Will Home Grown Oil Kill the Electric Car?

With the United States on the verge of producing oil in quantities not seen since 1970, is one of the core reasons behind electrifying transportation eroding before our eyes?

Since the October 1973 Arab oil embargo, getting off foreign oil has been the sober yet unfulfilled promise of presidents and the subject of comic mockery.

“Energy independence” – a kissing cousin to “energy security” and “national security” – has had across-the-aisle appeal and reports are predicting this could become reality by the 2020s or 2030s, albeit in a way not commonly thought of last decade.

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Hydraulic fracturing (fracking) and horizontal drilling into previously inaccessible U.S. deposits have opened what estimates say could be from several decades to more than a century’s worth of oil and natural gas.

Though issues and data are vehemently opposed by others, energy companies are rushing to extract the profitable stuff out of the ground and this may have reduced the sense of urgency to develop sustainable renewable alternatives.

While the electrification of transportation continues with hybrids, plug-in hybrids, electric vehicles (EVs), some automakers have dragged their heels citing limitations to battery tech, costs, lack of mass-market appeal, and infrastructure.

Every automaker touts its green cred, and none say they’re against electrification. But as reasons come up to only meet Corporate Average Fuel Economy rules, are some waiting to see how it will go for fuel prices, availability, and politically influenced factors?

2017-2025 CAFE rules are written to allow automakers to produce only 1-3 percent all-electric cars, if they choose though California ZEV rules are stricter.

2017-2025 CAFE rules are written to allow automakers to produce only 1-3 percent all-electric cars, if they choose though California ZEV rules are stricter. Photo: Chevy Spark EV, sold in California and Oregon.

Since late last decade none but Nissan and Tesla have produced 50-state-available pure electric cars selling in respectable volume, although BMW’s i3 and Mercedes’ B-Class may also in time. Most automakers, if they have EVs at all, offer “compliance cars” in markets where California rules shared also by other states make them a worthwhile sacrifice, if not major revenue source.

Lots of Oil

According to Tancred Lidderdale, an analyst for the U.S. Energy Information Administration (EIA), U.S. crude oil production “has been growing rapidly.”

It peaked in 1970 at 9.6 million barrels per day, then began a relatively steady decline to 5.0 million barrels per day in 2008.

“With new technology, crude oil production has resurged and is expected to average 8.5 million barrels per day this year and the EIA projects a further increase to 9.3 million barrels per day in 2015,” said Lidderdale.

At the time of the Arab oil embargo, the U.S. was importing 35 percent of its oil and after a spike in imports and resultant energy insecurity, it is now below those levels.

“The share of total U.S. liquid fuels consumption met by net imports fell from 60 percent in 2005 to an average of 33 percent in 2013,” said Lidderdale. “EIA expects the net import share to decline to 22 percent in 2015, which would be the lowest level since 1970.”

Costs Keep Rising

The U.S. still spends a fortune importing oil and buying fuel at the pump. This isn’t because of record import quantities, but because petroleum prices have quadrupled to record highs, presently around $100 per barrel (42 U.S. gallons).

Thus the U.S. spent about $300 billion last year on imported oil according to a BBC report, or almost two-thirds of America’s entire annual trade deficit.

Source: United States Energy Security Council.

Source: United States Energy Security Council.

Despite that, the EIA forecasts gasoline prices will be “slightly lower” next year, but they are not controllable even if the U.S. was 100-percent self-reliant – something the EIA says is not likely.

Americans pay less than many other markets, but there’s no promise prices couldn’t double in a few years or even triple. Threats therefore remain according to the U.S. Energy Security Council (USESC).

“Oil is a fungible commodity with a global price, and thus even the theoretical elimination of foreign imports through increased U.S. production is not likely to bring long-term price relief to the consumer,” it says in a 2013 position paper. “Over the next decade, demand in China, India, and other emerging markets will continue to grow. Unmatched by substantial growth in supply from the regions where conventional oil is most prevalent and cheapest to discover and lift, this will drive the price of gasoline and diesel to higher and higher levels …”

“Contrary to popular belief, the U.S. is not heavily dependent on the Persian Gulf for oil nor has it ever been,” says the USESC. “The region currently supplies under 10 percent of U.S. oil demand, and … never in history has the number surpassed 15 percent. Most U.S. oil imports originate in the Western Hemisphere.”

“Contrary to popular belief, the U.S. is not heavily dependent on the Persian Gulf for oil nor has it ever been,” says the USESC. “The region currently supplies under 10 percent of U.S. oil demand, and … never in history has the number surpassed 15 percent. Most U.S. oil imports originate in the Western Hemisphere.”

The issue yet remaining is pricing controlled by others, most notably OPEC, says the Washington-based non-profit organization co-founded by former Reagan administration National Security Advisor Robert C. McFarlane, and former CIA Director, R. James Woolsey.

OPEC still holds three quarters of the world’s economically recoverable reserves, but has manipulated prices by curtailing supply since it played hardball with the 1973 embargo.

“A key driver of oil price, and thus price at the pump, is the price of oil required to balance the national budgets of OPEC member regimes such as Saudi Arabia,” said Anne Korin, a senior advisor to the U.S. Energy Security Council. “As described in our book "Petropoly: the Collapse of America's Energy Security Paradigm," in reaction to the Arab Spring, the budgetary expenditures of Persian Gulf regimes skyrocketed as they increased subsidies, grants, and government employee salaries in an effort to prevent their subjects from storming the palaces.”

“A key driver of oil price, and thus price at the pump, is the price of oil required to balance the national budgets of OPEC member regimes such as Saudi Arabia,” said Anne Korin, a senior advisor to the U.S. Energy Security Council, adding the details are explained in her book, “Petropoly: the Collapse of America’s Energy Security Paradigm“.

“Over the past four decades, world GDP grew fourteen-fold; the number of cars quadrupled; global crude consumption doubled,” writes the USESC. “Yet OPEC today produces about 30 million barrels of oil a day (mbd) – the same as it produced 40 years ago.”

Not All Bad

Natural-gas-powered electrical generation and other factors are reducing domestic energy costs and America’s newfound oil and gas deposits have tremendous promise even if they can’t bring down the price of gasoline in the long run.

In a 2013 piece for Politico, titled, “Congratulations America. You’re (Almost) Energy Independent,” prize-winning energy author Daniel Yergin outlined economic benefits to the U.S.

A typical drill pad in the Marcellus Shale gas play of southwestern Pennsylvania. Pictured here are pumps, generators, fuel, chemicals, sand, pipes, service trucks, and other infrastructure required for the involved process of hydraulic fracturing. Photo Credit: Doug Duncan, USGS

Not all good either: A typical drill pad in the Marcellus Shale gas play of southwestern Pennsylvania. Pictured here are pumps, generators, fuel, chemicals, sand, pipes, service trucks, and other infrastructure required for the involved process of hydraulic fracturing. Photo Credit: Doug Duncan, USGS.

“A recent study by IHS, the energy consulting firm where I work, estimates that 2.1 million jobs were supported by this energy boom in 2012, and we project that to rise to 3.3 million jobs by 2020,” he wrote. “It meant an additional $74 billion in federal and state revenues in 2012, and, owing to lower energy costs, an increase of $1,200 in average household disposable income across the United States.”

Similarly, the BBC’s business reporter Richard Anderson documented yet-lingering effects of not being fully free, but overall said things look enviable.

“If the U.S. achieved energy independence, not only would the country spend far less on cheaper, domestically generated power, but the money would be going primarily to US-owned energy producers,” wrote the BBC of shale deposit energy. “The U.S.’s oil import bill also constitutes about 2 percent of the country’s annual economic growth. As the U.S. economy averages about 2 percent growth a year, the country would, in effect, be getting a year’s growth for free.”

Anderson observed a resurgence in U.S manufacturing and companies “reshoring” and committing billions because energy costs are now lower which could spur a new “golden age for U.S. manufacturing.”

Source: U.S. Energy Information Administration. Articles written to investors are saying between "53 and 250" years of U.S. oil could remain.

Source: U.S. Energy Information Administration. Articles written to investors are saying between “53 and 250″ years of U.S. oil could remain.


But not all is rosy even if the International Energy Agency (IEA) and oil companies like BP predict U.S. “energy independence” thanks to domestic oil and gas by 2035.

Citing U.S. Department of Energy data, the USESC reports price shocks due to OPEC price manipulation are estimated to have cost Americans nearly $2 trillion from 2004 to 2008.

Further, the RAND Corporation estimated the U.S. Department of Defense spends between $68 billion to $83 billion annually securing global oil tanker passage.

Further still, past armed conflicts and yet-threatened U.S. interests add to an inestimable amount in military spending, destroyed property, wounded bodies, and lost lives.

Consumer Choices

Undoubtedly reducing or eliminating major economic drags and concerns about unstable geopolitical hotbeds remains appealing.

To get there, the U.S. Energy Security Council advocates fuel-neutral policies promoting oil price competition by domestic energy choices, only one of which being electricity.

The USESC notes that for $100 at the assembly line, vehicles could be made compatible with gasoline, methanol, and ethanol.

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Its report suggests opening vehicles to fuel competition is the key to reducing the strategic importance of oil. This would mean natural-gas derived fuels as well – not a savory topic for environmentalists but natural gas is already coming in through the back door via fuel cell vehicles, and otherwise politics present challenges. The USESC bluntly declares the last four decades of Washington policies have wrongly focused on reducing oil imports (whether by drilling or by increased mpg) rather than on breaking oil’s virtual monopoly over transportation fuel, and have thus failed to reduce the price at the pump.

Among recommendations to policymakers, a 46-page USESC document outlines ways to a level playing field between transportation energy sources. It advocates fuels be equally taxed, relative energy value accounted for, devaluing “mpg” as an EPA standard for reward, factoring for difference in emissions, and more – all to spur fair competition acceptable to Democrats, Republicans, and anyone else.

“Competing technologies and fuels to the internal combustion engine and to gasoline and diesel have often been viewed as political pet projects by the opposing party, resulting in a swift death when control of the Congress or White House shifted,” notes the USESC. “What is needed is an integrated, multi-pronged approach that cuts across Administrations and covers transportation fuels and vehicles. It is unlikely we will achieve true and lasting energy security without it.”

Along with hydrogen, natural-gas derived energy is still being touted, and it’s a realty that must be faced by plug-in advocates.

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Some environmentalists cynically say it’s like America hit the oil lottery, albeit from questionable sources, and greedy interests today don’t mind taking risks with future generations.

Despite those allegations and more, the world is already set up for a fossil fuel paradigm. If – as some have said – Americans only make significant changes when a crisis hits, it appears petroleum proponents are making headway and those who stood to profit before yet do.

Nor do automakers appear especially eager to break the love affair with gasoline and diesel, so smarter policies than today could help with motivation, says the USESC.

Electrification End Game

In its favor, electricity from batteries remains 100-percent U.S. derived, spews zero tailpipe emissions, though production remains coal-dependent in some regions with the grid becoming cleaner year over year.

Plug-in car advocates say the only long-term solution is not relying more than necessary on the crutch of newfound natural gas and attendant real and potential consequences, and pushing for true sustainable solutions.

Eventually, even if the U.S. has decades worth of oil or more it will eventually run out as energy producers take arguably unnecessary fracking risks. Further, petroleum has other industrial uses more valuable than burning and polluting the atmosphere.

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“We absolutely still need to electrify our cars,” said Luke Tonachel, Senior Analyst and Director, Clean Vehicles and Fuels for the Natural Resources Defense Council (NRDC).

And while energy security has been equated with national security, Tonachel noted the U.S. Department of Defense says climate change is a national security issue also.

The DoD wrote climate change effects will be “threat multipliers that will aggravate stressors abroad such as poverty, environmental degradation, political instability, and social tensions – conditions that can enable terrorist activity and other forms of violence” on page 8 of its Quadrennial Defense Review 2014.

No Easy Answers

Issues remain beyond this overview. Industry observers admit more needs to be done to accelerate plug-in car acceptance, including reducing costs, increasing energy storage, and appealing to the hearts and minds of consumers.

The move is still underway, things have started slower than some hoped, but justification for a shift toward electrification is still very much present, say supporters.

“We need to electrify our cars to protect public health and avoid the worst impacts of climate change,” reiterated Tonachel. “To reduce carbon pollution levels sufficiently to address climate change and air quality issues, the car fleet needs to be predominantly electrified and charged with clean energy by 2050. Getting there means adopting standards that clean up power plants and accelerating the pace of electric vehicle adoption today.”

Politico, BBC, USESC, U.S. Energy Outlook 2014.