Obama goal to cut oil imports is well within reach

AP News
Posted: Mar 30, 2011 5:36 PM
Obama goal to cut oil imports is well within reach

When President Obama called for reducing the nation's oil imports by one-third by 2025 in a speech Wednesday, he echoed similar goals _ still unfulfilled _ set by every president since Richard Nixon.

This time, though, it might just work.

The reason: The country is already well on its way to meeting Obama's goal. More fuel efficient cars, mandates to use biofuels, and high prices are cutting into gasoline demand. Meanwhile, domestic oil production rose in consecutive years after two decades of declines thanks to new discoveries in shale deposits throughout the West.

A one-third reduction in oil is not only possible, it's beatable, analysts say.

"We could cut our imports in half. It's very doable," says Fadel Gheit, an analyst at Oppenheimer & Co.

In recent years the U.S. has been producing more of its own oil while also using less. Both trends are expected to continue. Oil imports have fallen 25 percent since 2005 when the nation imported a record 12.5 million barrels of oil per day.

It helps that the president gave himself a head start toward his goal _ he wants a one-third reduction from 2008 levels. The economic crisis reduced demand for oil, and therefore imports. Imports have fallen 15 percent since 2008, from 11.1 million barrels per day to 9.4 million barrels per day in 2010.

In order to reach the President's goal, imports must fall another 2 million barrels per day, to 7.4 million barrels per day. If he started with 2010 numbers, imports would have to drop to 6.3 million barrels per day.

In 2010, U.S. oil production grew for the second year in a row after 23 years of decline. That's largely because engineers have recently been able to tap once-unreachable fields of oil in shale deposits in North Dakota, Texas, New Mexico, Wyoming, California and other parts of the West.

These shale deposits could contribute an additional 2 million barrels of oil per day by 2015, according to Rehan Rashid, an analyst at FBR Capital markets. If that comes true, the U.S. could hit Obama's goal 10 years before the deadline.

Analysts also expect oil production from the Gulf of Mexico to grow as drilling resumes after a pause prompted by the BP oil spill.

The nation is using less gasoline because fuel economy of cars and truck is improving, prices are high and refiners are required to blend ever more biofuels into gasoline.

The fuel economy of the nation's fleet has been improving since 2004. That's when gasoline first topped $2 per gallon, the SUV craze began to wane and drivers switched to more fuel efficient cars. Between 2004 and 2010, the average fuel economy of the nation's fleet improved 15 percent.

Vehicle fuel economy is expected to improve further in coming years with the first new fuel economy standards for passenger vehicles since 1990. By the 2016 model year, the nation's cars and trucks must average 35.5 miles per gallon, up from 27.5 mpg this year.

The Obama Administration is expected to propose fuel economy standards for the 2017 to 2025 model years by September that could reach as high as 60 miles per gallon.

In 2005 and again in 2007 congress passed rules that force refiners to blend an ever-increasing amount of biofuels into gasoline. By 2022, three years before Obama's deadline, the country will need to use 36 billion gallons of renewable fuels, up from 14 billion gallons in 2011.

Those additional 22 billion gallons of ethanol will replace 2 million barrels of oil per day, though that calculation does not include the diesel it takes to run tractors and other fuel it takes to produce biofuel crops.

Analysts say changing demographics will also contribute to lower gasoline demand. As the U.S. population ages it will drive less, for example.

Because of these trends, industry experts, including the CEO of Exxon Mobil, have said oil and gasoline demand in the U.S. will never return to the levels reached in the middle of the last decade.

"This isn't something that's going to happen overnight, but over many years the trend is flat to declining," says Jim Burkhard, Managing Director for Global Oil at IHS CERA, an analysis firm.

Obama also called for increases in vehicles powered by electricity and natural gas. Analysts don't expect those to have an impact on gasoline demand and oil imports before the president's deadline of 2025. That's in large part because of the time needed to build up the necessary infrastructure such as charging stations and natural gas filling stations.

The president likely won't need help from these emerging technologies, though. "There are forces already in play that point to lower imports," Burkhard says.