guy Caruso, head of the Department of Energy's statistical arm, the US Energy Information Administration who told the Financial Times that US dependence on foreign oil after rising for 30 years will drop from 60% to 50% in the next seven years. Caruso estimates that US imports will fall through 2030 thanks to lower consumption as prices rise and as biofuel mandates tighten. Caruso's prediction is likely to reduce calls to drill in the Alaska National Wildlife Reserve and provide support for biofuel targets.

But is this optimism justified? Today's FT has a secong long article on peak oil, the idea introduced by Shell geologist, Marion King Hubbert that oil production is bound to peak and then decline. Hubbert accurately predicted the peak of US production in the 1960s. His followers see global oil production peaking in the next decade or so, followed by shortages--and according to some--panic in the streets. Even sober analysts believe that the capacity of Saudi Arabia to increase oil production at its mammoth Ghawar field is limited. And such knowledgeable Texans as T Boone Pickens are believers in peak oil. Last week, Pickens plunged down $2 billion as a one quarter downpayment, on 2500 turbines he is installing in the Texas Panhandle to build the world's largest wind farm.

Optimist or pessimist, it's clear that oil capacity is under stress and high prices are probably here to stay. Even under the most optimistic scenarios, renewable sources won't replace oil for decades. The key question is how quickly will markets work to lower oil usage and drive investment in the technologies needed when the wells begin to run dry.