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News Release

New Study Examines America's Energy Security Options

June 30, 2011

WASHINGTON—A new study from the Peterson Institute for International Economics evaluates the ability of recent policy proposals, from offshore drilling to vehicle efficiency standards, to make America more energy secure. The authors find that a comprehensive approach, comprising eight to ten major components, is required to significantly alter the country’s energy future. Such a strategy could cut US oil imports in half over the next fifteen years but even then the United States will remain vulnerable to international oil market disruptions with all the attendant economic and national security consequences.

The study, entitled America’s Energy Security Options, was prepared by Visiting Fellow Trevor Houser and Shashank Mohan. It provides a detailed analysis of the ability of various measures proposed by President Obama and currently before Congress to curb US oil imports, reduce gasoline prices, increase American resilience to global oil market disruptions and improve US national security. The authors find that there is no panacea for the energy security challenges facing the United States. Rather than debate whether expanded domestic production, improved efficiency, or development of oil alternatives is the right course to take, the United States needs to start moving down all three roads simultaneously.

The authors conclude, for example, that taken together the various individual proposals under examination (see table [pdf]) would have a meaningful impact on US oil production and consumption. In addition to the near-term supply relief from increased Gulf of Mexico production, total domestic oil output would increase by roughly 1 million barrels per day (bpd), about 10 to 12 percent, between 2021 and 2035. Oil demand would be reduced by 2.2 million to 2.8 million bpd during that period, or 12 to 15 percent. Together, increased domestic supply, efficiency, and fuel substitution would curb US oil imports by 3.1 million to 3.8 million bpd by 2035. In an upper-bound (high) scenario, this would cut overall net US oil imports to 4 million bpd, reducing US dependence on imported oil (measured in physical terms) to its lowest point in the past 40 years. America’s annual bill for imported oil would fall by between $127 billion and $148 billion between 2021 and 2035, taking a significant bite out of the country’s trade deficit.

Because global oil prices would drop by $8 to $10 per barrel, foreign oil producer revenue could be reduced by up to half a trillion dollars per year in the long term. Rising oil prices and instability in the Middle East and North Africa have forced energy security back into the forefront of the American political debate. In recent months the Obama administration and congressional leaders have proposed a range of remedies and on June 23 the Department of Energy announced that the United States would sell 30 million barrels of oil from the strategic petroleum reserve, as part of an internal effort coordinated with 27 other countries to double that amount, to offset the impact of Libyan supply disruptions on the global economic recovery.

The authors employ the Department of Energy’s National Energy Modeling System (NEMS) to examine each policy proposal and analyze its potential effect on US oil imports, gasoline prices, and energy expenditures, among other metrics, in a way that allows readers to compare the strengths and weaknesses of each. They also assess the potential impact of all the proposals combined to see whether what is currently being discussed is sufficient to address the issue. The authors outline steps that Washington can take to make the international oil market more stable and secure, something that is largely missing from the current policy debate, and highlight recent actions taken by both Congress and the White House that have decreased, rather than increased, American energy security.

The authors released their study at a Peterson Institute meeting that featured a panel discussion including Daniel Yergin, Pulizer Prize winning author of The Prize and Chairman of Cambridge Energy Research Associates, Heather Zichal, Deputy Assistant to the President for Energy and Climate Change, and McKie Campbell, Republican Staff Director for the Senate Energy and Natural Resources Committee.

>> Download news release [pdf]

About the Authors

Trevor Houser, visiting fellow at the Peterson Institute for International Economics, is partner at the Rhodium Group (RHG) an economic research and advisory firm. He is also an adjunct lecturer at the City College of New York and a visiting fellow at the school’s Colin Powell Center for Policy Studies. During 2009 he served as senior advisor to the US Special Envoy on Climate Change. His areas of research include energy markets, environmental regulation, international energy security and global climate change. He is author most recently of A Role for the G-20 in Addressing Climate Change? (2010), Assessing the American Power Act (2010), Copenhagen, the Accord, and the Way Forward (2010), The Economics of Energy Efficiency in Buildings (2009), A Green Recovery? Assessing US Economic Stimulus and the Prospects for International Coordination (2009), Leveling the Carbon Playing Field: International Competition and US Climate Policy Design (2008), The Roots of Chinese Oil Investment Abroad (2008) and China Energy: A Guide for the Perplexed (2007).

Shashank Mohan is a research analyst with RHG in New York. In addition to leading RHG’s energy modeling work, he covers macroeconomic trends and political and economic developments in South Asia. He is coauthor with Houser of Assessing the American Power Act (2010) and A Green Recovery? Assessing US Economic Stimulus and the Prospects for International Coordination (2009). Prior to joining RHG, Mohan worked as a consultant for Columbia University’s Earth Institute on a World Bank project to design an electricity expansion model for Kenya and Senegal and as a software engineer at Microsoft.

About the Peterson Institute

The Peter G. Peterson Institute for International Economics is a private, nonprofit, nonpartisan research institution devoted to the study of international economic policy. Since 1981 the Institute has provided timely and objective analysis of, and concrete solutions to, a wide range of international economic problems. It is one of the very few economics think tanks that are widely regarded as “nonpartisan” by the press and “neutral” by the US Congress, its research staff is cited by the quality media more than that of any other such institution. Support is provided by a wide range of charitable foundations, private corporations and individual donors, and from earnings on the Institute’s publications and capital fund. It moved into its award-winning new building in 2001, and celebrated its 25th anniversary in 2006 and adopted its new name at that time, having previously been the Institute for International Economics.