| dc.description.abstract | When oil prices rise, politicians often call for improvements in energy efficiency or policies that they hope will make the U.S. more “energy independent.” The argument is that if we consume less oil, domestic supplies will constitute a larger portion of U.S. quantity demanded, mitigating our dependence on potentially unreliable foreign oil sources, thereby lessening U.S. exposure to volatile supply/price fluctuations. Three interrelated issues are addressed in this dissertation. First, the drivers and substitution patterns in U.S. oil demand are explored using structural demand system analysis for energy in the U.S. Second, world oil supply is estimated using the cost structure of world oil reservoirs, which principally depend on reservoir characteristics. Models of both supply and demand yield insight into the feasibility and unintended outcomes of policies or technological advances that reduce oil demand. Finally, the U.S. autarky equilibrium price at the intersection of the U.S. supply and demand curves is considered. Inferences on the economic feasibility for the U.S. to strive towards self-sufficiency in oil are examined including the vulnerability premium associated with national security concerns.
The demand model demonstrates that U.S. oil demand is explained as a system of demands for energy, where individuals are committed in the short run to minimum quantities of consumption. In the context of pre-commitments, oil is found to have a higher own-price elasticity (more elastic) at average than is commonly found in the literature. Oil is further demonstrated to be a compliment for natural gas and electricity, and a substitute for coal.
Oil production costs and quantities are heavily dependent upon reservoir geology, which has a fixed dispersion around the world. Using this premise, a supply curve composed of world oil reservoirs is generated. Scenario analysis on different world oil demand reductions suggests there are unintended costs of reducing oil demand. Oil producing countries will experience smaller gross domestic products from diminished oil production. Smaller gross domestic products may affect the countries’ political stability.
The world oil supply curve and cross price elasticities from the demand model are considered together under the most likely scenario of a fall in world oil demand stemming from a 2.5% decrease in U.S. oil demand. These results are used to consider unintended consequences of changes in U.S. oil demand in attempts to achieve or pursue “energy independence.” These results include the impact on coal, natural gas, and electricity demand; the required change in gasoline demand that could precipitate a 2.5% change in oil demand; the change in U.S. GDP; the change in U.S. “energy independence” and; the change in political stability of oil producing nations.
U.S. supply and demand curves for oil will not intersect in the short run with current technology. The implication is that the vulnerability premium for oil would need to be infinite to justify U.S. self-sufficiency in oil. The U.S., therefore, should not strive towards energy independence in oil. | en |
