Energy Independence: Still Not a Thing

For decades now American politicians have been promising to deliver energy independence, which, as highlighted by Brian Beutler’s chart reproduced above, keeps not happening. Mitt Romney has ratcheted the goal down a bit by arguing that we should achieve “North American energy independence,” meaning drill more domestically and make up the rest by building pipelines to import fossil fuels from Canada.

This, however, won’t work either because the whole idea of energy independence is conceptually bogus. Note on the chart that in the mid-1980s the United States was importing a lot less foreign oil than has been the case recently. That’s the Texas oil boom of Dallas fame plus some of the lingering consequences of the oil shocks of the 1980s. But if you recall, the American consumer was still vulnerable to supply shocks from abroad, and people were still really interested in OPEC decision-making. That’s because oil is something we’ve gotten really good at storing and shipping globally. Under normal circumstances, it makes sense to export Mexican oil to the United States rather than to India since Mexico is close to the United States. But if there’s a huge supply disruption at the locations where Indian oil comes from, then suddenly it makes plenty of sense to export Mexican oil to India. To keep the black stuff flowing to our border, Americans will have to outbid Indian purchasers and the price will rise.

From a consumer viewpoint, the geography of the supply side is totally irrelevant. Lobsters are cheap in Maine because storing and shipping live lobster is hard, but globally traded commodities aren’t like that. The price of gasoline is driven by global supply and demand plus local taxes.