Oil worries

Given that fuel is the second largest cost in any fleet operation behind wages and benefits, how worried should you be about worldwide petroleum supplies? Our fear of price increases for diesel is fueled by a number of political and economic issues: the U.S. is embroiled in a war in Iraq; animosity toward our country from the Arab world is on the rise; demand for oil from rapidly-developing nations

Given that fuel is the second largest cost in any fleet operation behind wages and benefits, how worried should you be about worldwide petroleum supplies?

Our fear of price increases for diesel is fueled by a number of political and economic issues: the U.S. is embroiled in a war in Iraq; animosity toward our country from the Arab world is on the rise; demand for oil from rapidly-developing nations such as China is increasing; and the price of oil is headed up.

I talked to John Felmy, chief economist at the American Petroleum Institute (API), about some of these issues, and he feels that while petroleum supply will always be a concern in this country, it's not as worrisome as it was 30 years ago.

In 1973, when OPEC launched an oil embargo against the U.S. for its support of Israel during the Yom Kippur War, we relied on the cartel for 70% of our oil imports. Today, we import 45% of our oil from OPEC; and oil from the Persian Gulf accounts for only 25% of our supply.

“The key to energy security is to spread your supply base,” Felmy told me, “and that's just what the U.S. has done over the last three decades. The top countries from which we import oil are now Canada and Mexico. Not only do we have good relations with them, they are located close by geographically, which further improves energy security.”

Offshore oil production has also increased, especially in the Gulf of Mexico; 10-billion barrels worth of oil reserves exist in the Gulf alone. Overall, said Felmy, global oil reserves are 50% greater now than they were 20 years ago.

Still, there are several worrisome trends fleet managers should be aware of. Demand for oil keeps rising in the U.S. and shows no signs of slowing. We consume 20.13-million barrels of oil per day, making us the top consumer in the world. China's 5.6-million barrels a day habit pales in comparison — and it has more land and more people.

In addition, demand for oil is exploding worldwide, said Felmy. “China, for example, used to be self-sufficient in terms of oil production and consumption; now it's a net oil importer” to the tune of 1.9-million barrels a day.

The worry is that even as new oil fields have been brought online outside of the Persian Gulf countries, the largest oil reserves remain under their control — with Saudi Arabia alone holding 21.6% of all global reserves. So even though Persian Gulf oil accounts for only 30% of all oil consumed today worldwide, by 2020 it could account for 54% to 67% of all oil consumed, according to the Energy Information Agency.

The Wall Street Journal (Feb. 8, 2004) summed up our energy situation quite bluntly: “America's economy, the engine of its global preeminence, depends on some of the world's most anti-American nations for its oil.”

Even though we have diversified our oil supply base, we still remain vulnerable because our import levels are so high. “The supply system for petroleum and natural gas is stretched to the limit,” said the API in its annual energy report to Congress this year.

“Small changes in demand or supply have resulted in sharp increases in petroleum and natural gas prices,” they added. Mitigating these problems requires action by the federal government to increase supplies, address demand and facilitate regulatory flexibility to help reduce volatility and ensure energy availability to consumers at affordable prices.”

Here's hoping we can start coping with these trends.

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