U.S. Oil Import Vulnerability: The

Technical Replacement Capability

October 1991

OTA-E-503

NTIS order #PB92-117621
Recommended Citation:

U.S. Congress, Office of Technology Assessment, U.S. Oil Import Vulnerability: The

Technical Replacement Capability, OTA-E-503 (Washington, DC: U.S. Government Printing

Office, October 1991).

For sale by the U.S. Government Printing Office

Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328”

ISBN 0-16 -035609-1
Foreword

Iraq’s invasion of Kuwait in August 1990 triggered a long-dormant awareness of this

Nation’s vulnerability to disruptions in foreign oil supplies. Amid heightened concern over the

potential impacts on U.S. oil supplies of prolonged hostilities in the Middle East, the Senate

Committee on Energy and Natural Resources asked OTA to update the conclusions of our 1984

report, U.S. Vulnerability to an Oil Import Curtailment: The Oil Replacement Capability. The

Subcommittee on Energy and Power of the House Committee on Energy and Commerce

subsequently joined in the request.

This report examines the changes that have taken place in world oil markets and the U.S.

economy since 1984 and provides revised estimates of the technical oil replacement potential

that might be attained in the event of a severe and long lasting cutoff of imported oil. The

analysis focuses on technologies that are commercial y available today or will be within the next

5 years and that are among the most cost-effective methods for replacing oil use in applicable

sectors. It also considers the economic impacts of adopting an aggressive oil replacement

strategy in a severe oil emergency. The report presents a variety of policy options that could help

accelerate the adoption of oil replacement technologies in preparation for, or in response to, a

severe supply disruption, or as part of a long-term national policy to reduce import vulnerability y.

The report’s conclusion that U.S. capability to replace lost oil imports is shrinking should

be sobering to those who believe that there are quick and easy technological solutions, or that

market forces alone will be sufficient to overcome the substantial economic and social

dislocations that could result from a prolonged major oil disruption.

Operation Desert Storm and the return to low world oil prices have lessened the immediacy

of concerns over import dependence. But this latest oil scare has refocused attention on the

Nation’s energy policies and where they may lead us.

This report is one of four just-completed OTA studies on energy technology and policy

issues. The others are: Energy Technology Choices: Shaping Our Future (July 1991), Energy

Efficiency in the Federal Government: Government by Good Example? (May 1991), and

Improving Automobile Fuel Economy: New Standards, New Approaches (October 1991). We

hope that these studies will prove helpful to Congress as it considers proposed energy

legislation.

This study enjoyed the strong support and encouragement of Michael T. Halbouty of the

Technology Assessment Advisory Council, who generously shared his wisdom gained from

years in the oil patch. OTA is grateful for his advice and counsel.

OTA also appreciates the assistance of the individuals and organizations who provided

substantial assistance to our staff and contractors. To them and to the workshop participants,

reviewers, and contractors who contributed to this report, we extend our gratitude.

~ f ~

47A# ‘ >

JOHN H. GIBBONS

- Directo r

. . .

Ill
OTA Workshop on Oil Supply Disruption:

Oil Replacement Capability

John Amoruso Bjorn M. Kaupang

Amoruso Petroleum Co. General Electric Co.

David Block Mark Ledbetter

Florida Solar Energy Center American Council for an

Joe Corns

Energy Efficient Economy

Industrial Analysis and Forecasting Barry McNutt

Dan Dreyfus U.S. Department of Energy

Gas Research Institute Mark Rodekohr

K.G. Duleep U.S. Department of Energy

Energy & Environmental Analysis, Inc. Glenn Schleede

Pete Franolic New England Electric System

Bethlehem Steel Corp. Raymond Schmidt

Brad Hollomon ‘

Supervisor

New York State Energy Research

and Development Administration

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the participants in the

workshops. The workshop participants do not, however, necessarily approve, disapprove, or endorse this report. OTA assumes

full responsibility for the report and the accuracy of its contents.

iv
JOHN H. GIBBONS

DIRECTOR Congress of the United States

O FFICE OF T ECHNOLOGY A SSESSMEN T

ERRATA:

W ASHINGTO N, DC 20510-8025

“U.S. Oil Import Vulnerability

The Technical Replacement ‘Capability”

GPO stock #052-003=01261=8

Figures 1-9, 1-10, and 1-11 on pages 19 and 20

of the report and summary documents* are incorrect.

The corrected versions appear below.

Figure 1-9

Millions of barrels per day

25 -I

20

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, Ala

‘ Ott

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1950 1960 1970 1980 1990 2000 2010 2020

Year

● Natural gas liquids and other

*The summary document is available free of charge

from the OTA. Call the Publications Request Line at

202=224=8996 for a copy.
Figure 1=10

Millions of barrels per day

25

20

15

10

5

0

1950 1960 1970 1980 1990 2000 2010 2020

Year

Figure 1-11

25

20

15

10

5

0

Millions of barrels per day

7

—28 mpg

—38 mpg

—50 mpg

— Trucks

Additio al

— backout

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fuels II

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= Lower 8

1950 1960 1970 1980 1990 2000 2010 2020

Year
OTA Project Staff-U.S. Oil Import Vulnerability:

The Oil Replacement Capability

Lionel S. Johns, Assistant Director, OTA

Energy, Materials, and International Security Division

Peter D. Blair, Energy and Materials Program Manager

Karen L. Larsen, Project Director

Lillian Chapman, Office Administrator

Linda Long, Administrative Secretary

Phyllis Brumfield, Secretary

Kathryn Van Wyk, Editor

Contractors

Renova Engineering, P. C., Staten Island, NY

Hillard Huntington, Stanford University, Stanford, CA

John Weyant, Stanford University, Stanford, CA

Contributors and Reviewers

David Block

Florida Solar Energy Center

Tom Bull

U.S. Food and Drug Administration

Steve Clifton

Houston Industries, Inc.

Joe Corns

Amoco Corp., MC 2906

Paul De Rienzo

ReNova Engineering

Michael T. Halbouty

Michael T. Halbouty Energy Co.

Brad Hollomon

New York State Energy Research

and Development Administration

Richard Iteilag

American Gas Association

Donald Jest

Sun Refining & Marketing

Dolores Kern

National Coal Association

Charles W. Linderman

Edison Electric Institute

David Montgomery

Charles Rivers Associates

Sashank Nadgauda

ReNova Engineering

Roger Naill

Applied Energy Services, Inc.

Jim Pavle

American Gas Association

Steven Plotkin

Office of Technology Assessment

Glen Schleede

New England Electric System

Jeffrey Seisler

Natural Gas Vehicles Coalition

Stephen L. Thumb

Energy Ventures Analysis, Inc.

Jan Vlcek

Industrial Oil Consumers Group

Eugene W. Zeltmann

General Electric

Mary Beth Zimmerman

Alliance to Save Energy
Contents

Page

Chapter 1. Introduction and Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Chapter 2. Oil in the U.S. Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Chapter 3. U.S. Technical Potential for Replacing Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Chapter 4. Economic Aspects of Oil Replacement Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105

Chapter 5. U.S. Energy Policy and Technologies for Replacing Imported Oil ................ 115

Appendix A: Reference Maps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Chapter 1

Introduction and Summary
Contents

Page

BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

WHAT HAS CHANGED? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Patterns of Oil Supply and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Major Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

OVERVIEW OF U.S. OIL REPLACEMENT POTENTIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Methodology and Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Technical Replacement Capability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . 8

IMPLICATIONS OF GROWING OIL IMPORT DEPENDENCE AND

ERODING OIL REPLACEMENT CAPABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

MAJOR OPPORTUNITIES FOR REDUCING OIL IMPORT DEPENDENCE, . . . . . . . . . . . . . 13

Automotive Fuel Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Alternative Transportation Fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Increased Domestic Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Diversity in Oil Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

LOOKING TOWARD THE FUTURE-SCENARIOS FOR REDUCING OIL

DEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

POLICY CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Replacing Oil Use in a Severe Import Disruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Reducing Oil Import Vulnerability as Part of Long-Term

National Energy Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Figure

1-1.

1-2.

1-3.

1-4.

1-5.

1-6.

1-7.

1-8.

1-9.

1-1o.

1-11.

Table

1-1.

1-2.

1-3.

Figures

Puge

World Oil Consumption 1983 and 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Total U.S. Oil Imports and Imports From the Middle East, 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . 5

U.S. Petroleum Products Supplied by Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

U.S. Energy and Oil Consumption, 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

U.S. Energy and Oil Intensity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Oil Replacement Potential by Sector, 1984 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

US. Oil Replacement Potential Technical Capability by Sector, 1991 . . . . . . . . . . . . . . . . . . 10

Estimated Car and Light-Truck New Fuel Economy

and Gasoline Prices, 1978-90 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

US. Oil Supply and Demand Futures Baseline Projection: Current Trends in

Domestic Oil Production, Net Imports, and 1989 New Car Fuel Economy . . . . . . . . . . . 19

U.S. Oil Supply and Demand Futures: Impacts of Increased Domestic Oil Supply

and Improved Fuel Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

U.S. Oil Supply and Demand Futures, Impacts of Improved Domestic Oil Supply

and Fuel Economy, and Oil Backout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Tables

Page

Estimated Oil Replacement Potential, 1984 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .,, ,, 9

Summary of Estimated Oil Replacement Potential, 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

OTA Estimates of Potential Short-Term Fuel Economy Gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Chapter 1

Introduction and Summary

BACKGROUND

The 1991 war in the Middle East has once again

focused world attention on the geopolitics of that

region. In the United States, energy security has

returned to the national policy agenda after nearly a

decade of absence. In response to renewed concerns,

OTA has been asked to reexamine the U.S. technical

capability for coping with a sustained disruption in oil

supply.

Seven years ago, at the request of the Senate Committee on Foreign Relations, OTA published the

report U.S. Vulnerability to an Oil Import Curtailment: The Oil Replacement Capability, which analyzed the supply and demand technologies that could

replace a shortfall of 3 million barrels per day

(MMB/D) in U.S. oil supply over a 5-year period. In

August 1990, following the Iraqi invasion of Kuwait,

the Senate Committee on Energy and Natural Resources asked OTA to revisit the findings of its 1984

report to examine how changes in world oil markets

and in the geopolitical setting have affected the technical potential for oil replacement and, consequently,

the candidate policy options. Early in 1991, the Energy and Power Subcommittee of the House Committee on Energy and Commerce endorsed the Senate

request. This report responds to that request.

WHAT HAS CHANGED?

In our 1984 assessment, we assumed a scenario of

an immediate loss of imported oil of 3 MMB/D,

beginning in mid-1985 and continuing for at least 5

years.

2 The scenario was equivalent to a curtailment

of 70 percent of U.S. net imports and a loss of 20

percent of U.S. oil supplies, Our analysis concluded

that the United States had the technical capability to

replace 3.6 MMB/D of oil over the projected period.

Thus, U.S. oil replacement capability in 1984 exceeded the assumed serious oil import curtailment by

the considerably comfortable margin of 600,000 barrels per day (B/D).

By 1990, the picture had clouded. U.S. petroleum

consumption had risen from 15 to 17 MMB/D, while

domestic production slipped from 10.3 to 9.2

MMB/D. Oil imports had risen from 5 to 8 MMB/D,

and the share of U.S. oil needs supplied by imports

had increased from 33 to over 40 percent. If we faced

an oil disruption today comparable in magnitude to

the scenario assumed in our 1984 report (i.e., a

curtailment of all 15 MMB/D of Persian Gulf exports), the impacts could be devastating. The short–

fall in U.S. oil imports could be as high as 5 MMB/D,

still 70 percent of net imports, however, it would

represent 30 percent of U.S. oil supplies. Moreover,

reliance on technical means alone to replace lost oil

imports would prove insufficient. OTA estimates that

currently available oil replacement technologies could

displace only about 2.9 MMB/D of 1989 oil use

within 5 years. This replacement potential must be

offset by the expected continuing decline in domestic

oil production, yielding an effective import replacement capability of from 1.7 to 2.8 MMB/D. Thus the

present U.S. potential to respond to a serious and

prolonged oil shortage is less than it was in 1984 and

would fall several million barrels short of the 5

MMB/D cutoff assumed in our 1991 disruption scenario.

Fortunately, many experts believe that the probability of a serious and prolonged disruption of the

magnitude assumed in our analysis is very low. Surge

production capacity, voluntary conservation measures, and private and government stockpiles were

sufficient to allow oil consumers to weather the most

recent oil disruption. However, our analysis suggests

that as the current world surplus in oil production

capacity is reduced the U.S. could face serious difficulties in responding to major oil supply disruptions

that persist for more than a few months.

lust ~ngress, office of Technology A.\se\sment, U.S. Vulnerubiliy to un Oil Import Curtailment: The Oil Replacement CaPubiliY, OTA-E-*43

(Washington, DC: U.S. Government PrintingOffice, September 1984), available fromtheNational Technical Information Service, Springfield, VA22161,

NTIS order #PB 85-127 785/AS. Hereinafter referred to as The Oil Replacement Capability.

2The United states has never fa~~ a SuppIy (iisruptl~n of such magnitude and duration. Most studies have assumed that an oil cutoff would last 1 or

2 years, but an indefinite shortfall is not implausible. Political upheavals, war, and natural or manmade disasters in the Middle East oil regions could have

such a result. Indeed, the long-lasting oil price increases resulting from the 1970s disruptions were the economic equivalent of a lasting supply shortfall.

Between 1978 and 1983, the real price of oil increawxl 60 percent, and there was an unadjusted decline in oil demand of nearly 4 MMB/D. Ibid., p. 9.

—3-
4 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Figure l-l—World Oil Consumption

(million barrels per day)

1983

1983 and 1989

1989

SOURCE:

Total: 58.7 MMB/D Total: 65.8 MMB/D

Office of Technology Assessment, 1 991, based on data from U.S. Department of Energy, Energy Information

Administration, International Energy Annual 1991, DOE/EIA-0219 (89) (Washington, DC: U.S. Government

Printing Office, February 1991), table 8.

In the following, we note the more significant

changes in U.S. oil supply and use since 1984 and explore the implications for our current concern over

U.S. import dependence.

Patterns of Oil Supply and Demand

Today, the world consumes about 65 MMB/D of

oil, up 12 percent from 58.7 MMB/D in 1983 when

the 1984 0TA assessment was completed. The United

States consumes about 17 MMB/D, which continues

to be over 25 percent of the total world consumption.

U.S. oil consumption has risen by about 14 percent

since 1983; however, U.S. domestic production is

down sharply, with the result that net imports have

risen from about one-third of total U.S. consumption

in 1983 to over 40 percent in 1990.3 Moreover, the

fraction of total oil imports coming from Persian Gulf

nations has increased from about 4 percent of total

U.S. oil consumption (10 percent of total U.S. oil

imports) to over 11 percent (25 percent of gross U.S.

oil imports in 1990). (See figures 1-1 and 1-2.)

Present patterns of U.S. oil consumption in the

aggregate are very similar to those of 1983. The

relative proportions of consumption by product category (e.g., gasoline, middle distillates, fuel oil) are

quite similar to those of 1983, with about 42 percent

of oil consumed as gasoline (see figure 1-3). Industrial and transportation use of oil have both grown

about 13 percent since 1983, residential and commercial use has grown only 9 percent, and electric utility

use has remained almost unchanged. However, since

industrial and transportation applications together

approach 90 percent of U.S. oil use, the relative

proportions of oil use across end-use sectors remain

about the same as in 1983-transportation (63 percent), industrial (25 percent), residential and commercial (8 percent), and electric utilities (5 percent).

(See figure 1-4.) The various oil products and their

uses are described in more detail in chapter 2.

Major Changes

Advances in technology and resource discovery,

price trends, changes in U.S. and world economic

structure, and policy shifts have all altered—in some

cases, dramatically—the context within which decisions about U.S. oil use and supply are made by

industry, government, and consumers. The following

are the major changes that have occurred in the last

two decades:

~wo OTA reports have examined the pressures on the domestic oil industry and the factors that will influence future production. See U.S. Congress,

Office of Technology Assessment, Oil Production in the Arctic National Wildl$e Refige: The Technology and the Alaskan Oil Context, OTA-E-394

(Washington, DC: U.S. Government Printing Office, Februa~ 1989); and U.S. Congress, Office of Technology Assessment, U.S. Oil Production: The

Eflect ofLow OilPrices, Special Report, OTA-E-348 (Washington, DC: U.S. Government Printing Office, September 1987), available from the National

Technical Information Service, Springfield, VA 22161, NTIS order #PB 88-243548.
Chapter 1 Introduction and Summary ● 5

Figure 1-2—Total U.S. Oil Imports and Imports From the Middle East, 1989

(millions of barrels per day)

Total U.S. oil imports Imports from Middle East

Latin

SOURCE:

0.3

Saudi Arabia

1.22

Total: 8.1 MMB/D Total: 2.1 MMB/D

Office of Technology Assessment, 1991, based on data from U.S. Department of Energy, Energy Information

Administration, Petroleum Supply Anual 1989, DOE/ElA-0340(89) vol. 1 (Washington, DC: U.S. Government Printing Office, May 1990), table 21.

Improved U.S. Energy Efficiency-Energy efficiency has increased considerably in all sectors of the

economy and has entailed many permanent structural

changes, including improvements in both the efficiency and flexibility of energy-using technologies.4

For example, automotive fuel economy, industrial

boiler and electric power plant fuel efficiency have all

improved substantially. Nonetheless, many opportunities to improve efficiency remain, although they

may be more difficult to secure without raising energy prices.5

Decreased Oil Intensity—The considerable shift

from oil use by industry and electric utilities in the

1970s and 1980s resulted in a decline in oil intensity

(oil used per dollar of gross national product (GNP);

see figure 1-5). Improvements in energy efficiency

and the shift to other fuels (especially natural gas,

coal, and nuclear energy) contributed to the decline.

Increased Strategic Petroleum Reserve (SPR)—

The United States now has an SPR of approximately

568 million barrels of crude oil, the equivalent of

about 90 days of net crude oil imports for the first half

of 1991. Similarly, Europe and Japan have added to

their strategic storage, although not to the same extent

as the United States. The SPR was tapped for the first

time during the Persian Gulf Crisis, initially in a

congressionally approved test drawdown, and later as

Figure 1-3-U.S. Petroleum Products

Supplied by Type*

(percent of total 1970-1989)

Percent of total

80

60

40

20

n

“7’0 72 74 76 78 80

Years

= Gasoline = Jet fue l

= ~i;illlte m LpG

82 84

n

n

86 88

~f~igy~l

Other Products

*Petroleum products supplied is an approximation of petroleum

consumption.

SOURCE: Office of Technology Assessment, 1991, based on data from

U.S. Department of Energy, Energy Information Administration,

Annual Energy Review 1989, DOE/EIA-0384(89) (Washington,

DC: U.S. Government Printing Office, May 1990), table 60.

dsee U.S. Congrms, ()~~lu of Technology Assessment, Technology and theAmerican Economic Transition: Choices for the Future, OTA-TET-283

(Washington, DC: U.S. Government Printing Office, May 1988), available from the National Technical Information Service, Springfield, VA 22161,

NTIS order #PB 88-214 127/AS.

@TA is examining this in more depth in its on~oirl~ awassment, U.S. Energy Eficiency: Past Trends and Future Opportunities.
6 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Figure 1-4-U.S. Energy and Oil Consumption, 1989

(quadrillion Btus (Quads))

Total energy consumption Total oil consumption

Other* 11%

N

Coal

18

atural

----

Oil

3 4

,----

---.-

4 2%

.02

----

-.

.-

. .

. .

--- ----

. . . .

Electric power 1.7 5%

Residential/

Commercial 2.7 8%

Industry 8.3 24 %

Transportation 21.5

63%

19.5

Total: 81.2 quads Total: 34.02 quads (17.3 MMB/D)

● Other includes hydroelectric, nuclear, geothermal, and

wind power generation and other renewable energy sources.

SOURCE: Office of Technology Assessment, 1991, based on data from U.S. Department of Energy, Energy Information

Administration, Annual Energy Review 7989. DOE/EIA-0384(89\ (Washington, DC: U.S. Government

Printing Office, May 1990). ‘-

part of an internationally coordinated release of reserves to cushion possible supply impacts from the

launching of Operation Desert Storm.

Diversified World Oil Production—Sources of

world oil production have become substantially more

diversified since the 1970s, with the Organization of

Petroleum Exporting Countries’ (OPEC) share of the

world oil market declining from 60 percent in 1979 to

approximately 35 percent today. For the next several

years, at least, no single country or cohesive group of

countries can control as large a share of the world

market as was previously possible.

Concentrated World Oil Reserves—Despite diversified world oil production, nearly all recent reserve additions have been in the Middle East. Moreover, the costs of exploration, field development, and

production in the Middle East remain considerably

below that of other oil-producing regions, and are

likely to remain so. As the Soviet Union, the United

States, and other non-OPEC nations deplete their oil

reserves, the geopolitical importance of Middle Eastern oil will grow.

Increased Flexibility of Oil Use-A significant

fraction of any increase in oil consumption, both in

the United States and in the remainder of the free

world, is reversible. For example, much of the increase in U.S. oil use in transportation over the last

decade involves changes in consumer behavior, such

as increased driving or purchases of larger cars. Some

of these changes could be modified in case of an oil

shortage or large price increase. In the industrial and

electric utility sectors there has been a shift away from

oil to other fuels. At the same time, the fuel switching

capability among remaining oil users has grown substantially since the 1970s—allowing many of the

existing oil-fired units to burn alternate fuels, primarily natural gas, when price or availability concerns

dictate.

New International Oil Trading Mechanisms—

Most of the world’s oil trade now operates on the spot

market, in contrast to the long-term contracts of the

1970s. Coupled with an active futures market, this

new oil trading situation makes single-country embargoes, which could never be airtight, even in the

past, still less of a threat. Because most contract prices

are tied to posted prices on the oil trading exchanges,

rapid changes in futures or spot market prices in

response to real or perceived threats to oil supplies are

almost instantly reflected in the world price of oil.

Increased Availability of Natural Gas—In the

1970s there was widespread concern about the future

availability of natural gas. For much of the 1980s the
Chapter 1_Introduction and Summary ● 7

Figure 1-5-U.S. Energy and Oil Intensity

(thousand Btus per 1982 dollar of

Gross National Product)

30~

Thousand Btu/1982 dollars

2 5 -

20-

15 i I

3

10-

5-

o~

70 72 74 76 78 80 82 84 86 88

Years

SOURCE: Office of Technology Assessment, 1991, based on data from

U.S. Department of Energy, Energy Information Administration,

Annual Energy Review 1989, DOE/ElA-0384(89) (Washington,

DC: U.S. Government Printing Office, May 1990).

U.S. natural gas industry has faced surplus capacity

and depressed prices. Nonetheless, long-term concerns about future natural gas deliverability and price

still exist.

International Agreements on Oil Sharing—The

International Energy Agency (IEA) was created in

the 1970s in part to coordinate maintenance of strategic stocks of petroleum as well as to coordinate plans

for demand reduction for use during an emergency.

Since the 1970s the IEA’s coordination plans have

developed substantially. Additional countries (i.e.,

Finland and France) are currently seeking IEA membership. In early 1991, the IEA governing board voted

to draw on 900 million barrels of crude oil reserves

(including the SPR) to avert any shortages caused by

the war in the Middle East, but little oil was actually

withdrawn because supplies proved adequate and

prices remained low.

Changed Energy Regulation—U.S. oil prices are

no longer regulated like they were during the 1970s.

Given a new price increase, the market forces that act

to reduce demand and increase supply will be felt in

full. In addition, restrictions on the use of oil and

natural gas in electric utility boilers and other industrial applications have largely been repealed.

Changed Economic Structure-Over the last decade, the decline in energy intensity (energy consumed per unit of gross domestic product produced)

accelerated in response not only to the influence of

improvements in energy efficiency, as noted above,

but also to the changing patterns of consumer demand, a shifting balance of imports and exports of

both energy and nonenergy goods, and the changing

market basket of goods produced in the United States.

These changes have, as a consequence, reduced the

future oil replacement potential in the U.S. economy.6

Demographic changes, such as the population migration to the Southwest from the Northeast and Midwestern States, have contributed to reduced overall

oil intensity. The use of electricity and natural gas to

fuel new residential, commercial, and industrial growth

in the Southwest is possibly replacing oil used in the

Northeast.

Changed Policy Environment—The policy environment within which regulatory and administrative

decisions affecting U.S. oil use are made has changed

considerably since the mid-1980s. Concerns over

physical shortages of oil have given way to concerns

over price trends and volatility, the functioning of

international markets, and other public policy goals,

such as energy security, environmental quality, and

international competitiveness.

OVERVIEW OF U.S. OIL

REPLACEMENT POTENTIAL

The Persian Gulf crisis, while one of the largest

supply disruptions ever, does not match the scale of

the disruption assumed in our 1984 and 1991 scenarios. The reduction in crude oil production capacity

from Kuwaiti and Iraqi oilfields at the onset of hostilities was about 4.3 MMB/D. But, because of existing

underutilized capacity, the loss was quickly and fully

offset by surge production in Saudi Arabia and elsewhere. By early 1991, Saudi crude output increased to

8 MMB/D (up from about 5.5 MMB/D before the

war). 7 On the other hand, oil production in the Soviet

GOTA ~ddr~ssed this ~hanging structure in detail jn U.S. Congress, Office of Technology Assessment, Energy USe and the U.S. Economy, OTA-BPE-57 (Washington, DC: U.S. Government Printing Office, June 1990).

7U .S D~p~~ment of En~rgy, Energy Inf~rmati[)n Administration, Petroleum Supply Monfh/y: Fekfury 2991, DOE/EIA-~10V(91/02), (Washington, . .

DC: U.S. Government Printing Office, February 1991), p. xix.
8 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Union, the world’s largest oil producer, was down

1 MMB/D from a year earlier, and Soviet ability to

sustain historical levels of production is now questionable.

On balance, sustained shortfalls in world oil production due to the war or other disruptions are considered by most analysts to be much less likely then they

were in the 1970s. Nonetheless, substantial shortfalls

are still possible and recent experience has given

some indication of the potentially devastating human

and economic costs of a major and prolonged oil

cutoff. Given the high concentration of the world’s oil

reserves in the politically unstable Middle East, the

growing dependence of the U.S. economy on oil

imports, declining domestic production, and the likelihood that the easiest options for reducing U.S.

reliance on foreign oil have already been exercised, it

is not surprising that there is now a renewed interest

in potential benefits and costs of a strategic policy

decision to reduce the risks of oil dependence.

Methodology and Assumptions

For this report OTA examined the oil replacement

potential from deploying various technologies that

are technically and economically feasible for use

within the next 5 years. Technical feasibility requires

technologies that are commercially available either

now or by 1992 that can be manufactured insufficient

quantity and installed within 5 years, and that require

no significant changes in industrial mix or consumer

lifestyles. Some technologies even offer additional

benefits to environmental quality, economic growth,

and international competitiveness. To be economically feasible, the technology must be cost-competitive at today’s oil prices or at the significantly higher

prices expected to prevail in an oil shortage and/or be

among the least costly alternatives for replacing oil

use in the relevant sector. The technologies that met

these criteria were largely the same ones identified in

1984.

The assumptions used in our updated oil disruption

scenario, except for the size and onset of the shortfall,

are virtually identical to those used in the 1984 report.

The major assumptions for the 1991 reassessment

are:

1. A cutoff of Persian Gulf exports to world markets and international oil-sharing agreements

result in an immediate loss of 5 MMB/D in U.S.

2.

3.

4.

5.

6.

oil imports. The disruption begins in 1991 and

is expected to last at least 5 years.

The SPR and private oil stocks plus other

emergency, voluntary, and mandatory conservation efforts cushion the initial impacts of the

shortfall. Eventually, however, the oil reserves

are drawn down to zero.

Oil replacement technologies that meet the

criteria of technical and economic feasibility

are deployed over 5 years.

Investment capital, materials, and technical

personnel are available in adequate quantity to

support an aggressive oil replacement strategy.

Necessary environmental and other permits

and licenses are processed expeditiously, but

without any lowering of environmental standards.

There are no major structural changes in the

output mix or behavior of the U.S. economy

that could deter the 5-year deployment objective.

There are no new special tax or other government financial incentives that favor or- inhibit

deployment of specific technologies.

Technical Replacement Capability

In the 1984 assessment OTA found that the potential to replace lost oil imports through conservation,

efficiency, and fuel switching was about 1 MMB/D in

each of the transportation, industry, and residential/

commercial sectors and about 0.6 MMB/D in electric

utilities, for a total of about 3.6 MMB/D. Table 1-1

shows the oil replacement technologies and potential

savings identified in our 1984 report; figure 1-6

shows the rate of deployment of these oil saving

technologies. The drawdown of government and private oil reserves and deployment of oil replacement

technologies were more than adequate to respond to

a major oil import curtailment of 3 MMB/D within

5 years.

In just 7 years, our oil replacement capability has

eroded significantly. We found that the effective U.S.

technical oil replacement capability has been reduced

to about 1.7 to 2.8 MMB/D, owing to a number of

changes over the past decade. This finding has important implications for future strategies to reduce oil

consumption. Table 1-2 shows the estimated current

oil replacement potential of various technologies

under the updated oil disruption scenario. Figure 1-7

shows the rate of oil replacement by sector.
Chapter 1 Introduction and Summary ● 9

Table 1 -l—Estimated Oil Replacement

Potential, 1984

Sector Millions of barrels per day

after 5 yearsa

Table 1-2-Summary of Estimated Oil Replacement

Potential, 1991

Sector Millions of barrels per

day after 5 years

Electric utilities:

Switching to coal and completing new powerplants

currently under construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5

Increased use of natural gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................0.6

Industry:

Switch to natural gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...0.45

Switch to coal .......................0. 2

Increased efficiency........ ~.~tifi~~~~ti~~~~~titih~~~~ti. ,..o.I5

Reduced refinery throughput . . . . . . . . . . . . . . . . . . . . . . . . 0.2

Subtotal tiHmtio-HuMtiHMHHuomtiHutiHmti ............................1.0

Residential and commercial

(heat and hot water in buildings):

Switch to natural gas . . . . . . . . . . . . . . . . . . . . . . . ...,..........0.45

Switch to electricity .~..ti..~...~..~ti.~..~ti .....,.........,.0.4

Increased efficiency and switch to other fuels ......,.,.............0.15

Subtotal tiu-mtititi~umutioHHw-fimuHmtiH .............................1.0

Transportation:

Increased efficiency of cars and light trucks . . . . . . . . . ....0. 7

Increased efficiency in other transportation modes ........,.....O.1

Increased production and use of ethanol,.......,,.,.....,......,...,.0.1

Switch to other alternative transportation modes .........,,......0.1

Subtotal Hutimumuu-mmuu.uumuti.mm.. ............................1,0

aNumbers rounded to nearest 0.05 MMB/D.

SOURCE: Office of Technology Assessment, 1991, from U.S. Office of

Technology Assessment U.S. Vulnerabilify to an Oil import

Curtailment The Oil Replacement Capability, OTA-E-243

(Springfield, VA: National Technical information Service, September 1984), p.11.

Electric utilities:

Convert/switch to coal .o~.~..uuu.ti..uuu.u~u~.. ...........0.36

Switch to natural gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.09

Renewable fuels .UM.M..ONHHU.UMU..HHHUH. ...,...,,.........0.10

Newly completed nuclear plants .u..ti..nHHHHHti..to..u.o. 0.04

Other new capacityand demand management ....,...............0.02

Subtotal .u..u...~..u.fuoutiu.uti.. .............,...............0.60

Industry:

Switch to natural gas .ti..p..HtiqiHHHHuHtiMtiM.. ............0.30

Convert/switch to coal, electricity, renewables .....05.............O.O5

Process changes and increased efficiency . . . .................0.10

Reduced refinery throughput .....=. . . . . . . . . . . . . . . . . . ..0.36

Subtotal .~..ti..~~~~titiiti ..~..-...~t~t~~..~.-~..~tiO. 0.80

Residential and commercial:

Convert to natural gas .M..OH.HU..UUHHUHMO..MO. ,.........0.50

Convert to coal .~..ti..~~..~..~~..~~=~. .......................0.06

Convert to electricity .Hutio..uH.uti.tiHHu.H.om.fi ...........,.0.40

Renewable fuels and efficiency improvements . . . . . . . . . . .

Subtotal ~HtiMti.umHuHti-mfiMMHn.tiotiti ..,.......,............,,....1.00

Transportation:

Increased fuel economy in light-duty vehicles ...,..........,,..,..O.30a

Alternativevehiclefuels

natural gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................................0.13

biomass fuels (ethanol) .U..M.HUH.UM.HVH.HHU.H... .,,0.03

Improved traffic management . . . . . . . . . . . . . . . . . . . . . . . .0.10

Subtotal.~..~..~tti.~~..~~ ..ti..ti~..~~~~~...~~.~~~O.60

Total replacement potential (all sectors) ...........................2.95

Domestic petroleum supply (decline) ,..............,...,,.(0.1 - 1.2)

Effective technical replacement potential . . . . . . .1.7 - 2.8.1.7-2. 8

Residential and Commercial Sectors

A vigorous effort to reduce oil use in the residential

and commercial sectors by switching to natural gas,

electricity, coal, and renewable fuels and by speeding

the adoption of efficiency improvement measures

could replace almost 1 MMB/D, or about 72 percent

of 1989 consumption, within 5 years. This would

entail converting over 13.5 million homes and commercial buildings to natural gas or electric heat and

hot water systems and converting 88,000 of the larger

remaining commercial and residential heat systems

to burn coal slurry fuels. Weatherization improvement, and installation or retrofitting of oil furnaces

and boilers with more efficient units in the remaining

oioil dependent buildings would also contribute to total

Potential oil savings.

aRange Of oil savings scenarios 67,000 to 545,000 B/D in 5 years.

SOURCE: Office of Technology Assessment ,1991, based on Renova

Engineering, P.C., "Oil Replacement Analysis-Evaluation of

Technologies," OTA contractor report, February 1991.

Electric Utility Sector

Electric utilities accounted for less than 5 percent of

total oil consumption in 1989. 0TA estimates that it

is technically feasible to replace about 600,000 B/D,

or over 80 percent of 1989 utility oil use within 5 years

by fuel switching in existing dual-fuel units, shifting

generating loads to non-oil units where capacity permits, completing planned capacity now under construction, converting existing units to natural gas or

coal, and installing new non-oil generating capacity,

including renewable energy facilities. Power purchases from independent generators and qualified

facilities would also contribute to this strategy. These

efforts could be facilitated by and additional savings

could be gained through demand-side efforts.
10 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Figure 1-6-Oil Replacement Potential

by Sector, 1984

Million barrels of oil per day

4 I

3 –

and commercial

2 –

1

–

Transportation

Electric utilities

0

0 1 2 3 4 5

Year

Potential Replacement of Oil Through Fuel Switching and Increased

Efficiency.

SOURCE: US. Congress, Office of Technology Assessment, U.S. Vulnerability to an Oil Import Curtailment: The Oil Replacement

Capability, OTA-E-243 (Springfield, VA: National Technical Information Service, September 1984), p. 10.

Industrial Sector

OTA estimates that the industrial sector could technically displace about 800,000 B/D of petroleum

products, or about 20 percent of its 1989 consumption. The oil replacement options in the industrial

sector include credit for oil savings from reduced

refinery throughput (360,000 B/D) and the savings

that would result from switching to natural gas and

other fuels for process heat, steam, and power generation, and from intensifying the adoption of a myriad

of more energy-efficient process changes in manufacturing (including increased recycling, waste reduction, and use of alternative feedstocks). The major

oil replacement potential in the industrial sector is in

manufacturing. There still remains only limited capability for replacing oil used in industrial feedstocks

and in nonmanufacturing applications in agriculture,

forestry, fishing, mining, construction, and oil and

gas production.

Our analysis suggests that U.S. flexibility in replacing oil in the industrial sector has declined by about

340,000 B/I) since 1984 (exclusive of net savings

from reduced refinery throughput). This decline partly

reflects a greater reliance on natural gas, electricity,

Figure 1-7—U.S. Oil Replacement Potential

Technical Capability by Sector, 1991

Million barrels of oil per day

3“5”~

2.5.

2.

1.5.

1.

0.5.

n

‘;991 1992 1993 1994 199 5

= Transportation

D Industrial

= Electric utilities

= Residential/

commercial

SOURCE: Office of Technology Assessment 1991.

and waste/byproduct fuels and already achieved efficiencies in oil use. However, these savings are offset

by rising oil demand for refinery operations and for

feedstocks.

Transportation Sector

The transportation sector is the U.S. economy’s

largest oil user, accounting for almost 63 percent of

the Nation’s total oil consumption, or about 10.8

MMB/D of petroleum products in 1989-more than

domestic oil production. 8 The transportation system

is virtually locked into petroleum use for all but the

long-term, and efforts to shift to alternate energy

sources face significant hurdles. Transportation’s share

of total oil use has increased from 54 percent in 1979

to 63 percent in 1989, and transportation demand is

growing. As transportation uses make up an even

larger share of domestic energy use, U.S. flexibility to

respond to oil supply and price disruptions will diminish.

The most promising opportunities for fuel savings

in both the short- and long-term in this sector involve

oil replacement options for automobiles and light

trucks, which together account for well over half of

transport oil use. Although we can expect continued

incremental improvements in fuel efficiency in other

8U,S Depafiment of Energy, Energy Information Administration, Annual Energy Review 2989, DOE/EIA-0384(89) (Wmhingw Dc: us.

Government Printing Office, May 1990), table 62.
Chapter 1 Introduction and Summary ● 11

motor vehicles and other modes of transportation, the

short-term technical potential for reducing petroleum

consumption there is relatively small, and no net

savings are included in our estimates.

The major oil displacement opportunities for lightduty vehicles (LDVs) for most of the 1990s are

improved fuel efficiency, conversion of some fleet

vehicles to natural gas and other alternate fuels, and

better traffic management. OTA estimates that it is

possible to displace about 555,000 B/D of petroleum

products in the transportation sector within 5 years, or

about 5 percent of 1989 consumption. This would be

accomplished using existing technologies and with

only minor shifts in customer preference or newvehicle fleet mix. Additional savings are possible

with considerable effort, but would require changes

in vehicle manufacturers’ product plans, and consumer preference and behavior.9

The estimated savings are highly contingent on

assumptions about the characteristics of the existing

fleet and future changes. For purposes of this report,

we have assumed that, under the pressure of a prolonged world oil shortfall, it is technically feasible

with available technology to achieve a new LDV fuel

economy average of 30 to 33 miles per gallon (mpg)

by 1995. This further assumes changes in customer

purchase behavior equivalent to the 1987 new fleet

size and performance mix. The total oil savings

potential after 5 years range from 67,000 to 545,000

B/D, depending on other assumptions about the speed

of technology adoption, new car sales, fleet replacement rates, and miles driven. We have adopted a midrange estimate of 300,000 B/D as a reasonable estimate of potential savings.

The potential saving of about 300,000 B/D from

improved LDV fuel economy is significantly less

than the 1984 OTA estimate of 700,000 to 800,000

B/D.10 The 1984 study assumed that in a crisis, the

new-car fuel efficiency could be increased from 27.5

to 36 mpg, or a gain of about 31 percent and that these

newer vehicles would replace 10-year-old cars that

averaged about 14 mpg. Today, the older cars being

replaced are more fuel-efficient, and new car fuelefficiency gains have lagged.

Other measures adopted in response to an oil supply

crisis would supply the remaining 250,000 B/D in oil

replacement potential, including:

1.

2.

3.

converting 1.2 million existing fleet vehicles

(about 10 percent of the fleet LDVs) to run on

natural gas. ( about 130,000 B/D of oil);

increasing use of ethanol and expanding production capacity to displace an additiona1 25,000

B/D of gasoline; and

adopting various measures to improve traffic

management to promote more efficient vehicle

travel, cut vehicle miles traveled, and increase

car pooling and reliance on public transportation —together, saving a minimum of 100,000

B/D.

Domestic Oil and Gas Production

Declining domestic crude oil production threatens

to exacerbate any oil import shortfall. While crisisdriven increased oil prices and demand for natural gas

are expected to spur domestic oil and gas exploration,

development, and production, it is uncertain whether,

over a 5-year period, these efforts would be able to

reverse the rate of decline that could cause domestic

oil production to fall to 8 to 9 MMB/D by 1995 from

1989 levels of 9.2 MMB/D. There is some potential

for stemming this trend. Production from already

discovered onshore and offshore fields, including

increased infill drilling, delaying abandonment of

existing wells, reopening shutin production, and accelerating enhanced oil recovery, could contribute,

by our conservative estimates, from about 170,000 to

510,000 B/D of additional crude oil supply. Expanded natural gas production could also add 100,000

to 200,000 B/D of natural gas plant liquids. But the

expected decline in U.S. crude oil production could

mean a loss of 400,000 to 1 million B/D resulting in

an internal shortfall of 0.1 to 1.2 MMB/D in addition

to a 5 MMB/D loss of imports.

gA~{~rding t. a lgs~ OTA ~c)ntractor ~nalysl~, a new ~r tleet average of 38 to 39 mpg would k attainable by 1995, if there were a shift in COnSUmer

preferences toward smaller, more efficient models, and if manufacturers accelerated the use of available fuel-saving technologies to more models. With

little improvement in fuel economy of the fleet since then, achieving these levels by 1995 would be extremely difficult even under crisis conditions. OTA

ha.. examined the potential contributions of various fuel economy standards as part of a separate report, ImprovingAutomobile Fuel Economy: New

Sfandurds, New Approuc}le.s, expected to be published in October 1991.

~~The Oil Replu(.c>mcnt C’upubi[ity, SUpra note ~.
12 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

IMPLICATIONS OF GROWING

OIL IMPORT DEPENDENCE AND

ERODING OIL REPLACEMENT

CAPABILITY

As the United States faces the 1990s and the dawning of a new century, it is more dependent on oil

imports and less prepared to respond to a severe oil

supply disruption than it was just 7 years ago. Part of

this change is the byproduct of our success at replacing many uses of oil and improving our efficiency of

use in all sectors. This shift has reduced our easier

opportunities for switching from oil in the event of a

crisis. And, it has focused attention on two sectors

where oil replacement poses significant technical

challenges—transportation and industry. Nevertheless, OTA believes that opportunities remain to reduce oil import vulnerability.

It is important to distinguish between oil import

dependence and import vulnerability. Import dependence is measured as the percent of domestic consumption that is met by foreign oil. In 1990 the United

States obtained about 42 percent of its oil needs from

foreign sources. This was still lower than the high of

46 percent in 1977.11 A growing level of imports

contributes to import vulnerability, but import dependence alone does not translate into a serious threat to

energy security. Import vulnerability arises out of the

degree and nature of import dependence, the potential

harm to the economic and social welfare from a

severe disruption in physical supplies or prices, its

duration, and the likelihood of such a disruption

occurring. Understanding the components of import

vulnerability allows the targeting of effective countermeasures.

Because oil use is pervasive and deeply rooted in

America’s economy and way of life, U.S. dependence

on oil imports is of increasing concern. For many, oil

is a vital necessity. It heats homes, offices, and

schools, provides electricity, and fuels the automobiles, trucks, and buses that move people and things

within and among communities. Major and prolonged

supply (or price) disruptions would bring hardship

and deprivation. Historically, even small supply disruptions have triggered disproportionate economic

impacts.

The National Petroleum Council estimated that the

1973 Arab Oil Embargo resulted in a reduction in real

GNP of 2.7 percent and that the 1979 Iranian Revolution triggered a 3.6 percent drop in real GNP.12 Some

analysts have estimated that the price impacts of the

Iraqi invasion accelerated the recession and added

billions to the U.S. oil bill. These disruptions were far

smaller than the scenario used in this report.

Future oil disruptions will continue to pose a serious threat to U.S. economic activity even though U.S.

reliance upon oil to power its economy and the

portion of GNP needed to pay for oil have declined

over the last two decades. The growing dependence

on imported oil, especially from the politically unsettled Persian Gulf is more cause for concern for

several reasons:

1.

2.

3.

4.

Greater reliance on oil from foreign sources

magnifies the potential impacts of import curtailments on U.S. oil supplies and the economy.

Oil imports contribute to U.S. balance of payments deficits and as oil imports (and/or prices)

rise, more U.S. export earnings must be allocated to paying for oil rather than devoted to

domestic consumption. In 1990 the bill for oil

imports amounted to $65 billion, more than

half of our $101 billion balance of payments

deficit.

The threat of potential economic and social

dislocations that could accompany major oil

supply or price disruptions could constrain

U.S. policymakers in foreign affairs, national

security and military matters where oil supplies

might be affected.

The ready availability of cheap imported oil in

the United States is a powerful financial disincentive for oil-saving investments inefficiency

and alternative energy sources or the development of higher cost domestic oil. Unlike Japan

and most Western European countries that are

highly dependent on oil imports and where oil

is heavily taxed, U.S. oil prices are comparatively low and do not fully reflect many of the

external costs of oil use. Among the most

notable of these externalities are, for example,

the environmental damage from production,

oil spills, and emissions from refining and

combustion, and the costs of maintaining and

1lu.s. D~partrnent of Energy, Energy Information Administration, Monthly Energy Review:Ju/y 1991, DOE/EIA-oo35(91 /07) (Washington, DC: U.S.

Government Printing Office, July 1991), tabks 3.la and 3.lb.

lzNational petroleum Council, Factors Affec{ing U.S. Oil and Gas Outlook 1987, Washington, DC, 1987.
Chapter 1-Introduction and Summary ● 13

deploying military forces to protect supplies).

The defense costs in particular have applied

disproportionately to the United States relative

to European countries and Japan.

Some argue forcefully that increased import dependence should not be viewed as a threat as long as the

net domestic economic benefits are positive. Low oil

prices have been advantageous for many American

businesses and consumers, but have undercut domestic oil ventures, energy efficiency initiatives, and

competing alternative energy sources. An honest

appraisal of the costs and benefits must take account

of all the social, economic, environmental, and political costs of increased import reliance and of the

availability of measures to counter the risk it entails.

Of course, if it is less expensive (as measured in

total indirect and direct costs) to import oil than to

offset that need domestically, then it makes sense to

import. But there is strong reason to believe that the

reverse is true, and that our national economic wellbeing would be improved by shifting investment to

limit imports under a long-term least-cost strategy.

MAJOR OPPORTUNITIES FOR

REDUCING OIL IMPORT

DEPENDENCE

Historically, since the early 1970s, the biggest oil

savings in the U.S. economy have come from fuel

switching in electric utilities, industry, and the residential and commercial sectors and from efficiency

improvements in all sectors. The transportation sector still offers attractive options for oil savings by

improving the fuel economy of automobiles and

trucks, reducing total driving in the United States, and

switching to alternative transportation fuels. In addition, increasing the diversity in world oil production

reduces the vulnerability of U.S. oil use to political

instability in specific oil supply regions, notably the

Middle East.

Because transportation accounts for 63 percent of

total U.S. oil use (about 10.8 MMB/D, up 17.6 percent from 1983), it offers the largest potential opportunities for oil savings. And some progress has been

made: average automobile fuel efficiency is upfrom about 17 mpg in 1983 to about 20 mpg in 1988.

(Average new car efficiency has increased, from2 6 to

28 mpg.) However, the average number of miles

driven per car and the number of cars are also up

sharply. The net result is that motor gasoline consumption has been gradually increasing since 1983,

from 6.6 to 7.3 MMB/D in 1989. Substantial opportunities thus remain for improving the fuel efficiency

of U.S. cars and trucks.13

In addition to cutting oil use, improved automotive

fuel economy has other recognized benefits. Since

1983 the policy initiatives for pursuing improved

auto fuel economy have expanded beyond the traditional (and now resurgent) concern over energy security to include local and global environmental concerns as well (urban ozone, acid rain, and global

warming issues). The environmental dimension

strengthens but complicates the likely policy options,

since the persistent controversies over the technical

potential of improved fuel economy and the relationship between fuel economy and pollution emissions

continue. Environmental concerns have, however,

improved the longer term prospects considerably for

shifting from gasoline to alternative transportation

fuels-alcohol-based fuels, natural gas, electricity,

or hydrogen.14

The situation is further complicated by recent market demands for increased performance at the expense of fuel economy, probably brought about by

low real fuel prices (gasoline prices today in 1991 are

lower in real terms, i.e., adjusted for inflation, than in

the 1970s). Moreover, average new car prices in real

terms increased almost 50 percent in the decade 1978

to 1988, contributing to the trend of a longer average

age of cars on the road (up from 6 to 7.6 years during

that same decade). As a result, an important opportunity may lie in providing incentives to get older, less

efficient vehicles off the road.15

130TA examined U.S. automotive fuel economy improvements as part of a related OTA report, Improving Automobile Fuel Economy: New Standards,

New Approaches, to republished in October 1991. Interim results were offered in Steven E. Plotkin, Senior Associate, U.S. Congress, Office of Technology

Assessment, “Legislative Proposals to Increase Automotive Fuel Economy and Promote Alternative Transportation Fuels,” testimony before the

Subcommittee on Energy and Power of the House Committee on Energy and Commerce, Apr. 17, 1991.

14See us. ~ngr~s, Offlce of Technology Assessment, Rep[ucing Ga,so[ine: Alternu(ive Fuels For Light-Duty Vehicles, OTA-E-364 (Washington,

DC: U.S. Government Printing Office, September 19~90).

150TA is investigating the wsts and benefits of retiring older vehicles in it ongoing project, Retirement of Older Vehicles: Fuel Eficiency und

Emissions Reduction Benefits.
14 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

In U.S. industry, many of the energy efficiency

investments of the 1970s, the fuel switching to natural

gas and electricity, and the changing market basket of

goods and services produced in the United States

have contributed to the declining oil intensity since

1983 (see figure 1-5).16 Much of the fuel switching has resulted from the large increase in the use of

dual-fuel boilers (oil and natural gas) since the early

1980s. Many of these boilers now burn natural gas

because of the favorably low prices of natural gas

relative to oil that existed even before the current oil

price rise.17

By 1983 many of the opportunities to reduce oil

consumption in the electric power sector had already

been exploited in response to the 1973 and 1979 oil

price shocks, and so today few utilities are very

dependent on oil (although until the recent crisis, a

number of them were reconsidering oil as an option,

given the 1986 price drop). Nonetheless, the United

States still consumes slightly more oil today in electric power generation than it did in 1983—740,000

B/I) in 1989 versus 673,000 B/Din 1983. The bulk of

this generation is located in New England, New York,

the Middle Atlantic States, California, and Hawaii.

However, many utilities now use oil primarily to

generate electricity only at peak times, rather than as

abase or intermediate generating option. In addition,

utilities have many other generating options (including natural gas), more aggressive demand-side management, and purchases from nonutility generators

(either independent power producers or qualifying

facilities under the Public Utilities Regulatory Policies Act, Public Law 95-615).

Finally, residential and commercial use of heating

oil is currently about 1.4 MMB/D, although it has

been increasing since 1983 (about 9 percent). Twelve

percent of U.S. households use heating oil as the

primary fuel, down very slightly from 1983. Much of

this consumption is in New England and the Middle

Atlantic States where electricity rates are high and

natural gas availability limited. Most areas do have

alternatives available to shift from oil to natural gas or

electricity. More concerted oil conservation measures such as improving building weatherization and

furnace efficiency improvements can shave oil use in

this sector.

The portfolio of technical options that might be

used to implement strategic decisions to reduce oil

import dependence are largely the same as those in a

disruption scenario, minus the emergency measures

for reducing oil use such as rationing or other mandatory restrictions on oil use. The relative long-term

effectiveness, and hence the priority of alternative

options, may be different in a strategic scenario. For

example, over a 5-year period, alternative transportation fuels would likely play a minor role, in the longer

term they will be essential.

Automotive Fuel Economy

Automobiles and light trucks account for 40 percent of U.S. oil consumption. The efficiency of the

new vehicle fleet increased sharply in the 1970s with

the advent of higher mileage standards and fuel prices.

But gains have ceased in the face of government

apathy and consumer preference for increased vehicle acceleration, size, and other characteristics that

conflict with improved fuel economy (see figure 1-8).

OTA believes that there is a substantial potential for

further fuel economy increases through purely technological means (i.e., without diminishing consumer

choice), but the magnitude of this potential within the

next decade is not what we would like it to be. Even

without the push provided by a severe supply disruption or dramatic increases in gasoline prices, technology is available that would allow a new car fleet fuel

economy of about 30 mpg by 1995 and 37 mpg by

2001 (both values measured according to the Environmental Protection Agency’s test procedure) .18

Longer term progress, beyond the year 2000, could be

much larger if strong, continual incentives for fuel

economy are brought to bear on the industry. Regulatory or other measures that produce a basic shift in the

size and performance of the fleet could stimulate even

lbc&e U.S. ~ngress, Of flee of Technology Assessment, Energy Use and the U.S. Economy, OTA-BP-E-57 (Washington, DC; Us. Government

Printing Office, June 1990).

ITTheefflclency Of energy we in indu,t~ is being exp]ored in OTAongoing assessment, U.S. Energy Eficiency: Past Trends andFuture Opportunities.

18~ese values ~csume that ~ch manufacturer is requir~ to meet a company-specific standard that reflects its particular twhnological capability. BY

using all technologies identifiable today as likely to be achievable for 2001 model year regardless of cost, and assuming a rollback to 1987 size and

performance, we believe that the entire U.S. fleet could achieve 38 to 39 mpg. OTA is currently completing an analysis of automotive fuel economy at

the request of the Senate Energy and Natural Resources Committee.
Chapter 1-Introduction and Summary ● 15

Figure 1-8-Estimated Car and Light-Truck New Fuel

Economy and Gasoline Prices, 1978-90

Table 1-3-OTA Estimates of Potential

Short-Term Fuel Economy Gains

(EPA miles per gallon)

Miles per gallon Constant 1988 dollarslgallon 30 $ 2

25-

-$1.5

20“

15

1 %$’ Unleaded regular gasoline -

10

\ I

$0.5

5

o~i$0

78 79 80 81 82 83 84 85 86 87 88 89 90

SOURCE: Office of Technology Assessment, 1991, based on data from

U.S. Department of Energy, Energy Information Administration,

Anual Energy Review 1989, DOE/ElA-0384(89) (Washington,

DC: May 1990); and Stacy C. Davis and Patricia S. Hu, Transportation Energy Data Book: Edition 11, ORNL-6649 (Edition 11

of ORNL-5198) (Oak Ridge, TN: Oak Ridge National Laboratory, January 1991), tables 2.19 and 3.33.

greater gains in overall fuel economy than what can

be achieved with strictly technical fixes. For example, the options for improving automotive fuel

economy in OTA’s study on global climate change,19

included scenarios that permitted altering the mix of

vehicle size and weight for the U.S. fleet as well as

introducing technical improvements aggressively,

including a shift to diesel engines. Under such assumptions, new car fleet efficiencies of 42 mpg by

2000 and 58 mpg by 2010 might be achievable.

Today’s light-duty passenger vehicles include automobiles, minivans, vans, and light trucks. Vans and

light trucks have lower fuel economy standards than

passenger cars and are a large and increasing portion

of the U.S. fleet. To achieve higher fuel economy

goals all passenger vehicles will have to be targeted.

Table 1-3 shows a summary of OTA’s analysis of the

various conditions under which improved automotive fuel economy would be possible in the short term.

1995 Product plan

Assumptions:

● Manufacturers’ currently planned product line with fuel

economy technologies “cost effective” at low oil prices

● Continuation of current trends in size and performance mix

of new cars

● No new policy initiatives

Potential automotive fuel economy:

28,3 miles per gallon (mpg) domestic

31.1 mpg imports

29,2 mpg fleet

1995 Product Plan - Short-Term Fuel Economy Gain

Assumptions:

● Manufacturers’ current and planned product line with a

return to overall relative size, weight, and performance mix

of 1987 new cars

● Existing (low oil price) cost effective fuel economy technology

● Customer preference for more fuel efficient version of each

model

Potential automotive fuel economy:

31.2 mpg domestic

34.6 mpg imports

32,3 mpg fleet

SOURCE: Office of Technology Assessment 1991.

Alternative Transportation Fuels

The growth of non-oil based liquid fuels is an

important adjunct to increased fuel economy and

increased domestic oil production (in reducing U.S.

dependence on imported oil). A recent OTA analysis

of several alternatives to gasoline20 found that alternative fuels present a key opportunity to reduce U.S.

oil dependence. Over the next few decades, alternative fuels derived from natural gas—methanol and

compressed natural gas (CNG)--and from biomass,

including truly renewable fuels from sustainable production of biomass, should be capable of substituting

for a significant fraction of transportation petroleum

use.

Electric vehicles, perhaps employing not only batteries, but fuel cells or small engines, could also be

important possibilities in some regions of the United

19u.s. Congress, Offlce of Technology Assessment, Charrgingby ~egrees: Steps To Reduce Greenhouse Gases, OTA-O-482 (Washington, Dc: U.S.

Government Printing Office, February 1991).

ZOU.S. ~ngrtis, Offlce of Technology Ass~ssm~nt, Rep/dC;ng Gasoline: AlternativesforL ight-fMy Vehicles, OTA-E-364 (U.S. Government printing

Office, October 1990).
16 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

States in the later 1990s. This, of course, depends on

the pace of research and technology development in

energy storage technology and the constraints on

other options. For example, last year California passed

legislation requiring deployment of some “ultra-low

polluting” vehicles to promote air quality, and other

States are considering following California’s lead.

Currently, coal-based liquid fuels are considerably

more expensive than natural gas-based fuels. However, continued development of the fuel production

processes have lowered costs and, in the future, may

lower costs sufficiently that this source could compete economically with fuels from natural gas. Large

U.S. coal reserves make coal-based liquid fuels attractive from an energy security perspective. But,

even with emerging “clean coal” technologies, coal

use presents serious environmental challenges (especially carbon dioxide emissions), that the Nation

cannot afford to ignore in evaluating which potential

liquid fuel strategies to pursue.

As an even longer term option, the transportation

sector might free itself from fossil fuel dependence by

tapping electricity and hydrogen, both obtainable

from nuclear and solar sources. But both have serious

cost, engineering, and other constraints and will require a major development effort. Over the next

century, however, they could greatly diminish greenhouse gas emissions by progressively replacing fossil-based transportation fuels.

Increased Domestic Production

The recent decline in U.S. oil production could be

slowed somewhat if rising oil prices stimulate increased production from existing fields and accelerated use of enhanced oil recovery technologies.21

Compared to other oil-producing regions, the United

States has been extensively explored. Experts estimate that 80 percent of the oil and gas eventually to be

found in the United States lies in fields that have

already been discovered.22 The remaining exploratory potential is still substantial. But much of this

undiscovered oil and gas will come from smaller

fields than in the past.

This maturity does not mean that the future for the

U.S. oil industry is a rapid and inevitable decline in

production from increasingly high-cost deposits. Many

in the oil industry hold to a belief that domestic

production can be stabilized or slightly increased. In

support they note the continuing strength in U.S.

reserves additions and a more sophisticated understanding of the nature of U.S. oil and gas resources.

Even as drilling activity has slowed, reserve additions since 1986 have averaged 90 percent of those in

the high oil price-high activity years 1978 to 1985. An

estimated 86 percent of these reserve additions are

attributable to reserve growth in existing fields-i. e.,

increases in the estimates of conventionally recoverable oil resulting from extensive and intensive drilling within existing fields, improved recovery, and

identification of new pools.23

The past decade has brought recognition that sizable quantities of conventionally mobile oil remain to

be recovered in existing fields. The greatest potential

recovery is contained in complex reservoirs that will

require improved geologic models to make infield

drilling and enhanced oil recovery more effective in

tapping these deposits. Enhanced oil recovery techniques are evolving that eventually could allow production of the immobile, residual oil in existing

reservoirs.

Tapping these resources is contingent on the economic attractiveness of the prospects at present and

anticipated world oil prices, and continued technology development. The higher oil prices and sense of

urgency accompanying a severe oil import disruption

would likely provide some impetus for expanded

exploration and development.

Oil exploration activities are a primary key to

maintaining reserve additions to sustain production.

Exploration activities surged in the late 1970s because of high oil prices and the expectation that even

higher world oil prices would prevail. In 1981, as a

result of this rapid industry expansion, the main

indicators of exploratory activity reached record

peaks-a weekly average of 3,970 rotary rigs operating, a monthly average of 681 seismic crews active,

21see U.S. oil Pro(]uction: The Effect of Low pricev, Supra note ~.

ZZW.L. Fisher, “Factors in Reali~in~ Future Supply potential of Dom~stic Oil and Natural Gas,” paper pre=nte~ to the Aspen htltuk Energy policy

Forum, July 10-14, 1991, Aspen Colorado.

~Ibid.
Chapter 1-Introduction and Summary ● 17

and an annual total of over 17,500 exploratory wells

completed.24 When world oil prices began to slide,

domestic exploration activities fell too. The free fall

in world oil prices in 1986 further devastated domestic exploration and development. That year the number of wells drilled plunged to 201, and rotary rigs

active totaled only 964-less than half the number

operating a year before.

25 Exploratory wells completed dropped to 7,150. As oil prices began to firm up

in the later 1980s, albeit at much lower real levels than

previously, there was a modest rise in domestic exploration and development investment. However,

key indicators still hit a 40-year low in 1989—869

rotary rigs in operation, 132 seismic crews active, and

about 5,220 exploratory wells completed.

This sustained drop in exploration and production

activity resulted in a shrinking in the infrastructure of

the domestic oil industry. The reduction in the availability of equipment, skilled workers, and supporting

manufacturing and maintenance services capability

could slow any future expansion of domestic exploration.

The higher oil prices in 1990 brought about a brief

upswing in exploration indicators, but by late spring

1991, these critical indicators were again trending

downward as lower world oil prices returned and

domestic natural gas prices all but collapsed.26 Even

so, for the first time since 1985 domestic crude oil

production increased—up 0.6 percent over the first

6 months of 1990. The rise was attributed to better

economic conditions for producers, the expanded

exploration and development activities in 1990, and

improved technology .27

The scarcity of new opportunities for finding large

new oil fields within the mature oil regions of the

lower 48 States has created pressure for the Federal

Government to open to exploratory drilling and development a number of promising areas currently offlimits to such activities, such as the Arctic National

Wildlife Refuge (ANWR), offshore California, and

other frontier areas.

The debate over ANWR development is a classic

battle between conservation and resource development interests.

28 The oil industry considers the coastal

plain of the ANWR to be the United States’ most

promising remaining prospect for finding giant oil

fields, and they have made it the central focus of the

debate for opening new areas for commercial exploitation. There is considerable disagreement, even

among proponents, about how much commercially

recoverable oil might be present in the refuge, if

any. 29 Earlier in 1991, the Department of the Interior

released a revised estimate that ANWR has a 46-

percent chance of containing economically recoverable oil, with a mean estimated oil volume of 3.6

billion barrels—a potential resource equivalent to the

third largest discovery in U.S. territory and one that,

for a few decades, could deliver several hundred

thousand barrels of crude oil per day to the lower 48

States. 30

?AAnnual EnerO Review 1989, supra note 8, tabl~ 41 and 42.

~For fufiher dlscu~slon of the impacts on the (lomu\tic petroleum industry, see U.S. Oi/ Production: The Effect of Low Oil prices, supra note 3.

26u.s. Depaflment of Energy, Energy Infoma~ion Administration, Monthly Energy Review:June 1991, DOE/EIA-0035(91 /06) (Washington> ‘c: ‘“s.

Government Printing Office, June 1991); and Institute of Gas Technology, Znternu[ionul Gas Technology Highlights, vol. 21, July 15, 1991.

zTSee “011 Demand Fails t. Lowest Level Since 1983, ” The Energy Daily, JUIY 151991, p. 4.

28see Oil pro~,ic.tion in The ArCtiC Nalional Wild[ife Refuge: The Technology and the Alaskan oil C’onfexf, suPra note s.

29see the ~lscw$slon of the factors and assumptions that ~rlve vanou~ estimates of ANWR potential in oil pro~lucti~n in the Arctic National Wiid/ife

Re&ge, supra note 3, ch.3

300TA has reviewed the Depa~ment~s previously publlsh~ estlma[es of a 19 percent chan~ of at 1east one field with COllllllt?rCla]ly recoverable

quantities of oil with an estimated mean of 3.2 billion barrels of recoverable oil. We found that this estimate was highly sensitive to their assumptions about

the minimum economic field size—i.e., the smallest oilfield that could support the oil pipelines and other facilities needed to produce and move the oil.

This minimum field size is, in turn, dependent on oil price. DOI had assumed a world oil price in the year 2000 of $35ibbl oil price in 1984 dollars, which

has been criticized as to high. Lowering the assumed price would increase the minimum economic field size required and reduce the estimated probability

of finding commercial quantities of oil in the ANWR, and affect estimates of the volume of recoverable oil. OTA’s review found that DOI’s minimum

economic field size was probably too large, because smaller fields could likely be developed at the assumed price, or larger fields at a lower price. Overall,

because DO1’S estimattis were based on assessments of both geologic and economic factors, OTA could not conclude that DOI’s estimate of total

recoverable oil resources in ANWR coastal plain were either consetwative or optimistic. Some factors tend to understate estimates of ANWR potential,

while others could overstate it. OTA did conclude, however, that DOI cstlmate of a 19 percent probability of finding economically recoverable oil in

the refuge was probably overly pessimistic. Ibid., pp. 103-105, According to reports, the 1991 revised DOI estimate reflects some additional geologic data,

and modifications in some of the economic assumptions, but specific details were not published.
18 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Groups opposing development view the coastal

plain as a unique and invaluable Arctic ecosystem and

wilderness area, and are convinced that exploration

Poses unacceptable risks, and that development would

destroy the plain’s wilderness character and seriously

damage its wildlife and other environmental values.

They also point out that relatively modest investments in energy efficiency could save a similar amount

of oil over the same period of time.

Even if Congress were to act swiftly to authorize

exploration of the coastal plain of the refuge with an

accelerated leasing schedule, and if the industry were

to discover oil and move as rapidly as possible to

develop the field, oil could not start flowing from the

plain for many years. The industry’s own estimates of

the time from actual leasing of the plain (which itself

will take a few years) to production startup is about 12

years, and peak production would not be reached for

a number of years after that. Estimates for new

production leadtimes from frontier offshore areas are

similar. Given the long periods involved, such prospects are more important as potential components of

longer-term energy plans than as part of any near term

response to an actual or threatened loss of oil imports-and as longer-term options they can be evaluated according to overall goals of energy security,

environmental quality, and prosperity.

For the nearer term, the best hopes for maintaining

domestic production lie in the same nonglamorous

sources that have continued to supply most of the

reserve additions in recent years. These include sustaining exploratory and developmental drilling activity in known fields, horizontal drilling, accelerating

enhanced oil recovery, bringing shutin or marginal

oil fields back into production, and limiting the premature abandonment of existing wells.

Diversity in Oil Supply

The world’s recoverable world oil resource is huge,

but much of it is in the Middle East. Moreover, as de–

mand for oil grows in rapidly industrializing nations,

it is not safe to presume that in the future the United

States can count indefinitely on 8 to 10 MMB/D in

oil imports at an attractive price. The United States

could ease pressure on world oil supplies by encouraging oil exploration and development in areas outside of the Middle East. For example, helping the

Soviets expand oil production in return for a share of

it could have several benefits to the United States.

Because the region has major sedimentary basins

with limited exploration and poor production to date,

success in developing this region and in increasing

Soviet oil exports would not only diversify the U.S.

import base but also provide the Soviets with the hard

currency so badly needed to maintain peaceful progress

toward a viable market economy. A second example

is the opportunity (again with joint ventures in research, exploration, and production) to assist sister

nations in the Western Hemisphere in petroleum

development. Massive reserves, for example, exist in

Venezuela, some of which (e.g., the heavy oils in the

Orinoco Basin) can benefit from further research.

LOOKING TOWARD THE

FUTURE-SCENARIOS FOR

REDUCING OIL DEPENDENCE

What would be the relative contribution of these

various options in possible future scenarios for reducing U.S. oil import dependence? Figures 1-9 through

1-11 summarize the impacts of several aggressive

strategies for reducing U.S. oil import dependence.

The scenarios focus on the options of increased supply, efficiency, and fuel switching. The major strategies include improving automotive fuel economy,

increasing domestic oil production, expanding use of

alternative fuels in transportation, and switching away

from oil and enhancing end-use efficiency in the

industrial, residential, and commercial sectors.

The three alternative future scenarios were derived

by OTA from the Energy Information Administration’s (EIA) Annual Energy Outlook 1990 Base

Case.31 As the figures clearly indicate, vigorous and

sustained efforts would be required to hold down oil

import dependence over the next several decades—

even to a level of 50 percent of total consumption.

Scenario I: Baseline-Figure 1-9 is a baseline

adapted by OTA from the EIA Annual Energy Outlook 1990 Base Case. With some adjustments, the

Baseline represents a continuation of current trends

31U.S. Dep~flment of Energy, Energy InfOrrn~tiOn Ahninistm[ion, Annuu/ Energy outl(~{)k 1990 W[h Projections @ 2~1~, DOE/EIA-0383

(Washington, DC: U.S. Government Printing Office, January 19’90).
Chapter I-introduction and Summary ● 19

Figure 1-%U.S. Oil Supply and Demand Futures

Baseline Projection: Current Trends in

Domestic Oil Production, Net Imports, and

1989 New Car Fuel Economy

Millions of barrels per day

25 ~ . I

20

15

10

5 Ala ska

Oth/?r*

or 1 1 1 1 1 ! 1

1950 1960 1970 1980 1990 2000 2010 2020

Year

● Natural gas liquids and other

SOURCE: Office of Technology Assessment 1991

without additional energy efficiency and oil import

displacement initiatives. The Baseline values for oil

production from Alaska and the lower 48 States

extend the 2005 to 2010 trend projected by the EIA to

2020. Natural gas liquids (NGL) production was

similarly left at the EIA projected levels to 2010, and

then extended to 2020 following the same trend as

2005 to 2010. The category “Other” (e.g., miscellaneous refinery products) was frozen at the EIA 1995

level of 0.8 MMB/D; levels in the EIA projection

above 0.8 MMB/D were separated under the category

“Alternative Fuels I“ and were added in separately in

scenarios II and III.

The EIA projection assumes U.S. new vehicle fuel

economy reaches 38 mpg for new cars and 24.4 mpg

for new light trucks in 2010. Our base case (figure 1-

9) adjusted the EIA projection to reflect a continuation of the current level for new cars of 28 mpg and for

new light trucks of about 21 mpg.32

Figure 1-10-U.S. Oil Supply and Demand Futures:

Impacts of Increased Domestic Oil Supply and

Improved Fuel Economy

OK Millions of barrels per day

1

20-

15-

10-

38 mpg

50 mpg

Trucks

Alternat

fuels II

Alternat

fuels I

Alaska II\

ET Domestic oil production ]– Lower 4$

d

o 1 1 ! 1 1 I I

1950 1960 1970 1980 1990 2000 2010 2020

Year

SOURCE: Office of Technology Assessment 1991.

Scenario II: New Supply and Efficiency Improvements—Figure 1-10 illustrates the impacts of

three new sources of liquid fuel supplies and three

levels of transportation efficiency improvements

phased in gradually.

The line labeled “Alternative Fuels I“ assumes that

fuels such as methanol, ethanol, and the like are added

beginning in 2000 and reach a consumption level of

500,000 B/I) by 2020, with production capacity increasing by 100,000 B/I) every 5 years,33 The line

labeled “Alternative Fuels II” reflects the accelerated

development of alternative biomass-derived liquid

fuels resulting from intensive investment in renewable energy research, development and demonstrampg activities.34 The line labeled “Alaska II” aSSUmeS

that a large new oil field is found in Alaska and an

accelerated development effort is results in production beginning in 2000 and rising to 500,000 B/l) by

the year 2005.

sz~ls a~ju~tment resulted in a change in weighted (cars and light trucks) fleet average mileage from EIA projected levels of 23.5 mpg in 2010 to 20.S

mpg in 2000, which was then kept at this level till 2020 (on-the-road mileage is assumed to be 80 percent of that measured by a CAFE-type standard).

Corresponding annual percentage changes in mileage (on-road fuel economy of the total fleet) are 1.18 percent in the EIAprojection (38 mpg case) carried

through to 2020, and 1.0 percent in the 28 mpg case until 2000 and then left unchanged from 2000 to 2020. This assumed increase in light-duty vehicle

fuel economy is counterbalanced, however, by EIA projections of an increase in vehicle miles traveled (VMT) of 1.82 percent per year from 1988 levels

through 2010. We assumed that VMT continue to increase at this rate through 2020 driven by such factors as population growth of 0.8 percent/year (246

million in 1988 to 307 million in 2025) and real GNP growth of 2.4 percent per year overall, or about 1.6 percent per year per capita.

ss~e~e estlmtes are derived from the EIA Base case, Ibid., and are comparable to the estimates u-d in the ~~vdopmcnt of the pr~sid~nt’s National

Energy Strategy. See the “Busines as Usual” case in “The Potential of Renewable Energy: An Interlaboratory White Paper,” SERVI’P-260-3674 (Golden,

CO: Solar Energy Research Institute, March 1990).

~The accelemted development CIIX listed in the Interlaborato~ White Paper, Ibid., foresees alternative biomass detivcd liquid fuels reaching

1.8 MMB/D more than in the base case by 2020 if additional RD&D funding is made available.
20 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Figure 1-10 also depicts three different transportation efficiency improvement strategies that are assumed to be phased in gradually through the year

2020. These are shown as “28 mpg” (base case), “38

mpg,” “50 mpg,” and “Trucks.” The 28 mpg case is a

continuation of the current new car fleet fuel economy

average. The 38 mpg case reflects the fuel economy

gains assumed in the EIABase Case. The 50 mpg case

assumes that by 2020 both new cars and new light

trucks have an overall weighted average fuel efficiency of 50 mpg, resulting in an average on-the-road

total fleet fuel efficiency of 36 mpg by 2020 (allowing

for turnover of the fleet stock and for the 20-percent

reduction in actual on-the-road efficiencies from

CAFE-type standards). The case “Trucks” assumes

that the use of compressed natural gas and increased

efficiency could reduce by half the projected 2020

diesel fuel consumption by heavy trucks, buses, and

others heavy vehicles (based on continuing the EIA

projection to 2010 at the same growth rate to 2020)

could be reduced by year 2020.

Scenario III: Aggressive Oil Backout—Figure 1-

11 includes further oil replacement and conservation

initiatives in industry and electric utilities. It assumes

(in addition to the 50 mpg light-duty vehicle fuel

economy and “Trucks” adopted in Scenario II) that

one-half of the remaining nontransport uses of oil will

be reduced (backed out) in an aggressive oil conservation and fuel conversion program. This results in a

savings of 2.7 MMB/D by 2020, phased in linearly.35

Compared with current rates of use, this would suggest oil savings in the EIA Base Case of about onehalf in the residential and commercial sectors, and

one-third in the industrial and utility sectors from

what it would be in 2010 if energy use were to grow

linearly with economic activity and population.

The lesson from these scenarios is that much can be

done to countervails against the ominous projected

growth of oil import dependence, but that even with

relatively heroic measures we face a future of high

dependence on imports.

POLICY CONSIDERATIONS

The United States has already taken a number of

steps to offset import vulnerability y, such as establishFigure 1-11—U.S. Oil Supply and Demand Futures,

Impacts of Improved Domestic Oil Supply

and Fuel Economy, and Oil Backout

25

20

15

10

c

Millions of barrels per day

~—28 mpgl

.

4

.

1

— Additio al

backout

—38 mpg

—50 mpg

— Trucks

u

!’-’ Domestic oil prod,.tion+3!izT ~ Aiaska

‘ — t&anl 5

0 I 1 1 1 I I I

1950 1960 1970 1980 1990 2000 2010 2020

Year

SOURCE: Office of Technology Assessment 1991

ing (and using) the SPR, adopting CAFE standards,

and supporting oil replacement and efficiency technology research development, and demonstration

(RD&D). Should Congress decide to take further

action targeted at reducing oil vulnerability, there are

a number of potentially effective measures available.

No single technology will eliminate oil import dependence and there are no quick fixes to the oil import

vulnerability dilemma. Any significant shift away

from oil products cannot be accomplished quickly

and may entail substantial capital investment and

adjustments in consumer preferences and lifestyles.

An effective approach will require a combination of

oil replacement initiatives, perhaps combined with

other energy and environmental policy measures. But

no strategy will be successful unless it has the continuing support of government, business, and consumers.

This report presents two strategies for promoting

the adoption of oil replacement technologies:

1.

2.

replacing oil use in a severe import disruption,

and

reducing oil import vulnerability as part of

long-term national energy policy objectives.

Chapter 5 discusses various policy options that

might be utilized under each strategy. Both strategies

ssThe EIA Base Qse scenario already envisages annual residential and commercial consumption of oil decreasing al 2.6 percent and 1.8 percent

respectively, between 19<90 and 201 t), while population grows at 0.6 percent and total real GNP grows at 2.4 percent annually. Oil use in the utility and

industrial sectors is assumed to increase at about 0.7 percent per year each, while electricity generation and manufacturing output are assumed to increase

3 percent and 2.8 percent, respectively, per year.
Chapter I-introduction and Summary ● 21

rely on many of the same oil replacement technologies and policy initiatives. One critical difference is

that some policy options and technologies have fewer

implementation problems and offer greater oil savings if adopted as part of a long-term oil replacement

strategy rather than as part of a crisis-driven strategy.

Replacing Oil Use in a Severe Import

Disruption

The major Federal goals in responding to a severe

oil import crisis would be cutting oil use in all sectors,

speeding the adoption of oil replacement technologies, encouraging domestic oil and gas production,

and easing the negative social and economic impacts

of reduced oil supplies. Attaining the maximum technical oil replacement potential will require concerted

efforts, large amounts of capital, broad public support, and government leadership. There is a wide

range of possible legislative options that could enhance oil replacement in each sector. But because oil

replacement technologies alone will not be sufficient

to makeup the shortfall, it is also relevant to consider

the adequacy of Federal energy emergency authorities and plans.

Residential and Commercial Sectors

In an oil emergency, getting residential and commercial building owners to accelerate oil conversions

and efficiency improvements in existing buildings

will require a mix of information, exhortation, direct

financial incentives, and voluntary and mandatory

efficiency standards. Successful implementation of

an oil replacement strategy will require the cooperation of millions. Legislative options to foster oil

savings include: taxes or surcharges on oil products

and equipment, measures to reduce front-end-costs

and cash flow barriers, financing assistance, efficiency standards, labeling and certification programs,

public information, and technology R&D programs.

Measures to improve local availability of natural gas

would also help oil-to-gas conversions.

Electric Utility Sector

Most oil dependent utilities now appear well situated to respond to an oil supply emergency. Nevertheless, there are several legislative actions that could

further enhance oil displacement capability and oversight. Most of these measures would be most beneficial if they were put in place before any oil import

emergency. Following the precedent of PURPA, Congress might, for example, require States to consider

adopting regulatory policies that favor oil replacement technologies and efficiency improvements in

planning, licensing, and rate matters and to prepare

oil emergency contingency plans. Congress might

also direct the Federal Energy Regulatory Commission (FERC) to defer to State-approved oil replacement plans in passing on the rates, terms and conditions for wholesale electricity transactions. Measures

that improve interstate transmission system capability and transmission access for emergency power

transfers to displace oil generation or that enhance

regional availability of natural gas, would also improve oil replacement capability.

Industrial Sector

Because of the diversity of oil use in the industrial

sector and the limited oil replacement alternatives

available, targeting of incentives and technical standards is difficult. This sector is highly sensitive to

price signals. In an oil emergency, higher oil prices,

coupled with concerns over the availability of oil

products at any price, would probably trigger a high

degree of oil replacement without any additional

financial incentives, Targeting financial incentives to

spur incremental oil savings and efficiency improvements without creating a windfall for those who

would make the investments anyway has proven

difficult in the past. OTA previously found that, in

general, policies that encourage investment in new

plant and equipment also tend to improve energy

efficiency, including efficiency of oil use.36 Programs that improve the availability of information to

industrial consumers about potential energy and oil

savings have also proved helpful.

Areas for possible legislative action to improve oil

replacement capability in this sector include technical assistance, information, and R&D programs to

identify and disseminate oil saving industrial technologies and financial incentives such as tax deductions, credits, or loan guarantees specifically targeted

at incremental oil savings. Additional RD&D efforts

MUs cangre~~, Offlm of Technology Assessment, Indll,sfria/ Ener~ Use, OTA-E-198 (Washington, DC: U.S. Government Printing Office, June

l~g~),”aval]ab]e &Ough the N~tion~] Technical Information Scrvicc, Springfield, VA 22161, NTIS order #pEI 83-240-606.
22 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

might be directed at developing effective oil replacement technologies for oil-derived feedstocks and for

oil products used in nonmanufacturing applications.

There also appear to be opportunities for indirect oil

savings through actions directed at increased recycling and reduction of hazardous and solid wastes

(e.g., recycled plastics, tire-derived fuels). Attention

might also be give to the adequacy of Federal emergency authority to restrict oil use or require conversions, private oil stockpiles, and the availability of

natural gas supplies and storage for industrial users.

With the limited exception of revised and expanded

Federal oil emergency authority, all of these measures would work best if put in place in advance of any

import crisis.

Transportation Sector

Cutting oil use by cars and light trucks offers the

most significant opportunity for short-term oil savings in transportation. An aggressive oil replacement

strategy would include four goals:

1. improving light-duty vehicle (LDV) fuel efficiency;

2. accelerating the adoption of alternative non-oil

transportation fuels and vehicles;

3. limiting the increase in or cuttingvehicle miles

traveled; and

4. improving the efficiency of traffic movement.

Achieving the full savings potential will require action by Federal, State, and local governments, cooperation by manufacturers, and a high degree of public

acceptance.

Improvements in new LDV fuel efficiency would

offer oil savings over 5 years even without changes in

fleet mix and consumer preference. Forcing incremental efficiency gains is difficult because of the

challenges in modifying manufacturers production

plans and consumer purchasing patterns. Policy options for improving LDV fuel efficiency include:

● Amending Federal vehicle fuel efficiency standards to require new cars and light trucks to

attain maximum fuel economy levels under available technology. The choice of an appropriate

standard will require a balancing of many interests and is the subject of a separate OTA study.37

The level of savings that could be achieved is

also dependent on other factors such as the level

of new car sales, fleet turnover rates, and consumer preferences.

Using various market-oriented mechanisms to

affect the front-end and life cycle costs of LDVs,

based on the assumption that consumers will

choose more efficient vehicles in response to

such price signals. Examples of mechanisms

that could be used alone or in combination include imposing significantly higher gasoline

taxes, raising the gas guzzler tax on the purchase

of inefficient new vehicles, offering gas sipper

rebates for highly efficient new vehicles, and

imposing fuel efficiency-based annual vehicle

registration fees. Past studies on the effects of

higher prices on vehicle preferences and discretionary driving are mixed, so that the effectiveness of these measures alone is uncertain. At the

very least, they appear to be more effective as

longer term, rather than rapid response, measures in affecting overall fleet efficiency .38

Requiring fleet operators (including Federal

agencies) to purchase more fuel-effiient vehicles. Fleet vehicles on average are driven more

than private vehicles, so that efficiency improvements here offer significant savings. Imposing

purchase requirements also would tend to create

a market-pull for more fuel-efficient vehicles

and would prompt manufacturers to supply them.

The Federal Government alone is the largest

purchaser of LDVS in the country.

Shifting a portion of the LDV fleet to vehicles that

run on fuels not derived from oil could offer attractive

oil savings within 5 years and even greater savings

beyond then. The successful commercialization of

alternative fueled vehicles requires:

● manufacture or retrofit of alternative fuel vehicles in sufficient quantity,

_- WOTA is currently ~mpletlng an an:ilysls of ~ulomotive fue] economy standards. Results have been prtisented in testimony before congressional

committees. See references in note 12 supra.

-msee Changing l~y Degj.t>(>,v: Step,y TO RC(/llCe ~“re~~n}loll,ve G“u.seY, supra IIOt~ 18, pp. 165-166 and clled references.
Chapter 1 Introduction and Summary ● 23

● the development of an adequate refueling and

service support infrastructure, and

● consumer acceptance.39

Among policy measures suggested to create a market-pull for alternative fueled vehicles are: 1) giving

rebates or tax incentives to purchasers of such vehicles or fuels; 2) requiring private and government

fleet operators to purchase or retrofit a minimum

number of alternative fueled vehicles; and 3) promoting industry and industry-government joint ventures

to accelerate vehicle technology RD&D and commercialization. Development of an adequate

refueling and servicing network could be aided by

resolving any existing regulatory impediments for

commercial distribution of natural gas vehicle fuels,

requirements that refiners and large gasoline retailers

offer a certain percentage of alternative vehicle fuels,

and expanding alternative vehicle fuel subsidies, such

as those now offered for ethanol production. Consumer acceptance could be enhanced by government

information on the reliability and potential cost savings from alternative fuel vehicles and requiring

manufacturers and retrofitters to warrant the performance and reliability of their vehicles and to back it

up with effective customer service. At the same time,

the Federal Government could support continued

RD&D on improving alternative vehicle technologies, including those that would not be commercially

ready or cost effective within 5 years, but might be

within an additional 5 to 10 years, for example,

electric and hydrogen vehicles.

Traffic management and control technologies can

reduce vehicle miles traveled and improve the efficiency of traffic movement and save oil. In general,

these measures have the advantage of short leadtimes and low capital costs. They work best when

they have a high degree of local involvement and

community support, There has been only limited

analysis of the potential oil savings of these technologies, but available studies suggest that while individual measures offer small savings, when grouped

together they offer a significant opportunity for both

short- and long-term contributions. Congress could

fund additional Federal support for the further development and support of traffic management and efficiency improvements through the Departments of

Energy and Transportation. Congress could require

States and localities to develop or improve local plans

and programs for implementation in an emergency or

as part of a longer term effort to increase oil displacement capability.

Domestic Oil and Gas Production

Oil replacement technologies can counter the effects of an oil import disruption, but will achieve their

maximum replacement potential only if domestic

production of oil is maintained at or near current

levels and domestic natural gas production increases

to meet new demand. Policy options that maintain

domestic production and encourage oil and gas exploration and development are thus part of any oil

replacement strategy.

The best hopes for maintaining and even slightly

increasing domestic oil production in the near term lie

in unrecovered oil in already discovered fields rather

than in prospects for new large discoveries in frontier

areas. Drilling thousands and thousands of wells in

existing fields provided fully 70 percent of total U.S.

reserves additions from 1979 to 1984.

Legislative options intended to encourage domestic exploration, development and production can be

grouped as follows:

1.

2.

3.

4.

5.

6.

targeted tax incentives for exploration or production such as tax deductions, credits, depletion allowances;

measures that raise the price of oil or natural gas

at the wellhead such as import fees or price

floors;

technical assistance and technology transfer

programs;

changes in the SPR program to favor certain

classes of domestic producers or to include

preservation of domestic production potential;

opening more Federal onshore and offshore

lands to leasing or adopting more favorable

lease terms or royalties; and

resolving specific regulatory or environmental

controversies that are delaying exploration,

development, or production.40

39For a more extensive discussion see the OTA’s recent report, Replacing G’a.sdine, Supra note 14.

~lFor an ~x~enslve treatment of the pros and Cons of po]icy options to aid the domestic oil industry, sw National petroleum council, ~ac~~r~A~!ecting

U.S. Oil and Gas Outlook, February 1987.
24 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

All of these measures are politically controversial

because they often conflict with other public policy

goals such as increasing Federal revenues, reducing

the deficit, restoring fairness in tax laws, eliminating

energy subsidies, protecting the environment, protecting the international competitiveness of U.S.

manufacturers, or promoting greater competition

among energy sources and suppliers. All approaches

raise questions of whether they would actually be

effective at spurring incremental production.

Our technical review found that the most attractive

opportunities for maintaining domestic production

over the near term were continuing development in

existing fields, accelerating enhanced oil recovery,

bringing shutin or marginal oil wells back into production, and limiting premature well abandonment.

All of the policy options listed above could, in some

way, affect these prospects. Further study of the

relative effectiveness, cost, and incremental oil yields

from these options would be needed to determine

which would offer the greatest benefits for reducing

oil import vulnerability in the near term.

Enhancing Natural Gas Availability

Concerns over natural gas availability include not

only the adequacy of domestic production, but also

the ability to move gas from the wellhead to the

burner tip. Natural gas use in some regions has been

constrained because interstate pipeline capacity and

storage facilities are insufficient to meet incremental

demand. Planned capacity additions, new pipelines,

and Canadian gas imports are reported to have faced

delays in obtaining needed regulatory approvals.

Measures, such as changing FERC procedures for

approving new interstate pipelines to expedite regulatory review, while assuring that environmental and

competitive issues are satisfactorily resolved, might

enhance natural gas availability,

In addition to increasing interstate pipeline capacity, improvements to local distribution systems and

gas storage facilities would also be needed to support

greater use of natural gas instead of oil. Some local

distribution companies, electric utilities, and large

industrial users are considering expansion of natural

gas storage capacity, including natural gas liquefaction and storage facilities, as a means to overcome

seasonal availability problems. Congress may wish to

consider requiring the Department of Energy to review technical, environmental, and regulatory issues

associated with improving local deliverability and

expanding gas storage capacity and to identify any

appropriate legislative changes.

In our 1984 report, we found that an aggressive

program of natural gas efficiency improvements could

result in significant gas savings—sufficient to meet

most of the new natural gas demand from deployment

of oil replacement technologies. Congress may consider requiring the Department of Energy, in cooperation with State regulatory commissions, to examine

the potential for increasing local availability of natural gas through improved conservation and demand

side management by gas utilities and to recommend

any appropriate legislative changes.

Oil Import Disruption Contingency Planning

and Emergency Response

Because technical means alone would be insufficient to offset the loss of oil imports in a major and

prolonged supply disruption, the availability of strategic and private stocks and oil emergency contingency plans and authorities assume a greater importance than before. As imports rise, the amount of oil

needed for the SPR will also need to increase. Congress recently approved a l-billion-barrel SPR, but

this level will not be reached until the late 1990s.

Congress also approved the creation of oil product

reserves. Congress may wish to reexamine the adequacy of existing law for responding to prolonged

oil import disruptions and to assure that oil emergency plans are kept up to date.

In light of recent experience, Congress may wish to

review the structure and operations of the SPR. Among

the possible changes that might be considered are

clarifying provisions for release of SPR oil to include

sharp, panic-driven oil price increases as well as

physical shortages, accelerating the SPR fill rate, and

providing for automatic adjustment of the SPR fill

target to maintain adequate levels of reserves. Other

suggestions include adding provisions to accelerate

purchases to take advantage of low oil prices or to

maintain stripper well production.

OTA’s 1984 report noted that the Federal Government was ill-prepared to respond to an oil supply

crisis, or even to monitor actual technical capability

to deploy oil replacement technologies and the rate of
Chapter 1 -Introduction and Summary 25

oil replacement. Among options that could be taken

in advance of a crisis to redress these shortcomings

are collecting and maintaining accurate information

on investments in oil replacement technologies and

establishing standby oil replacement incentives and

taxes. In an oil supply shortfall, the government could

rely on the investment monitoring system to determine whether oil replacement was proceeding effectively. If investments were occurring too slowly and

market intervention seemed desirable, standby taxes

and financial incentives could be activated and increased or modified, as needed, to be sufficiently

effective. 41 The advantage of such a strategy is that it

allows a flexible and well-defined government response that can be adjusted, depending on the market

behavior and response to various levels of incentives.

Since our 1984 report, government information collection and reporting have improved only slightly,

but are not specifically directed at providing the kinds

of timely information and analysis that would be

needed in a crisis.

Reducing Oil Import Vulnerability as Part of

Long-Term National Energy Policy

Energy security can be viewed not only in terms of

a short-term contingency plan, but also from a longterm perspective embracing the three broader and

more fundamental national goals of economic health,

environmental quality, and national security. As the

United States approaches the task of developing a

national energy strategy, it makes sense to do so in

ways that support these and other related goals. Such

a strategy will require a delicate balancing of energy

with other objectives. Some energy options advance

all three national goals. Others, particularly those that

improve efficiency of production and use, may support one goal but run counter to the others. For

example, increased reliance on coal and methanol

transportation fuels from coal could cut oil import

dependence, but exacerbate problems of air pollution

and global climate change.

There are no quick and easy technical “fixes” to

America’s oil import dependence. Major changes in

energy systems—and major changes are what would

be needed—require decades and unwavering commitment from citizens, political leaders, and industry. Given time, energy is a flexible component of a

modern economy, but a long time will be needed to

effect a major turnover of the capital stock of energy

supply and consumption technology. In the absence

of a supply crisis, short-term strategies-either to

spur production or to curb consumption-could prove

inefficient and traumatic.

The same oil replacement technologies and policies

that could prove critical in an oil import crisis also can

contribute to achieving a long term goal of reducing

import vulnerability. Indeed, many of these technologies offer larger savings over the longer-term than

they do as short-term replacement options—improvements in total automobile fleet fuel efficiency and a

transition to alternative vehicle fuels both are more

effective as long-term rather than short-term options.

The additional time for technology development and

institutional change under a long-term oil replacement strategy would also enhance the effectiveness

and reliability of other technologies. For example,

new technologies, such as electric vehicles and fuel

cells, could reach commercial viability. In short, a

long-term oil replacement strategy offers more robust

technology options than does a crisis scenario.

Establishing National Energy Goals

The United States can succeed in easing oil import

vulnerability, but only if we establish long-term energy goals and stick to them through periods of both

crisis and calm and through high and low oil prices.

Certainly, a sensible, comprehensive energy policy

must be responsive to sudden changes of events, but

it must be fundamental y grounded in long-term strategies.

In many ways, Congress acts as a supreme board of

directors for our national enterprise, setting broad

policy goals, approving plans to reach these targets,

and periodically measuring progress and recharting

direction. A similar structured approach could be

adopted in establishing a comprehensive national

energy strategy. Congress would set broad long-term

energy policy goals and approve the implementation

program submitted by the President and the Secretary

of Energy. (This implementation program would

likely include many of the oil replacement options

previously discussed under the oil disruption response strategy.) To aid in oversight, Congress could

direct the Secretary to develop quantitative indicators

41See OTA supra note 1, pp. 26-35.
26 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

of our progress in attaining our targets and report on

them periodically. The Secretary might also be required to include in any legislative requests a statement of how new energy programs or appropriations

would advance the national energy goals. Congress

would review the goals every 5 years and make any

necessary modifications or additions.

Candidate goals for limiting oil import vulnerability, increasing energy efficiency, and beginning a

long-term transition to a post-fossil economy by the

year 2010 might include, for example:

1.

2.

3.

4.

5.

6.

limiting U.S. net oil imports to not more than

50 percent of annual oil consumption;

promoting efforts to diversify sources of world

oil production in regions outside the Middle

East when such assistance can be aligned with

other U.S. policy interests;

increasing U.S. energy efficiency (i.e., energy

per unit of domestic output) by 20 percent per

decade or an average of 2 percent per year;

initiating a move towards a post-fossil economy

in the long term by reducing carbon intensity by

10 percent in each of the next two decades

(equivalent to an average of 1 percent per year

average over 10 years);

improving the efficiency of the U.S. transportation sector by increasing light-duty fuel efficiency by an average of 2 percent per year; and

reducing oil’s share of U.S. transportation energy use by 10 percent by 2010.

Having adopted a comprehensive set of national

energy goals and an implementation plan for achieving them, other policy initiatives and legislation could

then be evaluated based on how they contributed to

achieving those goals. For example, an underlying

objective for federally supported technology RD&D,

and commercialization would be to identify and advance promising technologies to achieve these national energy goals.

CONCLUSION

In facing the prospects of continuing oil import

vulnerability and lessened technical capability to

respond to severe and prolonged oil disruptions, the

United States has three choices:

1.

2.

3.

We can continue on the current path and wait

until the next disruption occurs before deciding

on an appropriate response.

We can anticipate that such disruptions will

occur and set in place effective measures that

enhance our ability to replace oil in response to

the disruption.

Or, we can begin now to craft a more comprehensive national energy strategy that embraces

along-term goal of reducing our reliance on oil

and other fossil fuels and beginning a transition

to the eventual post-fossil era, and that does so

consistent with other national policy objectives.

Whichever path we choose, success in reducing our

oil import vulnerability will require a strong Federal

example and the sustained support and cooperation of

citizens, business, and government.
,

Chapter 2

0i l

●

the U.S. Economy ●

in
Contents

Page

INTRODUCI’ION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , ......+.+., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ .., 29

U.S. OIL CONSUMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Petroleum Product Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Oil Consumption by Sector . . . . . . . . . . . . . . . . . . . . . . . . ..,+.,... . . . . . . . . . . . . . . . . . . . . . . ...,.+.,.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Oil Use by Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ++.+,,+..,,+ , . +,,+.,.., , 34

DOMESTIC PRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

OIL IMPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , +, +.,,..., ,,, ,. .4,+.. . . . . . . . . . . . . . . 37

U.S. Regional Import Oil Dependence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .,, ,. ..,+. . . . . . . . . . . . 37

Sources of Imported Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .,,+,.... ,.. .O 37

OIL SUPPLY DISRUPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... .., ,+ .+4 . ....,+,,.. ... ,.. +, O+.. ,. .,, 38

THE PERSIAN GULF CRISIS, 1990-91 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .,, .’...., 40 OUTLOOK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . , .....,+.+ . .....*.**+, ,4,*..*,,*, .. .+, 42

Figures

Figure Page

2-1. U.S. Energy Consumption by Energy Source, 1970-89 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

2-2. Petroleum Products Supplied by Type, 1970-89 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . . . . . . . . . . ,+, +. 30

2-3. U.S. Oil Use by Sector, 1970-89 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., + ....,,... 31

2-4. Energy Consumption in the U.S. Transportation Sector, 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

2-5. Energy and Oil Use in the Industrial Sector . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

2-6. Residential Energy Consumption by Fuel and Region, 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

2-7. Commercial Sector Energy Consumption by Fuel and Region, 1986 . . . . . . . . . . . . . . . . . . . . 33

2-8. U.S. Electricity Generation by Fuel Source, 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. +.., 34

2-9. Oil Use by Application and Region, 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 34

2-10. U.S. Crude Oil Production, 1970-89 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . +,......+ ., +,.+ 36

2-11, Net U.S. Oil Imports, 1970-89 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,,. , 36

2-12. Source of Crude Oil Processed by U.S. Refineries, 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., +.... 37

2-13. Percent of U.S. Imports by Source, 1970-89 . . . . . . . . . . , +, ......,. . . . . . . . . . . . . . . . . . . . . . . . . .++..,... ,+, . 38

2-14. Crude Oil Refiner Acquisition Cost, 1979-89 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

2-15. Crude Oil and Unleaded Regular Gasoline Prices,

July 1990 to February 1991-

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . ..,,+,**,. .. +,.+,. 41

Tables

Table Page

2-1. U.S. Oil Consumption by Application and Region, 1989 . . . . . . . . . . . . . . . . . . . . ,, +.......+,+ ., ..,, 35

2-2. World Oil Supply Disruptions, 1951-89 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .,+.+.... , +, ++.+..,. ,. .+,.. 39
Chapter 2

Oil in the U.S. Economy

INTRODUCTION

Eighteen years after the first oil shock of the 1970s,

oil continues to fuel much of America’s economy. Oil

is the major U.S. energy source supplying 42 percent

of energy requirements in 1989. (See figure 2-l.)

Energy use in the economy as a whole has grown from

74 quadrillion Btus (quads) in 1973 to 81.2 quads in

1989. However, there have been notable shifts in

domestic use and production of oil.

Since 1970, domestic crude oil production has

declined—falling from 9.6 million barrels per day

(MMB/D) in 1970 to 7.6 MMB/D in 1989.1 Imports

have increased to meet domestic needs. In 1989 the

United States imported 7.12 MMB/D of crude oil and

oil products (about 41 percent of oil supplies), with

1.86 MMB/D coming from Persian Gulf producers.

Over the same period, patterns of oil use in the U.S.

economy changed as many users converted to other

fuels and all sectors became more energy efficient.

This chapter profiles oil consumption and production in the United States and the changes in both over

the past two decades. It concludes with a short summary of previous oil supply disruptions and the initial

impacts of the Iraqi invasion of Kuwait and subsequent United Nations and allied actions.

U.S. OIL CONSUMPTION

U.S. oil consumption was 17.2 MMB/D in 1989,

down from a high of over 18.8 MMB/D in 1978. As

a share of total energy use, oil provided about 42

percent of U.S. energy needs in 1989, compared to 49

percent in 1978. From 1979 to 1983, a period of

economic downturn and very high oil prices, oil

consumption declined 3.6 MMB/D. As oil prices fell

and the economy began to expand, oil demand began

to grow again and has averaged under 2 percent per

year from 1984 to 1989. With the higher oil prices

following the Iraqi invasion of Kuwait and the onset

of a recession, oil product demand in 1990 was an

estimated 2.4 percent lower than in 1989.2

There are five primary end-use applications for oil

products: space and water heating, process steam and

power generation, process heat, transportation, and

feedstocks (raw materials used in manufacturing and

processing). Oil products used for these applications

include motor gasoline, distillate fuel oils, residual

fuel oil, liquefied petroleum gases (LPG), jet fuel, and

a variety of products grouped under the term “other

petroleum products.”

Petroleum Product Consumption

Figure 2-2 shows the consumption of petroleum

products from 1970 to 1989.

Motor gasoline is a light fuel used almost exclusively to power automobiles and light trucks. At

present it has few widely available commercial substitutes. In 1989 motor gasoline constituted about 42

percent of total petroleum product use. Domestic

refineries supply most gasoline needs, the rest is

imported (about 360,000 barrels per day (B/D) in

1989).

Consumption of motor gasoline hit an annual high

of 7.4 MMB/D in 1978 and then declined to 6.54

MMB/D in 1982, owing to higher gasoline prices and

substantial improvements in fleet fuel efficiency that

more than offset increases in the total fleet and vehicle

miles traveled. Lower gasoline prices and economic

expansion in the mid-1980s contributed to renewed

growth in gasoline demand from 1986 to 1989. Gasoline consumption reached 7.3 MMB/D in 1989.

Distillate fuel oils (Nos. 1, 2, and 4 fuel oils and

diesel fuels) are used for diesel transportation fuel, for

space heating in homes and in small commercial and

industrial facilities, for industrial process heating,

and for electricity generation. Distillates accounted

for about 18 percent of 1989 oil use. Demand for

distillates peaked at 3.4 MMB/D in 1978, dropped to

2.67 MMB/D in 1982, and then rose to 3.15 MMB/D

in 1989. The United States imported about 300,000

B/D of distillates in 1989.

lunles~ ~themlse noted, information on U.S. energy and 011 use are drawn from U.S. Department of Energy, Energy Information Administration,

. .

Annual Energy Review 2989, DOE/EL.4-(1384(89) (Washington, DC: U.S. Government Printing Office, May 1990), hereinafter referred to as Annual

Energy Review 1989.

2u.s. J’jepaflment of Energy, Energy Information A~finlstration, Annu~/ Energy Review ~ggo, DOE/EIA.()’3&$(90) (Washington, DC: U.S.

Government Printing Office, May 1991), table 61.

—29—
30 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Figure 2-1—U.S. Energy Consumption

by Energy Source, 1970-89

Quadrillion Btus

‘oo~-----l

8 0

60

40

20

0

70 72 74 76 78 80 82 84 86 88

Years

- Oil = Natural gasn Coal

= Nuclear = Hydro and other ●

*Other includes grid-connected electric power from geothermal, wood,

waste, wind, solar, and other sources.

SOURCE: Office of Technology Assessment, 1991, from data in U.S.

Department of Energy, Energy Information Administration, Annual Energy Review 1989, DOE/ElA-0384(89) (Washington,

DC: U.S. Government Printing Office, May 1990), table 3.

Residual fuel oil, the heavy oil left after the lighter

products have been distilled in the refinery process, is

primarily used as a boiler fuel by utilities and industry. A small amount is used as bunker fuel to power

ships. Residual fuel oil competes directly with natural

gas in industrial and electric generating facilities that

can burn either gas or oil, and so its demand is highly

tied to the relative price of natural gas. Use of residual

fuel oil by utilities and industry has dropped substantially from a peak of 3.07 MMB/D in 1978. About

1.35 MMB/D of residual oil were used in 1989, or just

under 8 percent of total oil demand.

Changes in U.S. refinery capacity in the 1980s

reduced the portion of residual fuel oil in refinery

yields. Consequently, much of the residual oil consumption has been met by imports. Residual fuel oil

imports were as high as 1.85 MMB/D in 1973, but

have run at 500,000 to 700,000 B/D through most of

the 1980s. Total imports of residual oil were 610,000

B/D in 1989, while exports were 213,000 B/D.

Jet fuel demand was about 1.49 MMB/D in 1989,

or about 8.6 percent of total petroleum product use.

Demand included commercial, military, and general

aviation uses. Following a 3-year drop in demand in

1980-83, jet fuel consumption has risen over 440,000

Figure 2-2—Petroleum Products Supplied

by Type, 1970-89

* Other products include kerosene, aviation gasoline, petrochemical feedstocks, special naphthas, lubricants, wax, petroleum coke, asphalt, road oil,

still gas, pentanes plus, and other miscellaneous products. From 1983 on

crude oil burned as fuel is also included in this category.

SOURCE: Office of Technology Assessment, 1991, from data in U.S.

Department of Energy, Energy Information Administration, Annual Energy Review 7989, DOE/ElA-0384(89) (Washington,

DC: U.S. Government Printing Office, May 1990), table 60.

B/D since 1984. Improved economic conditions, airline fare competition, and travel incentives have

boosted passenger miles flown. Imports of jet fuel

were 102,000 B/D in 1989.

Liquefied petroleum gases include ethane, propane, butane, and other gases from natural gas processing plants as well as liquefied refinery gases

(ethylene, propylene, butylene, and isobutylene) produced from crude oil. Most LPG is derived from

crude oil, but some. is derived from natural gas. LPG

is used as a fuel in the residential and commercial

sectors and as a fuel and feedstock in the industrial

sector. In 1989 LPG made up 1.66 MMB/D or about

9.6 percent of oil product demand, the highest level of

demand in the past 20 years. LPG imports totaled

about 180,000 B/D in 1989.

Demand for other petroleum products was 2.26

MMB/D in 1989. This category includes petrochemical feedstocks, kerosene, asphalt and road oil, lubricants, waxes, and other oil products. Demand for

these products is closely tied to economic conditions

in the industrial sector and declined from a high of

2.67 MMB/D in 1979 to a low of 1.86 MMB/D in

1982. This category currently represents about 13

percent of total petroleum product demand. Imports

were about 270,000 B/D in 1989.
Chapter 2-Oil in the U.S. Economy ● 31

Figure 2-3-U.S. Oil Use by Sector, 1970-89

Millions of barrels per day 20

15

10

5

0

70 72 74 76 78 80 82 84 86 88

m

SOURCE:

Transportation

Electric utilities

Office of Technology

Years

= Industry

= ::::~~ti$and

Assessment, 1991, from data in U.S.

Department of Energy, Energy Information Administration, Annual Energy Review 1989, DOE/EIA-0384(89) (Washington,

DC: U.S. Government Printing Office, May 1990), table 61.

Oil Consumption by Sector

Demand for oil in each of the major end-use sectors—transportation, commercial, residential, industrial, and electric utilities—is generally sensitive to

price, but the sectors are not equally responsive to

changes in price. Patterns of oil consumption and

relative shares of demand for the major sectors for

1970 to 1989 are shown in figure 2-3. The largest oil

users are the transportation and industrial sectors,

which together accounted for 88 percent of total oil

demand in 1989. During the late 1980s oil consumption in these sectors grew due to lower oil prices and

renewed economic growth, and because there were

few commercially available substitutes for petroleum-derived motor vehicle fuels and industrial feedstocks. More detail on oil use in all sectors can be

found in chapter 3.

Transportation

The transportation sector encompasses highway,

air, rail, water, and pipeline transport and all modes of

military transportation. 3 This sector alone accounts

for almost 63 percent of the Nation’s total oil consumption and about 27 percent of total energy deFigure 2-4-Energy Consumption in

the U.S Transportation Sector, 1989

Light-duty vehicles

Heavy trucks

Buses

Air

Water

Pipeline

Rail

Military

i14% A;~&s Tru;k.s~vans

1%

0123456 7

Million barrels of oil per day or equivalent

U Petroleum = Natural gas

= Electricity

SOURCE: Office of Technology Assessment, 1991, from data in Stacy C.

Davis and Patricia S. Hu, Transportation Energy Data Book:

Edition 11, ORNL-6649 (edition 11 of ORNL-5198) (Oak Ridge,

TN: Oak Ridge National Laboratory, January 1991).

mand. At 10.85 MMB/D in 1989, transportation

sector oil demand was the highest it has ever been.

Consumption has grown more than 1 MMB/D since

oil prices dropped sharply in 1986. Oil supplies over

95 percent of transportation energy needs with natural gas and electricity accounting for the remainder.

(See figure 2-4.) The primary petroleum products

used are motor gasoline, diesel (distillate) fuel, jet

fuel and other aviation fuels, and residual fuel oil for

marine transportation.

The major factors influencing transportation demand for motor gasoline and distillate fuels include

fleet size (total number of vehicles), fleet mix (kinds

of vehicles), fleet fuel efficiency (miles per gallon for

all vehicles in the fleet), new vehicle fuel efficiency

(miles per gallon for new cars and trucks), total

number of vehicle miles traveled, and the rate of

replacement of old vehicles by new vehicles.

Economic trends, such as changes in gross national

product, personal income, or demographic patterns,

also affect petroleum product consumption in the

transportation sector.

4 For example, a surge in new

Soff.highway tmmpo~ation for agriculture, construction, and other industrial activities is attributed to the industrial s~tor.

qDemographic influences ~n push transpo~atlon demand in different directions. For example, an increase in the number of drivers tends to incr~se

vehicle miles. As the average age of drivers increases, vehicle miles are expamd to decline. However, as the baby boomers move through the familyforming years, a shift in preference to larger ears within that group could somewhat offset overall increases in vehicle efficiencies.
32• U.S. Oil Import Vulnerability: The Technical Replacement Capability

Figure 2-&Energy and Oil Use in the

industrial Sector

Quads

30

25

20

15

10

5

0

EsJ Process ~sJ

byproducts

Petroleum

products

❑

Non manufacturing

fuel oil

Manufacturing

fuel oil

KBl

Coal/Coke

❑ Natural gas

R

Electricity

1960 1965 1970 1975 1980 1985

Year

SOURCE: Office of Technology Assessment, 1991, from data in Gas Research Institute, “Industrial Natural Gas

Markets: Facts, Falacies and Forecasts,” March 1989.

car sales in 1985-86, prompted by an increase in

disposable personal income and various dealer incentives, boosted average new vehicle fuel efficiency by

twice the anticipated rate. Indeed, shifts in any of the

foregoing factors could affect transportation demand

by up to several hundred thousand barrels per day,

which is a significant portion of any incremental

demand met by imports.

Industrial Sector

The industrial sector includes manufacturing, agriculture, forestry, fishing, construction, mining, and

oil and gas production. Petroleum supplies about 36

percent of total industrial sector energy needs (excluding energy lost in generation and transmission of

electric power sold to the industrial sector). All together, industrial sector activities consume about 25

percent of the total oil demand. Feedstocks comprise

about one-half of industrial oil use.

Industrial oil demand has ranged between about 25

and 33 percent of total petroleum product consumption in the past two decades. It reached a high of 5.34

MMB/D in 1979, slid to 3.85 MMB/D in 1983, and

grew to 4.26 MMB/D in 1989.

The applications and mix of oil products used in the

industrial sector are diverse (figure 2-5). Distillate

and residual fuel oils, liquefied petroleum gas, petrochemical feedstocks, and asphalt and road oil make

up a large share of industrial oil product demand. Oil

products are burned for steam and power generation

and process heat, and are used as fuel for industrial

and agricultural equipment and as feedstocks for the

manufacture of other products.

Industrial oil demand is sensitive to general economic trends. Feedstock demand, the largest category of industrial oil use, generally follows economic growth. Oil use in dual-fuel industrial boilers

is tied to the relative prices of oil and natural gas.

Residential and Commercial Sectors

The residential and commercial sectors together

consumed about 8 percent of all oil used in the U.S.

economy in 1989. From 1973 to 1989, oil demand in
Chapter 2-Oil in the U.S. Economy ● 33

Figure 2-6-Residential Energy Consumption

by Fuel and Region, 1987

3“~

2.

1.5.

1.

0.5.

0. I

Northeast Midwest South West

= Natural gas = Electricity

_ Fuel oil m LPG

SOURCE: Office of Technology Assessment, 1991, from data in U.S.

Department of Energy, Energy Information Administration,

Household Energy Consumption and Expenditures 1987, Part

2: Regional Data, DOE/EIA-0321 (87)/2 (Washington, DC: U.S.

Government Printing Office, January 1990).

the residential and commercial sectors declined from

2.25 to 1.4 MMB/D, mostly because of energy efficiency gains and conversions to other fuels. Oil use

actually reached a low of 1.24 MMB/D in 1982 before

beginning a gradual increase.

The residential sector consists of single- and multifamily homes, apartments, and mobile homes. About

18 percent of all housing units or 16.4 million residential units use oil as a primary heating fuels Residential demand is about 5 percent of total demand and

consists mostly of space and water heating—mainly

in the Northeast. (See figure 2-6.) A map of census

regions can be found in the appendix. Residential

fuels are primarily distillate fuel oil and LPG. The

number of American homes heated by oil products

has generally been declining since the 1960s, although the 1980s saw a slight increase in oil heating

in areas where electric heat is expensive and natural

gas availability limited.

The commercial sector includes offices, stores, and

other nonindustrial businesses; educational, health

care, and religious institutions; and Federal, State,

and local governments. The commercial sector accounts for 3 percent of total oil use. About half of

commercial demand is for distillate and the remainFigure 2-7-Commercial Sector Energy Consumption

by Fuel and Region, 1986

Quads

‘a”~

1.6. -

1.4. -

1.2. -

1.-

0.8. -

0.6.

0.4.

0.2.

0.I I 1 1 I

I

Northeast Midwest South West

n Electricity = Natural gas

_ Fuel oil m District heat

SOURCE: Office of Technology Assessment, 1991, from data in U.S.

Department of Energy, Energy Information Administration, Nonresidential Buildings Energy Consumption Survey: Commercial

Buildings Consumption and Expenditures 1986, DOE/EIA0318(86) (Washington, DC: U.S. Government Printing Office,

May 1989), table 11.

ing half about equally split between residual fuel oil

and LPG. About 18 percent of U.S. commercial

buildings, or 750,000 buildings depend on oil products for heat. Commercial oil use is concentrated in

the Northeast and in rural and suburban areas of the

South and Midwest that have no local natural gas

service. (See figure 2-7.)

Growth in oil demand in the residential and commercial sectors primarily reflects increases in the

amount of building square footage heated and annual

temperature trends. It is tempered by changes in the

energy efficiency of new and existing buildings and

in their heating equipment. Residential and commercial oil consumption is much less sensitive to price

than consumption in other sectors, and shifts in fuel

preferences take place slowly. Greater domestic economic activity is expected to increase commercial

floor space and thus increase commercial demand.

The amount of residential floor space will also grow,

but at a slower rate.

Expectations of stable, low oil prices and economic

growth in localities not served by natural gas service—such as suburban areas in the Northeast and the

Midwest---could favor more use of oil for space

5u s Depaflment of Energy, Energy Information Administration, HouseholdEner~ Consumption und Expenditures 1987, part 2, Regional Data> . .

DOE/EIA-0321(87)/2 (Washington, DC: U.S. Government Printing Office, January 1990), table 2.
34 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Figure 2-8-U.S. Electricity Generation

by Fuel Source, 1989

Coal 54%

h Oil 5%

145.607

N

-s— -

1

Gas 9%

258,478

Other utility

15,783

uclear 19% =

530.076 NUG 3%

~~ Hydro 9%

261,753

1%

89,044

SOURCE: Office of Technology Assessment, 1991, from data in North

American Electric Reliability Council, 1990 Electricity Supply

and Demand for 1990-1999 (Princeton, NJ: North American

Electric Reliability Council, December 199o), app. B.

heating in preference to other fuels. Continued low oil

prices could add to the stock of new residential and

commercial buildings heated by oil, delay conversions from oil to competing fuels, and lead to the

deferral of major investments in conservation.

Electric Utilities Sector

The electric utility sector includes both public and

private utilities that generate and or sell electricity,

primarily to the public. 6 Electric utilities burned

740,000 B/D of oil products in 1989, about 4.3

percent of total oil consumption. Oil-fired generation

is concentrated in the Northeast, California, Florida,

and Hawaii .7 Almost 90 percent of oil used by electric

utilities is residual fuel oil. Electric utilities account

for about 36 percent of U.S. energy demand, but only

about 5.7 percent of utility energy needs are met by

petroleum products. (See figure 2-8.)

Demand for oil for power generation has been

declining since the 1970s and is now less than half

what it was at its peak of 1.75 MMB/D in 1978. The

Figure 2-9-Oil Use by Application and Region, 1989

‘~

5

4

3

2

1

nv

! —

PAD 1 PAD 2 PAD 3 PAD 4 PAD 5

_ ~~fi~~por- !ZZZ ~~m~ess 0 l&c~g&&team

= ~~my~~~ m Feedstock

SOURCE: Office of Technology Assessment, 1991, from data in Paul D.

Holtberg and David O. Webb, “The Potential for Natural Gas To

Displace Oil in Response to the Middle East Crisis and the

Implications for the GRI R&D Program,” Gas Research Insights,

Gas Research Institute, November 1990.

reduction in oil use can be attributed to fuel switching

(mostly to natural gas) in dual-fuel capable facilities

and the replacement or substitution of older oil-fired

capacity with new coal, nuclear, and natural gas units.

Demand for oil for power generation is tied to the

relative prices of oil and competing fuels, generating

capacity needs and availability, weather conditions,

and the seasonal availability of natural gas. At present

oil and natural gas prices, oil-fired units are primarily

used as peaking capacity or when other (less expensive) capacity is unavailable. A sharp drop in oil

prices, steep growth in peak electricity demand, or a

tightening of natural gas supplies could spur an increase in utility oil use.

Oil Use by Application

Figure 2-9 shows how oil was used for transportation, feedstocks, process steam and power generation, space and water heating, and process heat. It also

shows the relative shares of these end-use applications in 1989.8 There are regional variations in oil use,

but transportation is the dominant category in all

regions.

GFuel consumption in industrial and Commercial self. generation and cogeneration is usually attributed to those secto~, although some of these

generaton sell power to electric utilities.

THawall and many rcm~)te comunitlc~ in ~aska arc almost ~xc]usiv~]y dependent on oil for power generation; but the amounts us~ are small

compared to other States.

81nfomat10n on ~nd-use appllcatlc)ns and ~nsumpti[)n are from paul D. Holtbcrg and David O. Webb, “The Potential for Natural Gas to Displace Oil

in Response to the Middle East Crisis and Implications for the GRI R&D Program,” Gus Research fnsighrs, Ga.s Research Institute, November 1990.
Chapter 2-Oil in the U.S. Economy ● 35

Table 2-1—U.S. Oil Consumption by Application and Region, 1989

(thousand barrels per day)

Application PAD 1 PAD 2 PAD 3 PAD 4 PAD 5 Total

Space & water heating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 826

Transport-~..-..~~..~.. . . . . . . . . . . . ..4,46 2

Process steam &

power generation . . . . . . . . . . . . . . . . 797

Process heat . . . . . . . . . . . . . . . . . . . . . . .. 4 7

Feedstock titi..fi . . . . . . . . . . . . . . . . . . . . 204

Total ~~ti.~~~-ti~titi~ti~~~ti- . . . . . . . . ..6,33 5

254

2,856

197

84

366

3,757

140 29 96 1,345

2,014 401 2,063 11,796

528 42 208 1,772

234 19 67 450

1,019 84 290 1,962

3,935 575 2,724 17,325

SOURCE: Office of Technology Assessment 1991, from data in Paul D. Holtberg and David O. Webb, “The Potential

for Natural Gas To Displace Oil in Response to the Middle East Crisis and the lmplicationsforthe GRI R&D

Program: Gas Research lnsights, Gas Research institute, November 1990.

`Combiningallsectors, almost 70percentoftheoil

used in the United States in 1989—ll.8 MMB/D—

was used to move people and things. Gasoline and

diesel fuel for cars, trucks, buses, and motorcycles

made up over two thirds of total transportation demand. Off-highway uses, including commercial and

military aircraft, ships, trains, mining and construction equipment, and farm vehicles, used about 3

MMB/D. 9 About half of off-highway demand was for

jet fuel.

Regional oil consumption for transportation usually reflects population. Transportation’s share of

total oil demand varies among regions from 51 percent in the gulf coast Petroleum Administration for

Defense District (PAD 3) to 76 percent in the west

coast (PAD 5). A map of PAD districts can be found

in the appendix.

More than 1.96 MMB/D of petroleum feedstocks

were supplied in 1989, about 11 percent of total oil

demand. Since this demand is substantially all for oil

refineries and petrochemical plants, more than half of

feedstock uses were in PAD 3. Significant amounts of

feedstocks were also used in the west coast, PAD 5.

Oil products used for process steam and power

generation totaled almost 1.8 MMB/D in 1989, or

about 10 percent of total oil use. Consumption is split

almost equally between the industrial and electric

utility sectors. Strong regional use patterns are evident, with over 85 percent of utility demand in the east

coast, PAD 1, and over half of industrial demand in

the gulf coast, PAD 3. Industrial consumption is

concentrated in the petrochemical and refining industries; however, a significant share of this demand is

met by waste products, such as still gas.

Space and water heating consumed 1.3 million

barrels of oil in 1989 or just under 8 percent of the

total. About 90 percent of consumption was distillate

fuel oil for space heating. LPG, kerosene, and residual fuel oil account for the remaining products

used. Space heating use is highest on the east coast,l0

PAD 1, and in the Midwest, PAD 2, as shown in table

2-1. Together these regions account for 80 percent of

space and water heating use.

About 450,000 B/D of oil products were burned to

provide process heat. This represents slightly just

under 3 percent of total oil demand in 1989. Petrochemical plants and refineries account for much of

9C)ff.highway 011 ~nsumptlon by farm vehic]~s and mining and construction equipment is generally attributed to the industrial sector rather than the

transportation sector in tallying sectoral energy use.

loHalf the Consumption in pm 1 is in just four States: New York, New Jersey, Massachusetts, and pcnnsylvanla.
36 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Figure 2-l&U.S. Crude Oil Production, 1970-89

10 Millions of barrels per day 1

’70 72 74 76 78 80 82 84 86 88

Years

*includes lease condensate

SOURCE: Office of Technology Assessment, 1991, from data in U.S.

Department of Energy, Energy Information Administration, Annual Energy Review 7989, DOE/ElA-0384(89) (Washington,

DC: U.S. Government Printing Office, May 1990), table 50.

this consumption, and waste oils meet a significant

portion of this demand. About half of process heat

applications are located in the gulf coast, PAD 3.

DOMESTIC PRODUCTION

U.S. crude oil production reached an all time high

of 9.6 MMB/D in 1970. This was followed by 6 years

of declining output until higher prices and new Alaskan North Slope production reversed this trend. Oil

production climbed back to 8.97 MMB/D by 1985

(see figure 2-10). In 1986, in the wake of a steep drop

in world oil prices, U.S. production began to decrease

again. By 1989, domestic crude oil production was

7.63 MMB/D-l.34million barrels less than in 1985.

The production of natural gas plant liquids, which hit

a high of 1.74 MMB/D in 1973-74, was at 1.55

MMB/D in 1989, its lowest level in 20 years.

Oil exploration activities are a primary key to

maintaining reserve additions to sustain production.

Exploration activities surged in the late 1970s be10

8

6

4

2

0

Figure 2-1 l—Net U.S. Oil Imports, 1970-89

Millions of barrels per day

70 72 74 76 78 80 82 84 86 88

Years

SOURCE: Office of Technology Assessment, 1991, from data in U.S.

Department of Energy, Energy Information Administration, Annual Energy Review 1989, DOE/EIA-0384(89) (Washington,

DC: U.S. Government Printing Office, May 1990), table 50.

cause of high oil prices and the expectation that even

higher world oil prices would prevail. In 1981, as a

result of this rapid industry expansion, the main

indicators of exploratory activity reached record

peaks-3,970 rotary rigs operating (monthly average), 681 seismic crews active (weekly average), and

a total of over 17,500 exploratory wells completed.11

When world oil prices began to slide, domestic exploration activities fell too. The free fall in world oil

prices in 1986 further devastated domestic exploration and development. The number of wells drilled

plunged to 201, and rotary rigs active totaled only

964-less than half the number operating a year

before. 12 Exploratory wells completed dropped to

7,150. As oil prices began to firm up, albeit at much

lower real levels in the late 1980s, there was a modest

upswing in domestic exploration and development

investment. However, key indicators still hit a 40-

year low in 1989—869 rotary rigs in operation, 132

seismic crews active, and about 5,220 exploratory

wells completed. 13 The drop in activity brought about

a shrinking in the infrastructure of the domestic oil

llAnnual EnerU Review 1989% supra note 1, p. 89, tables 41 and 42.

lzFor fu~her discussion of the impacts on the domestic petroleum industry, see U.S. Congress, Office of Technology Assessment, U.S. OilProduction:

The Eflect ofLow Oil Prices— Special Report, OTA-E-348 (Washington, DC: U.S. Government Printing Office, September 1987).

l~e hlgheroll Prices in lgf90 brought about a brief upswing in explo~tlon ln~icato~. According to preliminary lnfOllIXitlOn released by the ~erimn

Petroleum Institute, domestic oil production in the first half of 1991 was up by 0.6 percent over 1990, reversing the recent pattern of declining output. API

attributed the production rise to increased exploration and production activity in 1990, better economic conditiom for producers, and technology

improvements. See “Oil Demand Falls to Lowest Level Since 1983,” The Energy Daily, July 18, 1991, p. 4.
Chapter 2 Oil in the U.S. Economy ● 37

industry—a reduction in the availability of equipment, skilled workers, and supporting manufacturing

and maintenance services capability that could slow

any future expansion of domestic exploration.

OIL IMPORTS

Imports fill the gap between domestic production

and demand. In 1970, net oil imports totaled 3.16

MMB/D and climbed to reach 8.56 MMB/D (46

percent of U.S. oil consumption) in 1977 (see figure

2-11). As oil demand dropped in response to very

high oil prices, net import levels declined to 4.29

MMB/D in 1985 (27 percent of oil use). Lower world

oil prices and rising demand drove net imports of

crude oil and petroleum products to 7.12 MMB/D in

1989 (41 percent of domestic consumption). Gross

oil imports in 1989 were 7.98 MMB/D and exceeded

domestic crude production for the first time since

1977. Imports of crude oil predominate, but imports

of petroleum products have been increasing too.

The United States imported a total of 1.86 MMB/D

of crude oil, natural gas liquids, and refined products

from the Persian Gulf nations in 1989—more than 1.5

MMB/D more than in 1983.14 Persian Gulf imports

made up about 11 percent of total U.S. consumption

and and 23 percent of gross imports for 1989. For the

first half of 1990, Persian Gulf imports were running

slightly ahead of those of the previous year. In the first

quarter of 1990, U.S. imports of crude oil and refined

products totaled 8.4 MMB/D. Of this, 2.3 MMB/D

came from Persian Gulf countries representing about

27 percent of our imports and about 15 percent of

Persian Gulf production.

15 By the end of 1990, annual

net imports were about 7.1 MMB/D, Persian Gulf

imports were about 2 MMB/D.

U.S. Regional Import Dependence

Under current oil supply and distribution patterns,

there are clear regional dependencies on imported

crude and refined products. Any interruption in oil

imports would likely be felt first and most severely in

those regions that are most dependent.

In 1989, the United States imported 5.8 MMB/D of

crude oil. Most crude oil imports enter the country

through east coast (PAD 1) and gulf coast (PAD 3)

Figure 2-12 Source of Crude Oil Processed

by U.S. Refineries, 1989

(by region)

‘~

Million barrels per day

6

5 I

I

4j

I

3

2

1

n

u

PAD 1 PAD 2 PAD 3

_ Imported =

PAD 4

Domestic

PAD 5

SOURCE: Office of Technology Assessment, 1991, from data in Paul D.

Holtberg and David O. Webb, ‘The Potential for Natural Gas To

Displace Oil in Response to the Middle East Crisis and the

Implications for the GRI R&D Program,” Gas Research Insights,

Gas Research Institute, November 1990.

ports. Figure 2-12 shows the origins of refinery

throughput by region. Imports provide over 95 percent of refinery throughput in the east coast and about

60 percent for gulf coast refineries. The west coast

(PAD 5) and Rocky Mountain (PAD 4) regions are

largely self-sufficient, producing and refining their

own oil. Domestic crude supplies the largest share of

refinery throughput in the Midwest (PAD 2); most of

this crude comes from PAD 3, however.

Imports of petroleum products totaled 2.2 MMB/D

in 1989. This was considerably less than the 3 MMB/D

imported in 1973; however, much of the difference

reflects a sharp drop in residual oil. U.S. refiners

exported 717,000 B/D of petroleum products in 1989,

the highest level ever. Netting out these exports, the

United States used about 1.5 MMB/D of imported

products. Over 95 percent of imported petroleum

products are used in the east coast (PAD 1).

Sources of Imported Oil

Over the past 20 years, the United States has diversified its sources of imported oil, as shown in figure

2-13. The major U.S. oil suppliers include Saudi

14UOS. Depafiment of Energy, Energy Information Administration, InternationulPetroleum Statistics Report, DOE/E1.4-0520(~ V02), February 1991,

table 3.6.

15GaS Research Institute, SUpEi note g.
38 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Figure 2-13-Percent of U.S. Oil Imports

by Source, 1970-89

Percent of total imports

100

8 0 - Non-OPEC

60

40

20

01 1 1 I 1 1 I 1 I 1 I 1 I 1 I 1 I 1

70 72 74 76 78 80 82 84 86 88

Years

SOURCE:

Arabia,

Office of Technology Assessment ,1991, from data in U.S.

Department of Energy, Energy Information Administration, Annual Energy Review 1989, DOE/ElA-0384(89) (Washington,

DC: U.S. Government Printing Office, May 1990), table 56.

Venezuela, Canada, Nigeria, and Mexico. In

1989, imports from the Organization of Petroleum

Exporting Countries (OPEC) made up 57.6 percent of

total net imports, the highest level since 1981, but less

than in 1976 through 1980 when OPEC’s share was

more than 70 percent. 16 Imports from OPEC countries have increased since 1985, much of the additional oil coming from Saudi Arabia. In 1981 Arab

OPEC countries accounted for 54 percent of U.S. net

imports. This share dropped to 11 percent in 1985, but

increased to 29 percent in 1989.17

OIL SUPPLY DISRUPTIONS

Before the August 1990 Iraqi invasion of Kuwait

and the subsequent United Nations sanctions, the

world had weathered a number of oil supply disruptions. In the past 20 years there have been three

serious oil supply disruptions resulting in the loss of

significant shares of crude oil production for periods

of several months. These included the Arab oil embargo (1973), the Iranian revolution (1978-79), and

the outbreak of the Iran-Iraq war (1980). Many industry analysts would also add the 1986 plunge in world

oil prices to the list of oil crises, because of its

devastating impact on the economic viability of the

oil industry in high-cost regions, including the United

States. In addition to these major disruptions there

were smaller disruptions caused by wars, political

unrest, and accidents. As shown in table 2-2, about

half of these disruptions lasted 5 months or more. The

two major oil crises of the 1970s, however, lasted

under 6 months. The largest disruption was the production loss of 3.7 MMB/D following the Iranian

revolution in 1978. These shortfalls were met to

varying degrees by conservation induced by higher

prices, the drawdown of commercial inventories, and

increased production from excess capacity.

An analysis of these disruptions by the Interagency

Working Group review of Strategic Petroleum Reserve (SPR) size options concluded:l8

Thirteen disruptions resulted in the loss of 1

percent or more of consumption. A similar disruption today would amount to about 500,000

B/D (using the “free world” oil market). The

group found this to be “mathematically equivalent to a 30 percent chance of a disruption of at

least this size in any given year. ”

Five disruptions involved the loss of 5 percent or

more of consumption—roughly equivalent to

2.5 MMB/D of oil at present. This equates to a

13-percent chance of this size disruption in a

given year.

Overall, there is a 10-percent likelihood (plus or

minus 5 percent) of a modest supply disruption

of 8 to 11 MMB/D occurring between 1995 and

2010. This estimate is subject to considerable

uncertain y after 2000 because of the large number of unknown factors involved—e.g., global

oil prices, oil demand, new technologies, new oil

discoveries, political and military developments—making the assessment perhaps better

characterized as “informed speculation.”

The United States is better equipped now to deal

with an oil supply disruption than in 1979 because of the larger unused world oil production

capacity at present (an estimated 5 to 7 MMB/D

in 1990) and the strategic petroleum stock proIGCurrent OpEC members are Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Mab Emirates, and

Venezuela.

IT~ab OpEC Countries ~onslst Of .41gtxi~, Iraq, Kuwait, Libya, Qatar, Saudi Arabia, and the United Arab Emirates.

l~Interagency Working croup, ~[ra[egic Pefro/c~llm Re.s~,rv[~: At?u/ysi,> of Size Option,\, DOEflE-0016 (unclassified report), February 19W, p. IV-2.
Table 2-2—World Oil Supply Disruptions, 1951-89

Size of World oil Percent Percent

supply shortfall Duration consumption of world change in world

Dates Event (MMB/D) (months) (MMB/D) consumption oil prices

March 1951–October 1954 . . . . . . . . . . . . . . . . . . . .Iranian fields nationalized . . . . . . . . . . . . . . . . . . . . . 0.7

November 1956-March 1957 . . . . . . . . . . . . . . . . . Suez War . . . . . . . . . . . . . . . . .. . . . . . 2.0

December 1966-March 1967 . . . . . . . . . . . . . . . . . Syrian transit fee dispute . . . . . . . . . . . . . . . . . . . . . . 0.7

June 1967–August 1967 . . . . . . . . . . . . . . . . . . . . . . . . Six Day War . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,0

July 1967-October 1968 . . . . . . . . . . . . . . . . . . . . . . . . Nigerian Civil War . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5

May 1970-January 1971 .........,...Libyan...Libyan price controversy . . . . . . . .....1,3

April 1971-August 1971 . . . . . . . . . . . .. Algerian-French nationalization ............O.6

struggle

March 1973–May 1973 . . . . . .. ......,... Lebanese political conflict ...................O. 5

October 1973–March 1974 .....,~, October Arabr lsraelie War .........,........... 1.6

April 1976-May 1976 . . . . . .. ti.... .~....Civil War in Lebanon ............................0.3

May 1977....=........~. ...............Damage at Saudi oilfield,.........,..........O.7

November 1978–April 1979.,..,..,,,.,,lranian Revolution ................................3,7

October 1980-January 1981 .titi,............Outbreak of lran-lraq War . . . . . . . . . . ..3. 0

July 1988-November 1989 t..~,.,............ U.K. Piper Alpha offshore,......,...,.. .......0.3

platform explosion

December 1988-March 1989 ..ti.,......~... U.K. Fulmer floating .,...........................0.2

storage vessel accident

April 1989-June 1989 ....................., U.K. Cormorant .U.UHU.UH.HU.UHH..0,5

offshore platform

44

4

3

2

15

9

5

2

5

2

1

6

3

2

4

2

13,2

17.5

34.3

40.0

40.1

48.0

50.2

58.2

58,2

60.2

62.1

65.1

60.4

49.8

51.6

51.6

5.30

11.43

2.04

5.00

1.25

2.71

1.20

0.86

2,75

0.50

1.13

5.68

4.97

0,60

0.39

0.97

+12.9

–1.6

NC

NC

-37

+25

NC

+26

+276

NC

NC ~ +82,4

+9.8

+23.4

+7.9

–17.48

NC = no change

SOURCE: Office Of Technology Assessment 1991, from information in lnteragency Working Group, Strategic Petroleum Reserve: Analysis of Size Options, DOE/lE-0016 (unclassified report),

February 1990, tables IV-l and lV-2.
40 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

gram of International Energy Agency (IEA)

member countries (with holdings of over 1 billion barrels at the end of 1989).

The economic impacts of disruptions often outlasted

the duration of the actual supply losses. The effects on

oil prices and on the economies of oil-consuming

nations were, in the opinion of some, out of proportion to the actual shortfall.19 The impacts were amplified by the interaction of government policies, and

consumer and supplier fears as played out in spot

markets. Figure 2-14 shows oil price trends in nominal and 1982 dollars from 1970 to 1989. As noted in

the 1984 OTA assessment, the sharp price increases

persisting after the oil shocks of the 1970’s were, in

themselves, effectively a type of oil supply curtailment.

THE PERSIAN GULF CRISIS

1990-9120

On August 2, 1990 Iraqi troops occupied Kuwait.

The invasion came some two weeks after Iraqi President Saddam Hussein had accused Kuwait of overproducing its OPEC quota and pushing world oil

prices down.

The initial charges, which surfaced publicly on July

17, were followed by claims that Kuwait was draining

Iraqi oil at wells situated near the border and by veiled

threats that it would take action if matters were not

resolved. Shortly thereafter, Iraq began moving troops

to its border with Kuwait. Other Arab States began

what proved to be unsuccessful efforts to mediate the

dispute.

These actions were promptly reflected in world oil

markets. On July 17, 1990, West Texas Intermediate

(WTI) crude oil futures closed at $17.69/barrel (bbl),

up slightly from the previous week in anticipation of

an expected OPEC agreement to raise oil prices .21 At

the July 27th OPEC ministers meeting, agreement

was reached on a production ceiling of 22.5 MMB/D

40

30

20

10

0

Figure 2-14 Crude Oil Refiner

Acquisition Cost, 1979-89

(composite nominal and real prices, 1982 dollars)

Dollars per barrel

Real

-------

/, ,\

/

price ($1982) ,1”

\

,

,

----------- ../

,-

-- Nominal price

—

I 1 1 1 I 1 r 1 1 I 1 1 1 I 1 1 1 [

70 72 74 76 78 80 82 84 86 88

SOURCE:

Years

Office of Technology Assessment. 1991. from data in U.S.

Department of Energy, Energy Information Administration, Annual Energy Review 1989, DOE/ElA-0384(89) (Washington,

DC: U.S. Government Printing Office, May 1990), table 68.

and a target price of $21/bbl. By July 30th WTI, the

benchmark U.S. crude oil, closed at $21.59/bbl on the

futures exchange.

Immediately following the invasion, President Bush

froze Iraqi and Kuwaiti assets in the United States,

and banned trade and other transactions with Iraq.

The House and Senate also responded with legislation to support the executive order. The United Nations Security Council passed Resolution 660 calling

for Iraqi withdrawal from Kuwait. The European

Community and Japan joined the boycott on oil

imports from Iraq and Kuwait. On August 6, the U.N.

Security Council passed Resolution 661 prohibiting

U.N. member nations from importing any Iraqi or

Kuwaiti products or transferring funds to either nation.

Oil prices rose to $23.71/bbl on news of the invasion and at the end of one week, crude oil prices rose

to $28.05/bbl on world markets. The crude price rise

quickly translated into higher gasoline prices at the

pump. (See figure 2-15.)

lssee forexample, theextensivediscw~sion of theirnpacts of the oil disruptions in the 1970s and 1980s in National Petroleum Council, Factor.~Aflecting

U.S. Oil’and Gas Outlook, February 1987.

mDetailS on actloms followlng Iraqi invasion of Kuwait are from Clyde R. Mark and Renee Stasio, “Iraq-Kuwait Crisis: A Chronology of Events, July

17, 19~90-February 7, 1991,” Congressional Research Stxvice, Feb. 8, 1991, and from U.S. Department of Energy, Energy Information Administration,

Daily Energy Situation Ana/ysis Reports, August 19 f90-March 1991.

21’’OGJ Newsletter,” Oil and Ga.~.Iourna/, vol. 88, July 23, 1990.
Chapter 2-Oil in the U.S. Economy ● 41

Figure 2-15-Crude Oil and Unleaded Regular Gasoline Prices,

July 1990 to February 1991

Cents per gallon

120.00 I I I

Iraqi invasion

111111 1

100.00

80.00

60.00

40.00

I

120

Desert storm ,!

100

80

60

40

30 13 27 10 24 8 22 5 19 3 17 31 14 28 11

Aug. Sept. Oct. Nov. Dec. Jan. (Close)

SOURCE: Office of Technology Assessment, 1991, from data in U.S. Department of Energy, Energy Information

Administration, “Daily Energy Situation Analysis Report,” various issues August 1990- March 1991.

Within a week of the invasion, the United States

and other nations began to mobilize forces to aid in

the defense of Saudi Arabia. On August 12, the

President committed U.S. naval forces to halt all Iraqi

imports and exports. Iraq announced its annexation of

Kuwait and interned thousands of U.S. and other

nationals in Iraq and Kuwait. On August 25, the U.N.

Security Council authorized navies deployed in the

Middle East to use force to enforce the embargo

against Iraq. By August 22, crude oil prices closed at

$31.22/bbl, the highest level in 5 years. On August

29, OPEC members agreed to increase production

quotas to make up for the loss of Iraqi and Kuwaiti

crude.

Throughout the fall, while official and unofficial

diplomatic efforts continued to try to pursuade Iraq to

release the hostages and withdraw from Kuwait,

ground, air and sea forces from many nations massed

in the Persian Gulf. U.S. forces would eventually

exceed 500,000 troops. Oil prices were up and stayed

up, reaching $40/bbl on October 11 and then retreating to close at $33.82/bbl for WTI on October 19.

On November 29, 1990, the Security Council passed

Resolution 678 authorizing member states to “use all

necessary means” to remove Iraq from Kuwait and

assure compliance with other U.N. resolutions. President Bush invited Iraq to meet to discuss the Persian

Gulf Crisis between December 15 and January 15,

1991. WTI closed at $29.08/bbl on November 30th.

Crude oil spot and futures prices trended slightly

lower as preliminary talks got nowhere, Iraqi forces

dug in, and coalition troops, equipment, and material

built up.

On January 8, 1991, the President asked for a

congressional resolution approving the use of all

necessary means including force to end Iraqi occupation of Kuwait. WTI was $27.50/bbl. On January 12,

following 2 days of prolonged debate, the House and

Senate sent a resolution (H.J. Res. 77, P. 102-1) to the

President authorizing the use of military force to

implement U.N. Resolution 678 and expel Iraq from

Kuwait. On January 16, as called for in the joint

resolution, the President certified his decision to use

military force after all diplomatic efforts to enforce

Iraqi compliance had failed. Allied aircraft then began bombing Iraqi installations in Iraq and Kuwait in

the beginning of an intense military campaign dubbed

“Desert Storm.” WTI crude prices rose to close at

$32.25/bbl, only to fall to $21.48/bbl on January 17.
42 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

In the weeks that followed, the aerial bombardment

continued unabated and oil prices hovered around

$21/bbl.

In early February, Iraqi representatives began signaling a willingness to withdraw from Kuwait, but

rejected compliance with all U.N. resolutions. Efforts

to negotiate a diplomatic resolution again failed. On

February 22, WTI spot prices closed at $17.43/bbl.

On February 23, coalition forces began a ground

invasion to liberate Kuwait, and in less than 100 hours

forces led by Kuwaiti, Saudi, and other arab forces

entered Kuwait City. Military operations were suspended on February 28, pending agreement on a

permanent ceasefire among the parties. The oil fields

of newly liberated Kuwait were left blazing by retreating Iraqi troops. Preliminary estimates were that

it could take 1 to 2 years just to put out the fires.

Even as coalition forces stopped their assault against

Iraq, ethnic and religious minorities within Iraq

mounted armed resistance against the government of

Saddam Hussein. This rebellion was met with ruthless retaliation by the remaining loyal armed forces.

The counterattack created a flood of refugees. Even

as U.S troops were being sent home from the Persian

Gulf, other troops were deployed to Northern Iraq to

create safe havens for Kurdish refugees. The situation

in the region remains unstable. Oil prices, however,

have remained low. By early July, average world

crude oil prices were $16.72/bbl.22

The embargo of Iraqi and Kuwaiti crude and product exports removed 4.9 MMB/D from world markets, about 9 percent of free world production. This

supply disruption came at a time when world oil

stocks were higher than in recent years and oil production capacity worldwide exceeded demand by

more than 5 MMB/D. As in previous disruptions, the

price impacts were far larger than any physical shortage of crude or oil products. Even so, oil prices have

not reached the levels set in 1981 of $40/bbl-which

adjusted for inflation would equal a price of $55/bbl

today. In fact, except for a brief tightening of petroleum feedstocks in Asian markets owing to the loss of

Kuwaiti refining capacity, oil supplies remained plentiful. By the beginning of November surge production capacity had wiped out any crude shortfall, and

by early January there was again surplus production

capacity available—excluding any Iraqi or Kuwaiti

capacity.

OUTLOOK

It is too soon to know the full outcome of events

surrounding the 1990 Iraqi invasion of Kuwait and

the Persian Gulf war. The enhanced influence of

futures markets on the volatility of oil prices was

amply demonstrated. Yet, there were few, if any,

actual shortages of crude oil or refined products. The

combination of conservation, underutilized production capacity, private oil stocks, and governmentheld strategic reserves has so far been great enough to

meet the world’s oil needs. Yet the costs of the

disruption went far beyond any loss of production.

Higher oil prices added tens of billions of dollars to

world and U.S. oil bills. Great hardships were imposed on many poor and populous developing countries, which are even more reliant on imported oil than

the United States. The full costs of mounting the

Desert Shield-Desert Storm operations have yet to be

quantified, but are likely to total well into the tens of

billions of dollars.

Although allied forces succeeded in ousting Iraqi

invaders from Kuwait and restoring some sense of

security to other nations in the Gulf, the destruction

wrought on Kuwaiti and Iraqi oil fields will not be so

quickly repaired.

What will happen with another oil supply crisis?

How well is this Nation equipped to meet this challenge? Will our technological options prove as sure

and swift as our the military response to Saddam

Hussein’s aggression? The following chapter examines our technical capability to replace lost oil imports

in the event of a serious and prolonged oil supply

disruption.

7-2u.s. Depafiment of Energy, Energy Information Alrnininstra(ion, Weekly Petroleum Statu.$Report: Datufor Week EndingJuly 12, ~99~, DOE/EIA0208(91-30) (Washington, DC: U.S. Government Printing Office, July 17, 1991), table 12.
Chapter 3

U.S. Technical Potential for

Replacing Imported Oil
Contents

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..

Revised Oil Disruption Scenario and Technology Selection Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .,..*.

RESIDENTIAL AND COMMERCIAL SECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Oil Use in the Residential and Commercial Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oil Replacement Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . ,4, . . . . . . . . . . . . . . . . . . . . . . . . . .

Deployment Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ELECTRIC UTILITY SECTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Oil Replacement Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deployment Constraints and Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE INDUSTRIAL SECTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Patterns of Industrial Oil Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., .,.....4 ,. Oil Replacement Potential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deployment Considerations and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TRANSPORTATION SECTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Oil Use in the Transportation Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Oil Replacement Options for Light-Duty Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Limited Oil Replacement Potential in Other Transport Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deployment Considerations and Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

DOMESTIC PETROLEUM SUPPLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Potential Oil Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Constraints to Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Estimated 1995 Domestic Petroleum Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Investment Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OTHER FACTORS AFFECTING OIL REPLACEMENT POTENTIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,

Uncertainties in Achieving Technical Replacement Potential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

47

47

48

50

50

52

58

60

62

67

69

69

72

79

81

81

81

89

91

92

92

94

96

96

96

97

Figure

3-1.

3-2.

3-3.

3-4.

3-5.

3-6.

3-7.

3-8.

3-9.

3-10.

3-11.

3-12,

Figures

Page

Residential Space Heating by Region and Main Heating Source, 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52

Commercial Buildings Space Heating by Fuel and Region, 1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Generation of Electricity by Electric Utilities by Region and Energy Source, 1989 . . . . . . . . . . 61

Electric Utility Generating Capacity by Region and Energy Source, 1989............, . . . . . . . . . . . . 61

Planned New Non-Oil Capacity Additions in 1990 to 1995 in

Oil Dependent NERC Regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Oil Use in the Industrial Sector by Region and Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Profile of Energy Use in the Industrial Sector, 1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Distribution of Industrial Boilers by Region and Primary Fuel Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Chemical Feedstocks: Sources and Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

U.S. Petroleum Supply, 1970-89 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

U.S. Technical Capability To Replace Lost Imports in an

Oil Supply Disruption, 5-Year Deployment Schedule by Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

U.S. Technical Capability To Replace Lost Imports in an

Oil Supply Disruption, Replacement Potential by Source . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Table

3-1.

3-2.

3-3.

3-4.

3-5.

3-6.

3-7.

3-8.

3-9.

3-1o.

3-11.

3-12.

3-13.

3-14.

3-15.

3-16.

3-17.

3-18.

3-19.

3-20.

3-21.

3-22.

3-23.

3-24.

3-25.

3-26.

3-27.

3-28.

3-29.

3-30.

3-31.

3-32.

Tables

Page

U.S. Oil Use by Sector, 1983 and 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

U.S. Oil Replacement Technical Potential, 1984 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 48

Oil Replacement Options Selected for Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Oil Replacement Options Excluded From Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,, ++,....., . 51

Consumption of Petroleum Products in the Residential and Commercial Sectors, 1989.... 52

Estimated Oil Replacement Potential in the Residential and Commercial Sectors ...+,.,....,. 52

Energy Use in the Residential Sector by Region, 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Characteristics of Households Heated by Oil and LPG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Characteristics of Commercial Buildings Heated by Oil or Propane

From 1986 Nonresidential Buildings Energy Consumption Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Deployment Schedule for Oil Replacement Technologies in the

Residential and Commercial Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Estimated Investment Costs for Oil Replacement Technologies in

the Residential and Commercial Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , 6 0

1989 Oil and Gin-Based Electric Generation and Fuel Consumption by Region . . . . . . . . . . . . . . . 61

Estimated Oil Replacement Potential in the Electric Utility Sector . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 62

Deployment Schedule for Oil Replacement Technologies in the Electric Utility Sector . . . . 69

Estimated Investment Costs for Oil Replacement Technologies in the

Electric Utility Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Industrial Consumption of Oil Products, 1979, 1983, and 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Industrial Oil Use: Consumption in the Manufacturing and

Nonmanufacturing Subsectors, 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

Estimated Oil Replacement Potential in the Industrial Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .., ,.+ 73

Deployment Schedule for Oil Replacement Technologies in the Industrial Sector . . . . . . . . . . . . 80

Estimated Costs for Oil Replacement Technologies in the Industrial Sector . . . . . . . . . . . . . . . . . . . . . . 80

Oil Consumption in the Transportation Sector, 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Fuel Economy Data for Light-Duty Vehicles, 1984-90 . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 83

Alternate Scenarios for Efficiency Gain in the Light-Duty Fleet, 1991 -95,..........,.........,... 84

Low Efficiency Gain Scenario, 1991-95 Efficiency Improvement for

the Light-Duty Vehicle Fleet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

High-Efficiency Gain Scenario, 1991-95 Efficiency Improvement for

the Light-Duty Vehicle Fleet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

Estimated Oil Replacement Potential in the Transportation Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Deployment Schedule for Oil Replacement Technologies in the Transportation Sector . . . . 91

Estimated Investment Costs for Oil Replacement Technologies in

the Transportation Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Estimated 1995 Domestic Petroleum Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Summary of Estimated Oil Replacement Potential . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . .,, ,. 4.... . . . . . . . . 98

Summary of Estimated Investment Costs for Oil Replacement Technologies . . . . . . . . . . . . . . . . . . . . 99

Summer Electricity Supply Data for Oil-Dependent NERC Regions (MW) . . . . . . . . . . . . . . . . . . . . . . 100
Chapter 3

U.S. Technical Potential for Replacing Imported Oil

INTRODUCTION

This chapter looks at U.S. technical potential to

replace imported oil in the residential, commercial,

electric utility, industrial, and transportation sectors.

Technical replacement potential refers to the capability to replace oil with other energy sources or to

reduce oil use through efficiency improvements while

providing an equivalent level of energy services (e.g.,

light, heat, power, transport). It is distinct from direct

demand reduction measures such as voluntary conservation (e. g., driving less, turning down the thermostat) and mandatory restrictions on the availability of

oil such as allocation or rationing systems.

The analysis focuses on oil replacement options

that are technically and economical y feasible within

the next 5 years in the event of a severe oil import

disruption. They include fuel switching, alternative

vehicle fuels, and efficiency improvements. These

options use technologies that are commercial y available today, that can be manufactured in sufficient

quantity and deployed within 5 years, and that require

no significant changes in lifestyle or industrial mix.

Some even offer additional benefits for environmental quality, economic growth, and international competitiveness.

This chapter briefly summarizes the oil disruption

scenario and technology selection criteria used and

identifies suitable technologies that could be deployed. Next, the oil replacement potential in the

residential, commercial, electric utility, industrial,

and transportation sectors is discussed. The chapter

concludes with an examination of possible constraints

in achieving the technical oil replacement potential,

including manufacturing capability, personnel requirements, permitting requirements, and the uncertain contribution of domestic petroleum production.

Background

OTA first examined the Nation’s technical potential to replace a major loss of oil imports in U.S.

Vulnerability to an Oil Import Curtailment: The Oil

Replacement Capability, published in September

1984. 1 That report assumed a scenario of an immediate loss of U.S. oil imports from the Persian Gulf of 3

million barrels per day (MMB/D), beginning in mid1985 and continuing over an indefinite period of at

least 5 years. The scenario represented a loss of 19

percent of the total U.S. oil supply of about 15

MMB/D, and over 60 percent of U.S. imports for

1983, the base year (see table 3-l). However, OTA

found that the United States had the technical and

manufacturing potential to replace 3.6 MMB/D over

5 years, as shown in table 3-2. With aggressive

deployment, available energy technologies could replace about 0.6 MMB/D in the electric utility sector,

and 1 MMB/D in each of the residential, commercial,

industrial, and transportation sectors. Thus, in 1984,

U.S. technical oil replacement capability exceeded

what was then viewed as a serious import curtailment

by the considerable margin of 600,000 barrels per day

(B/D).

Our 1984 assessment of adequate capability to

meet potential oil supply disruptions also sounded a

cautionary note:

In the longer term, declining domestic production,

accompanied by an expected shift away from oil uses

for stationary direct heat, will increase the Nation’s

vulnerability y to an oil shortfall. This will occur even

if all stationary uses of fuel oil are replaced by

alternative fuels and conservation because the decline in domestic production is expected to occur at

an even greater rate, Only by relying more heavily on

coal and biomass for chemical feedstocks, increasing efficiency in natural gas use and in all modes of

transportation, and producing synthetic transportation fuels in addition to accelerating the replacement

and conservation of stationary uses of oil, can the

Nation expect to significantly reduce its vulnerability to an oil shortfall over the next few decades.2

The trends pointing to decreasing flexibility in our

capability to respond to oil import disruptions have

continued. From 1984 to 1989 (the base year for this

report), U.S. petroleum consumption has risen from

IU s congress, Offlce of Te~hnc)~(~gy ~$sc~sment, U.S. v[llnerul~ili~ t{) un Oil Import Curtailment: The Oil Rcp[ucenwnt Capabi[i~, OTA-E-243

(Spring~ield, VA; National Tcchnieal Information Service, Scptcmbcr 1984), hereinafter referred k> as OTA, The Oil Replacement Capability.

ZOTA Repofi Brief, “us, Vulnerilbility t. an oil Impofi Cuflai]men(: The Oil Replaccmcnt Capability,” September 1984.

—47—
48 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Table 3-I—U.S. Oil Use by Sector, 1983 and 1989

(million barrels per day)

Table 3-2—U.S. Oil Replacement Technical Potential,

1984 and 1991 (million barrels per day)

Sector 1983 1989 Sector 1984a

1991 a

Consumption

Residential and commercial . . . . . . . . . . . . . . . . . . . . 1.29

industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.85

Electric utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.68

Transportation..................., . . . . . . . . . . . ..9.4 1

Total consumption . . . . . . . . . . . . ..15.2 3

supply

Domestic productiona . . . . . . . . . . . . . . . . . . ..10.8 5

Net imports ..=..~.-~.~ . . . . . . . . . ..4.3 1

Total supptiesb .~~.-..fi~. . . . . . . . ..15.2 3

1.40

4.26

0.74

10.85

17.24

10.08

7,12

17.24

a Includes crude oil, natural gas plant liquids, and processing gain.

b includes stock drawdown.

SOURCE: Office of Technology Assessment 1991, from data in U.S.

Department of Energy, Energy lnformation Administration, Annual Energy Review 1989, DOE/ElA-0384(89) (Washington,

DC: U.S. Government Printing Office, May 1990), tables 50

and 61.

about 15 MMB/D to 17.2 MMB/D, as shown in table

3-1. Net oil imports have risen by almost 3 MMB/D

to 7.1 MMB/D, and the share of U.S. oil needs

supplied by imports has grown from 33 to over 40

percent. If an oil supply disruption comparable to that

analyzed in our 1984 report were to occur today

(equivalent to the loss of almost all oil exports from

the Persian Gulf—or a world supply shortfall of about

15 MMB/D), the 1991 shortfall in U.S. imports could

be as much as 5 MMB/D, compared with 3 MMB/D

faced in 1984. However, as the following analysis

shows, U.S. ability to offset lost imports by resorting

to purely technical replacement strategies has shrunk.

The United States no longer enjoys a comfortable

margin of safety. If faced with a loss of more than onequarter of our 1989 oil imports, U.S. technical replacement potential comes up short.

Table 3-2 compares OTA’s estimates of oil replacement potential in 1984 and 1991, based on 1983

and 1989 base years, respectively. OTA estimates

that available oil replacement technologies could

now displace only about 2.9 MMB/D of 1989 oil use

within 5 years. Moreover, this replacement potential

must be further offset by the expected continuing

decline in domestic oil production over the disruption

period. The extent of this anticipated decline cannot

be calculated with any certainty, but we estimate it to

be in the range of 0.1 to 1.2 MMB/D even at the high–

er oil prices resulting from the crisis. The net result is

that after 5 years only about 1.7 to 2.8 MMB/D of lost

imports can be replaced by technical means alone. An

Electric utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 0.6

Residential commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0 1.0

Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0 0.8

Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0 0.6

Total replacement potential . . . . . . . . . . . . . . . . . . . . . . . . 3.6 2.9

Domestic oil production (decline) . . . . . . . . . . . . . 0 (0.1)-(1 ,2)

Net replacement capability . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 1,7- 2.8

a Individual entries may not equal total because of independent rounding.

SOURCE: Office of Technology Assessment 1991.

increase in oil demand, a decline in domestic oil

production, and the failure of efficiency improvements and oil replacement technologies to keep pace

with consumption have combined to yield a potential

net shortfall of 2.2 to 3.3 MMB/D in an import cutoff

of 5 MMB/D. Thus, in the past 7 years, U.S. ability to

respond to a serious oil supply disruption has declined. Some may view this as a significant factor

contributing to increased oil import vulnerability.

Revised Oil Disruption Scenario and

Technology Selection Criteria

The changes in energy consumption and the mix of

energy sources in nontransportation sectors preclude

a direct extrapolation of OTA’s findings from 1984 to

the present. Therefore, to reassess U.S. oil replacement capability, we updated the oil disruption scenario used in our 1984 study to reflect a 1989 base

year.

Oil Disruption Scenario 1990-1995

Since 1984, total world oil use and the level of

Persian Gulf exports have risen. Accordingly, to

create a comparable oil disruption scenario, we have

adjusted the amount of imports affected by a supply

crisis and the amount of available oil stocks to reflect

1989 conditions. The other assumptions are nearly

identical to those used in the 1984 study. Our 1989

scenario assumes the following:

1. An immediate oil import shortfall of 5

MMB/D occurs in 1991 and continues over an

indefinite period expected to last at least 5
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 49

2.

3.

4.

5.

6.

7.

8.

years. International oil-sharing agreements

commit the United States to absorb one-third of

world oil import losses, so that a loss of 15

MMB/D of Persian Gulf exports would mean a

5 MMB/D reduction in U.S. imports, even

though the United States does not currently

import that much from the Persian Gulf. The

worldwide loss of production means that the

U.S. shortfall under this scenario could not be

made up by increasing oil imports from other

countries.

Private and governmental commitments are

made early in the disruption to replace or reduce imported oil use to the maximum extent

technically and economically feasible by relying on domestic sources. Sufficient capital is

available to make the required conversions.3

The strategic petroleum reserve (SPR), private

stocks, and other emergency, voluntary, and

mandatory conservation measures cushion the

initial impacts of the shortfall. Eventually, however, the oil reserves are drawn down to zero.

Oil replacement technologies meeting the technical criteria (described below) are deployed

over a 5-year period. Concurrently, research,

development, and demonstration (RD&D) efforts on long-lead technologies are pursued so

that some of these technologies can be deployed commercially beyond 1995.

There are no major structural changes in the

output mix or behavior of the economy that

could deter the 5-year deployment objective.

Unless otherwise noted, there are no restrictions on imports that could limit the use of

technologies dependent on foreign components

or materials.

Unless specifically noted, there are no constraints on the availability of technical personnel needed for deploying technologies.

There are no new special tax incentives that

favor or inhibit deployment of specific technologies.

The year 1989 is used as the baseline for energy

consumption, Federal policies, and applicable environmental regulations for this analysis. More recent

data are included, where available, to address technological and environmental issues.

Technology Selection Criteria

The assumptions and criteria used in selecting and

reevaluating the oil replacement technologies are

largely the same as those used in the 1984 report. As

in 1984, the technologies were selected for evaluation

based on their broad potential to reduce a significant

fraction of the oil consumed over a 5-year period in

each of the end-use sectors while satisfying environmental standards. The following criteria were used to

select oil replacement technologies for further evaluation:

1.

2.

3.

4.

The technology is commercially available now

or is likely to be by mid-1992.

Individual units can be produced or installed in

2 to 3 years and deployed commercially to

replace oil no later than 1995.

The technology has a broad potential for replacing significant fraction—generally, more

than 10,000 B/D of the oil consumed in its

respective end-use sector.

The technology is currently among the least

costly alternatives to oil in its respective enduse sector.4

Using these criteria we reexamined the technical

replacement options identified in the 1984 study.

Since the original evaluation by OTA’s engineering

contractors, 5

some technologies have improved

slightly, but there have not been many significant

advances in technology or commercial readiness.

Table 3-3 identifies the candidate oil replacement

options that meet the 1991 technological suitability

criteria. Table 3-4 lists technologies that were excluded because they did not meet the selection criteria, in most cases because they lack enough potential

for commercial deployment in 5 years. Over a longer

period of time, however, some of these technologies

hold some promise as alternatives to oil-using technologies and RD&D and commercialization efforts

could continue while short to mid-term oil replacement options are deployed.

s~ternatlve ~ollcy Opllc)ns that would aid these commitments are discussed in ch. 5 of this rePort.

QThe te~hnical ~riterla and evaluations are based on Renova Engineering, p.c., “OiI Replacement Analysis-Evaluation of Technologies,” OTA

contractor report, February 1991, and comments from an OTA workshop on oil replacement technologies, Dec. 5, 19{90.

SGibbs & Hill, Inc., “011 Replacement Analysis, Phase I—Selection of Technologies, “ OTA contractor report, April 1983; and Gibbs& Hill, Inc. “Oil

Replacement Analysis, Phase II—Evaluation of Selected Technologies,” OTA contractor report, August 1983.
50 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Table 3-3-Oil Replacement Options Selected for Assessment

Oil replacement

Sector option Technology/alternative

Electric . . . . . . . . . . . . . . . . . . . Natural gas*,,..,........,,,, Convert; replace with combustion turbines or combined cycle units

utilities

Nuclear ,.......,,,,,,,,,,,,,,,, Operate completed plants

Renewable fuels* . . . . . . . . Biomass, municipal solid waste (MSW), geothermal, solar thermal, wind energy, small

hydro

Coal* ......,,......,,.,,.,,, . . . . . Convert to coal or coal slurry fuel (CSF); replace with coal gasification combined cycle

(CGCC)

Demand . . . . . . . . . . . . . . . . . . . . . . . Reduce peak demand and capacity needs

management

Residential/ . . . . . . . . . . . . Natural gas . . . . . . . . . . . . . . . . . . Use for space heating, cogeneration

commercial Electricity . . . . . . . . . . . . . . . . . . . . . Use for hot water, space heating and cooling

Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Coal or CSF for cogeneration

Renewable fuels . . . . . . . . . . Solar, wood

Efficiency . . . . . . . . . . . . . . . . . . . . . Energy management system, emulsion fuels

improvement

Industry . . . . . . . . . . . . . . . . . . Reduce refinery . . . . . . . . . . . (A result of less imported crude to refine)

throughput

Natural gas . . . . . . . . . . . . . . . . . . Fuel switching, convert oil-fired equipment, gas-derived feedstock

Other fuels . . . . . . . . . . . . . . . . . . .Fuel switching, conversion of oil-fired equipment, use coal, CSF or biomass for

cogeneration, alternative feedstocks

Process changes . . . . . . . . . Increase recycling, process optimization, waste heat recovery from process and/or waste

streams

Transportation ...,,,.. Efficiency . . . . . . . . . . . . . . . . . . . . Improved fuel economy in vehicles, airplanes, marine fleet, and railroads

improvement

Natural gas . . . . . . . . . . . . . . . . . . Use compressed and liquefied natural gas in fleet vehicles

Other fuels . . . . . . . . . . . . . . . . . . .Ethanol, methanol, liquefied petroleum gas (LPG) biomass, electric vehicles

Traffic . . . . . . . . . . . . . . . . . . . . . . . . . . Reduce and enforce highway speed limits, use highoccupancy vehicle

management lanes, reduce traffic congestion to improve traffic efficiency and reduce oil consumption.

Domestic oil . . . . . . . . . . . Petroleum . . . . . . . . . . . . . . . . . . . . Increase domestic oil supply by improved conventional and enhanced oil recovery

production exploration technologies

and production

* Includes the options of self-generation and purchases from nonutility generators

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement Analysis—Evaluation of Technologies,” OTA contractor

report, February 1991.

RESIDENTIAL AND

COMMERCIAL SECTORS

In 1989 the residential and commercial sectors used

1.4 MMB/D of petroleum products.6 Oil use was split

among distillates, kerosene, residual fuel oil, and

liquefied petroleum gases (LPG). (See table 3-5.)

Space and water heating accounted for 98 percent of

residential oil use and was also the predominant

application in the commercial sector, although propane was used in many commercial establishments

for cooking.

A vigorous effort to reduce oil use in the residential

and commercial sectors by switching to natural gas,

electricity, coal, and renewable fuels, and by speeding the adoption of efficiency improvement measures, could replace almost 1 MMB/D, or about 72

percent of 1989 petroleum consumption as shown in

table 3-6. OTA’s analysis identified similar potential

in these sectors in 1984.

Oil Use in the Residential and

Commercial Sectors

According to Department of Energy (DOE) surveys, over 17 million residential and commercial

units use distillate fuel, kerosene, or LPG as their

~US. Depaflmen( of Energy, Energy Information Administration, Annual Enerby Review 1989, DOE/EIA-(H84(89) (Washington, DC: U.S.

Government Printing Office, May 1990), table 61, p. 137. Hereinafter Annuu/ Energy Review 1989.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 51

Table 3-4-Oil Replacement Options Excluded From Assessment

Sector Option Basis for exclusion

Electric . . . . . . . . . . . . . . . . . . . Increase imports . . . . . . . . . . . . . . . . . . . . .New imports of Canadian power above levels currently planned or projected are not

utilities included because of uncertainties over transmission system capability. Where

possible, additional imports could displace oil.

Large hydro . . . . . . . . . . . . . . . . . . . . . . . . . . . . There are only a few suitable and environmentally acceptable new sites left in the

country. 1

Ocean energy . . . . . . . . . . . . . . . . . . . . . . . . . Use of ocean energy in the form of temperature gradient or wave power is in the

early stages of development.1

Photovoltaic . . . . . . . . . . . . . . . . . . . . . . . . . . . . Does not offer a large-scale potential, Currently 219 photovoltaic systems provide

about 11 MWe with costs in excess of $5,000/kW. (Small PV systems for remote

applications are considered elsewhere,)2

Interregional power . . . . . . . . . . . . . . . . Transmission constraints limit opportunities for increased interregional transfer of

power from available non-oil based capacity.3

Residential/ . . . . . . . . . . . . Wind energy . . . . . . . . . . . . . . . . . . . . . . . . . . . Use of wind energy for buildings and in mechanical drives is not expected to make a

commercial significant contribution within 5 years.4

Industry . . . . . . . . . . . . . . . . . . Wind energy . . . . . . . . . . . . . . . . . . . . . . . . . . . Use of wind energy for buildings and in mechanical drives is not expected to make a

significant contribution within 5 years.4

Biomass gasification . . . . . . . . . . . . . . Biomass gasification will compete with direct use in industrial applications. Direct

use of biomass fuels is covered as an option for industry.

Coal gasification . . . . . . . . . . . . . . . . . . . . . Coal gasification combined cycle (CGCC) technology is used as an option for

electric utilities and some industrial applications.

Geothermal . . . . . . . . . . . . . . . . . . . . . . . . . . . . Use of conventional geothermal in industry is limited because of the need for close

proximity between the geothermal source and end-user,

Materials and . . . . . . . . . . . . . . . . . . . . . . . . . . Technology for biomass-based materials and chemicals is not yet established.

chemicals from biomass

Solar thermal . . . . . . . . . . . . . . . . . . . . . . . . . . Use of solar thermal for power generation is economically more attractive than its

use in industry.

Transportation . . . . . . . . Coal in railroads . . . . . . . . . . . . . . . . . . . . . Mild coal gasification technologies which could permit the use of clean coal char or

and vehicles coal-derived liquids in railroads and vehicles are in pilot plant or prototype demonstration plant phases.

Oil supply . . . . . . . . . . . . . . . Oil from tar sands, oil shale, . . . Long lead technologies that will require more than 5 years to significantly impact the

and coal liquefaction domestic oil supply.

1 Engineering News Record, Sept. 13, 19~, P. 26.

2US. Depa~ment of Energy, Energy Information Administration, Power Engineering, April Iggo, P. 11.

3Estimates ofsho~ Term petroleum Fuel switching c~@i/ity, D(3E/EIA.0526 (Washington, Dc: (J,S. Government printing office, May 1989).

4Gibbs & Hill, Inc., “oil Replacement Analysis, Phase l—The Technologies,” OTA contractor report, April 1983.

5Chemica/ Engineering& News, Sept. 10, 1990, P. 19.

6Dennis H~rgan, L~~ international personal communication to Renova Engineering, f’.c., SePt. 19, 1990.

7Ma~in J Hapeman, “coal-Derive& Fuels as successful p~roleum Replacements and Unique Opportunities Offered tO l.J.S. Railroads,” PaPer presented

at Coal~Targets of Opportunity Workshop, DOE, proceedings, Washington, DC, July 12-13, 1988. 8Richard A. Wolfe and Chang J. lm, c’Liquid Coal—The Future Fuel for Locomotive Engines,” paper presented at Coal—Targets of oppOrtlJflky Workshop,

ibid.

9Richard A. Wolfe Coal Research TechnoloW Corp., personal communication to Renova Erlgimwirlg, P. C., Sept. 26, 1990,

IOKen Marke[, us. DepaNment of Energy, Energy lnform~ion Administration, Morganto~n, persona) communication to Renova Engineering, P. C., oCt. 4,

1990.

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement Analysis—Evaluation of Technologies,” OTA contractor

report, February 1991.

primary heating fuel.7 These include some 16.4 mil- Table 3-8 shows selected characteristics of residenlion residential units and about 0.8 million commer- tial units using oil or LPG as their main heating fuel.

cial buildings. Table 3-7 and figure 3-1 summarize Residential distillate and kerosene use is concenenergy use in the residential sector by region in 1987. trated in the Northeast, while LPG use is largely split

A map of census regions can be found in the appendix. between the Midwest and South.

T~e primary source for in~ormatlc)n on ~nergy use in the residential sector is the Rtxidcntial Energy Consumption Survey conducted by DOE about

every 3 yemx. The latest published survey data indicated that in 1987 there were over 90.5 million residential housing units or households consisting of

60.5 million single family units including both attached and detached single family houses, 5.1 million mobile homes, and 25 million residential units in

multifamily buildings of 2 or more units. U.S. Department of Energy, Energy Information Administration, Household Energy Consumption and

Expenditures 2987, part 2, regional data, DOE/EIA-0321(87)/2 (Washington, DC: U.S. Government Printing Office, January 1990), table 2, pp. 28-29.

Information on commercial energy use is published in U.S. Department of Energy, Energy Information Administration, Nonresidentia/Bui/dings Energy

Consumption Survey: Commercial Bui/ding.s Consumption and Expenditures 1986, DOE/EIA-0318(86) (Washington, DC: U.S. Government Printing

Office, May 1989). Hereinafter Commercial Building.~ Consumption und Expenditures 1986.
52 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Table 3-5-Consumption of Petroleum Products in

the Residential and Commercial Sectors, 1989

(thousand barrels per day)

Fuel oil & Residual

Sector kerosene fuel oil LPG Total

Residential ................563 0 294 857

Commercial ..............327 110 106 543

Total . . . . . . . . . . . . . . . . . . . . . 890 110 400 1,400

SOURCE: Office of Technology Assessment, 1991, based on data from

U.S. Department of Energy, Energy Information Administration,

Annual Energy Review 1989, DOE/ElA-0384(89) (Washington,

DC: U.S. Government Printing Office, May 1990), table 62. The

total consumption was prorated among the sectors and type of

fuel based on estimates in U.S. Department of Energy, Energy

Information Administration, Estimates of Short-term Petroleum

Fuel Switching Capability, DOE/EIA-0526 (Washington, DC:

U.S. Government Printing Office, May 1989).

Although natural gas and electricity were the predominant heating fuels in new residential units in the

1980s,8 the number of households burning oil products for heat increased from 15.8 million in 1981 to

16.4 million in 1987.9 Most of the increase came in

homes using kerosene or LPG. Over the same period,

the number of households using distillate oil for

heating declined from about 11.3 million in 1981 to

10.9 million. Between 1984 and 1987, over 600,000

homes changed from oil to gas heat.l0

The United States has over 4 million commercial

buildings, with a total floor area in excess of 56 billion

square feet.11 About 500,000 commercial buildings

use fuel oil or kerosene as their main heat source, and

some 250,000 use LPG.12 Oil-heated commercial

floorspace totals 8.7 billion square feet. Table 3-9

shows selected characteristics of commercial buildings heated by oil or LPG. Figure 3-2 shows commercial energy consumption by fuel and region.

Oil Replacement Options

The primary strategies for reducing oil use in the

residential and commercial sectors are fuel switching

and energy-efficiency measures. Most savings are

Table 3-8-Estimated Oil Replacement Potential in

the Residential and Commercial Sectors

(thousand barrels per day)

Option Residential Commercial Total

Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...318 160 478*

Electricity . . . . . . . . . . . . . . . . . . . . .................407 — 407b

Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 62 62’

Renewable fuels and

efficiency improvements . . . . . . . . . . — — 45d

. .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 725 222 992

aconsists of 440,000 barrels per day (B/D) of distillate oil/kerosene and

bConsists of 215,000B/D distillate oil/kerosene and 192,000 B/D of LPG.

cConsists of 39,000 B/D of residual oil, 16,000 B/D of LPG and 7,000 B/D of

distillate oil/kerosene.

dTotals about 45,000 B/D savings in distillate, residual oil, kerosene, and

LPG across both sectors (1 2,000 B/D from woodstoves and fireplaces and

33,000 B/D from various efficiency measures).

SOURCE: Office of Technology Assessment, 1991, based on Renova

Engineering, P. C., “Oil Replacement Analysis-Evaluation of

Technologies,” OTA contractor report, February 1991.

Figure 3-l—Residential Space Heating

by Region and Main Heating Source, 1987

Millions of residential units

30 I 1

Northeast Midwest

m Natural gas

_ Fuel oil

South West

= Electricity

= LPG

SOURCE: Office of Technology Assessment, 1991, based on data from

U.S. Department of Energy, Energy Information Administration,

Housing Characteristics 1987, Residential Energy Consumption Survey, DOE/EIA-0314(87) (Washington, DC: U.S.

Government Printing Office, May 1989).

8~e.imn GaS AsSOclatlOn, GUS Fucfs—ISJgg Data, tables 11-5 and 11-6.

9u.s. Depafiment of Energy, Energy Information Administration, Housing Characteristics 1987, DOE/EIA-0314(87) (Washington, DC: U.S.

Government Printing Office, May 1989), table ES-1, page viii. Hereinafter referred to as Housing Characteristics 1987.

1°Ibid., p. 12.

llAnnual EnerO Review 1989, supra note 6, table 28, P. 63.

12A total of 534,)00 buildings repo~ed ~ing oil, but not al] of these me it for spa~ hating. Another 344,m commercial buildings reported USe Of

LPG, but only 250,000 used it for space heating. CommercialBuildings Consumption andExpenditures 1986, supra note 7, tables 16 and 34.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 53

Table 3-7—Energy Use in the Residential Sector by Region, 1987

Northeast Midwest South West Total U.S.

Residential space heating by region (millions of units)

Main heating source

Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1 16.5

Electricity ........ #.........,,...... o.,......, . . . . . . 2.1 1.4

Distillates & kerosene . . . . . . . . . . . . . . . . . . . . . . . 8.1 1.5

Liqufied petroleum gases . . . . . . . . . . . . . . . . . — 1.3

Wood . . . . . . . . . . . . . . . . . ...,,,........0.6 1.3

Residential fuel consumption by region (quadrillion Btus)

Major fuels

Natural gas ~~..~..titi.ti. .......,..... 1,03 1.83

Electricity~-.._.._......~. .,..,,.......0.44 0.61

Distillates&kerosene ,.,.....,.,,...........0.87 0.16

Liquefied petroleum gases ,,,,...,,,....O.O2 0.13

Total.~.~..~~..~~~~~~~~ .......2.37 2.73

Wood (million cords) . . . . . . . . . . . . . . . . . . . . . . . .8.3 12.5

13,5

10.6

2.3

2.1

1.9

1,09

1.22

0.17

0.12

2,61

13.2

11.8

3.8

0.3

0,5

1.3

0.88

0.48

0.02

0.05

1.42

8.6

49.9

17.9

12.2

3.9

5.1

4.83

2.76

1.22

0,32

9.13

42,6

SOURCES: Office of Technology Assessment 1991, based on data from U.S. Department of Energy, Energy

Information Administration, Housing Characteristics 1987: Residentia/Energy Consumption Survey,

DOE/ElA-0314(87) (Washington, DC: U.S. Government Printing Office, May 1969); and U.S. Department of Energy, Energy Information Administration, Household Energy Consumption and Expenditures

1987, Part 2 Regional Data, DOE/EIA-0321 (87)/2 (Washington, DC: U.S. Government Printing Office,

January 1990).

actually a combination of the two, since replacement

equipment is often more energy-efficient than the old

oil-burning units. We estimate that conversion to

natural gas, electricity, and coal would reduce oil

consumption from 1.4 MMB/D to 453,000 B/I) in 5

years--l32,000 B/I) in residential units and 321,000

B/D) in commercial buildings. This consumption could

be further reduced by at least 45,000 B/I) by using

renewable fuels and intensifying the use of efficiency

improvement measures.

Natural Gas

OTA estimates that switching to natural gas in

residential and commercial buildings could displace

about 478,000 B/D in residential (318,000 B/D) and

commercial (160,000 B/D) buildings over 5 years.

Many oil-heated residential and commercial buildings are already connected to natural gas lines or

located in areas served by gas distribution networks.

These buildings would be prime candidates for conversion to natural gas-fired systems.

About 3.3 million households that use distillate oil

and kerosene as their main heating fuel are connected

to natural gas lines, as are 0.5 million units that use

Figure 3-2-Commercial Buildings Space Heating

by Fuel and Region, 1986

1.5

‘~

1.0

I

—

w Northeast Midwest South West

Region

m Electricity m Propane - Fuel oil

SOURCE: Office of Technology Assessment, 1991, from data in U.S.

Department of Energy, Energy Information Administration, Nonresidential Buildings Energy Consumption Survey:

Characteristics of Commercial Buildings Consumption 1986,

DOE/ElA-0246(86) (Washington, DC: US. Government Printing Office, September 1988), table 36.
54 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Table 3-8-Characteristics of Households Heated by Oil and LPG

(millions of units)

Housing units Northeast Midwest South West Total U.S.

Oil as main heating fuel

Total households . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Single family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3

Mobile home . . . . . . . . . . . . ............. NA

Multi-family ,,,O. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,3

Ownership

Owner-occupied ...............................5.0

Rental ~.=HMti.H.HmHvtiti.H.HwtitiuuH 3.0

Location

Urban !O,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8

Suburban . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4,3

Rural . . . . . . . . . . . ..,.00. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0

Units with secondary heat ....................2.4

Hot water heating fuel

Oil .Mo.uu.um..ti..uHtiHiH.H... ...5.0

Natural gas .,,,..!.... . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2

Electric motititimuuuu.wti.~~uutitimuul 1.6

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .0.2

0.02

0.02

NA

NA

12.2

7.8

0.8

3.5

8.2

4.0

3.7

5.7

2.8

5.0

5.2

1.5

5.1

0.4

4,1

2.9

1.2

NA

3.4

0,7

0.3

1.5

2,3

2,3

NA

NA

2.2

1.9

1.5

1.4

NA

NA

1.3

0.2

1.6

0.7

0.02

NA

0.3

0.7

0.6

0.8

0.5

0.6

1.2

1.5

NA

NA

NA

0.02

NA

NA

1.3

NA

NA

NA

1.9

NA

NA

NA

0.02

NA

LPG as main heating fuel

Total households .................................0.5

Single family.~.....~~..~. ...,......NA

Mobile home .....ti . . . . . . ............. NA

Multi-family .u..o..wu..u..uiNA.u.NA

Ownership

Owner-occupied . . . . . . . . ........... NA

Rental~~...-~...~..ti...~ .....,.....NA

Location

Urban . . . . . . . . . . . . . . . . . . . . . . . .NA

Suburban .ti.....ti . . . . . . .............. NA

Rural _.~~titi.tititi_~qti_ti=~. .............NA

Units with secondary heat ....................O.5

Hot water fuel

Oil.n..m..uu.........u.. ...........NA

Gas ..ti. . . . . . . . . . . . . . . . . .......,.... NA

Electricity .~..~........~.. ...........NA

Other . . . . . . . . . . . . . . . . . . . .........NA

1.3

1.0

NA

0.3

2.1

1.4

NA

1.7

1.1

0,2

1,7

0.5

NA

0.4

0,9

0,7

NA

0.3

0.3

0.4

0.3

0.8

1.0

1,1

NA

NA

0.5

0,8

NA

NA

1.4

0.7

NA

NA

0.2

0.4

NOTE: NA = not available, data not reported.

SOURCE: Office of Technology Assessment 1991, from data in U.S. Department of Energy, Energy Information

Administration, Household Energy Consumption and Expenditures 1987 Part 2: Regional Data, DOE/

ElA-0321(87)/2 (Washington, DC: U.S. Government Printing Office, January 1990).

LPG.l3 Assuming that adequate natural gas supplies

were available, it might be economically feasible in

an oil shortfall to install the required network of small

distribution lines in urban and suburban areas to

connect many of the oil burning residential units

without access to natural gas.14

We estimate that it would be feasible to convert

about 6.5 million oil or LPG-heated residences to

natural gas in an emergency. Switching the 3.3 million units already with gas service and connecting

about 2.7 million new residential gas customers would

replace about 280,000B/D of distillate oil and kerosene. Converting a1l 0.5million LPG users with gas

service would save an additiona1 38,000 B/D.

Sixty percent of commercial buildings using fuel

oil, and nearly three-quarters of the floor space, are

concentrated in metropolitan areas, where it isgenerally easier to add gas service.15 Of the half million

commercial buildings that use distillate, kerosene, or

residual oil, 10 percent, or about 0.05 million buildls~ousingcharacfer~ytics 1987, supranote9, table21, p.61. U.S. DepartmentofEnergy, EnergyInformationAdtinistration,Estimateso~Short-Term

PetroleumFue/SwitchingCapulili~, DOE/EIA-0526(Washington, DC: U.S. Governmen tPrintingOffice, May 1989) table 10, p.22.

14Gibbs &Hill, Inc., “OilReplacemenl Analysis, Phase I-Selection ofTechnologicsJ’ OTA contractor report, April 1983.

~sC-ommerciu] Bui/{lings Consulnption und Expenditures 1986, supra note 7, table 34, p. 18~.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 55

Table 3-9-Characteristics of Commercial Buildings

Heated by Oil or Propane From 1986 Nonresidential

Buildings Energy Consumption Survey

Oil Propane

Buildings Million Buildings Million

(000s) sq. ft. (000s) sq. ft.

All buildings reporting use .....542

Buildings heated by

oil or propane . . . . . . . . . . . . . . . . . . . . . 513

Location

Northeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252

Midwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

South . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........131

West . t i

. .H. . .u. .ti 30-.. .t i3 0

Building floorspace

(000 sq. ft.)

1-5 .-..-..--..-..--0.-.;.24 1

5-lo vuoHutiu.oM.=tiuo.timtiH .135

10-25 -~.ti~o..uo.qo..q .69

25-50 .ti-.u..utti.uu..uu..m .38

50-100 .....1 6

100-200 .H..V..UU..U..UU. ...7

over 200 . . . . . . . . . . . . . . . . . . . . . . . . .............7

Building activity

Assembly .~..fi..ti~ . . . . . . . .71

Education . . . . . . . . . . . . . . . ........32

Food sales . . . . . . . . . . . . . ...,NA

Food service . . . . . . . . . . . . ...,..NA

Health care . . . . . . . . . . . . . ......9

Lodging -~._~..~~..~..~. ..,.15

Mercantile/service .,....,,....,..,,206

Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Public order & safety ,............. NA

Warehouse . . . . . . . . . . . . . ....49

Other. . . . . . . . . . . . . . . . . . . .,18

Vacant ....ti.............. NA

Buildings heated primarily

by oil or propane ................434

11,163

8,846

4,515

1,426

2,140

765

688

988

1,101

1,368

1,057

1,055

2,587

1,387

1,675

NA

NA

737

402

1,819

918

NA

1,119

302

NA

6,642

351

252

25

81

120

NA

179

41

21

NA

NA

NA

NA

66

NA

NA

NA

NA

NA

NA

NA

24

NA

NA

215

3,362

1,832

331

411

929

NA

488

299

345

NA

NA

NA

NA

456

NA

NA

NA

NA

NA

454

NA

NA

315

NA

NA

1,246

NOTE: NA= not available because of insufficient data.

SOURCE: Office of Technology Assessmen, 1991, based on data in U.S.

Department of Energy, Energy lnformation Administration, Commercial Buildings Energy Consumption Survey: Commercial

Buildings Characteristics 1986, DOE/EIA-0246(86) (Washington, DC: U.S. Government Printing Office, September 1988),

tables 33, 34, 35, 36, and 37.

ings, are already connected to natural gas lines.l6

Converting half of these buildings, including those

with dual-fuel capacity, and adding 200,000 new

commercial natural gas customers would replace an

estimated 160,000 B/D. Some of these conversions

might entail installing cogeneration systems to provide hot water, space conditioning, and electric power

with any excess power sold to a local utility.17 Most

commercial buildings using propane are inruralareas

or do not have access to natural gas distribution

networks and would, therefore, not be the most likely

candidates for conversion.l8

The 478,000 B/D in natural gas replacement potential for 1989 in the sesectors is slightly more than the

440,000 B/D in natural gas replacement potential

estimated in our 1984 report, but involves a smaller

number of units.

l9 This translates into an increased

demand for natural gas of about 0.96 trillion cubic

feet (TCF).

Electricity

In a crisis, electric heat pumps and portable and

fixed baseboard electric resistance heaters could replace the use of oil for comfort heating. Also, electric

hot water heaters could replace oil-fired hot water

heaters. The principal candidates for conversion to

electricity would be some 9 million residential units

that cannot be converted economically to naturalgas

because of the lack of a gas supply infrastructure.20

These include 5.4 million units using distillate oil or

kerosene and 3.6 million units using LPG. Converting three-quarters of these homes, a total of about 6.75

million units, to electricity could replace about 4O7,OOO

B/D of oil over a 5-year period. This changeover

would increase the number of electrically heated

homes significantly (i.e., by about one-third).21

IGU.S. DePa~ment ~fEnergy, Energy ]nforma[ion Administration, Esdmutes ofShort-Term Petroleum FuelSwitching CapabifiO, DOE/EIA-0526

(Washington,DC:U.S.Government PrintingOffice,May1989)(HereinafterShort-Term PetroleumFuelSwitching)table12,p. 26. AccordingtoDOE,

thesebuildings account for halfofall oil-heated commercial floorspace, but theiroil consumption in1983 wasonly 17,000 bbls/day,soitis unclearhow

much oil their conversion will actually displace.

ITMore than 600” Cogeneratlon systems have been installed in commercial facilities through 1987. The commercial sedor, In general, has a large

untapped cogeneration potential of 40,000 MW, according to an analysis by Oak Ridge National Laboratory, Energy Technology R&D: What CouldMake

a Difference? Volume 2, Part 1 of3, End-Use Technology, ORNL-6541/V2/?l, December 1989, p. 50.

lgCommercialBui[<!ing~ Consumption and Expenditures 1986, supra note 7, table 18, PP. ‘~-91.

l[)The 1984 repofi ~stlmated that 80 percent of urban hoU\eholds, 7 million units, and 80 percent of commercial buildings could be converted to natural

gm, OTA, The Oil Replacement Capability, supra note 1.

20~ousing C’haracteris[ics 1987, supra note 9, table *1! P. 61.

‘21 E1ectricheat was used by about 20percentof homfi and 30percento fcommercia1 buildings in 1987, According to I-J.S. Department of Energy (DOE)

survey data, 17.9 million residences were electrically heated. Housing Characteristics 2987, supra note 9, footnote 9, p. 12. Over 90 percent of the

electrically heated homtis were located in areas without access to natural gas. By 1987, about half of all new homes used electric heat, often in the form

of a heat pump that could be uwd for both heating and cooling. Almost 1.2 million commercial buildings used electric heat, about 60 percent of these

in the South.
56 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

About 2.5 million of these oil to electric conversions would be in households using LPG. Many of

these buildings are located in rural areas, and some

could require upgrading of service and improvements

to the local electric transmission and distribution

systems to accommodate the increased load.22

Although electric space and water heating is common in commercial buildings, we have generally not

assumed any large-scale replacement of oil heat with

electricity in commercial buildings because for many

it would not be the least expensive option. However,

in a crisis, many small commercial buildings that use

propane could opt for electric heat.

A share of these oil to electric conversions would

occur in colder regions, where electric heat pumps

alone could not maintain comfort in extreme cold.

Below 20 to 30o

F, electric resistance heat is more

effective, and heat pumps are often equipped with

resistance heat for low-temperature operation. If onethird of the heat pump conversions had to operate on

electric resistance heating at the same time, it would

increase the winter peak load in these regions by as

much as 11,000 megawatts (MW).23 Although capacity seems ample to absorb such an increase, some

local systems may find capacity margins strained.24

There is, however, as we noted in our 1984 report, a

sticky technical issue of whether replacing oil heat

with heat pumps in some very cold areas would

effectively displace oil, especially if utilities must

burn oil to generate the electricity.

Electric heat pumps typically have efficiencies

(heat delivered to the inside air divided by the energy

used to run the device) of over 100 percent, and some

as high as 200 percent.25 In contrast, oil heat has an

efficiency of about 65 percent. This means that an

efficient heat pump requires about one-third as much

energy (in the form of electricity) as an oil furnace

requires (in the form of oil) to deliver the same

amount of heat. This makes the heat pump an attractive alternative for replacing oil, but only if the

electricity is not generated from oil. If, however, the

electricity is generated with oil, for which the efficiency of converting fuel to electricity is about 32

percent, this potential oil replacement is lost, since it

would require at least as much oil to produce the

electricity as would be saved by the heat pump.

Consequently, in terms of oil replacement, heat pumps

are attractive only where marginal electricity is generated from fuels other than oil.26

The Northeast is among the regions where some oil

use for electric generation is most likely to continue

after an oil shortfall. That region’s cold winters reduce the efficiency of the heat pumps creating the

possibility that burning oil to produce electricity for

heat pumps could lead to a net increase in oil consumption; and it would be, at best, a questionable

strategy to promote heat pumps as a means of displacing oil there.

27 Nonoil generating capacity additions

in the Northeast region since 1984 have somewhat

improved the potential for using electric heat to

backout oil for some residential users.

Recent advances have made heat pump technology

more energy-efficient, economical, and practical for

commercial and residential installations in colder

climates. 28 A dual-fuel, electric-gas heat pump jointly

developed by the Lenox Corp. and the Electric Power

Research Institute (EPRI) heats with natural gas in

extreme weather conditions.29 Electronic controls

monitor the unit and switch to the most economical

220TA, The Oil Replacement Capability, supra note 1.

=Renova Engineering, P. C., suPra note 4“

24plmn~ winter ~apaclty resouus in the Northeast and Mid-Atlantic state.. in 1995 are projected to exced the proJected winter peak demand ‘

ith

projected capacity margins of 26.9 pereent in the Northeast Power Coordinating Council (NPCC)regionand 30.2 percent in the Mid-AtlanticArea Council.

North Ameriean Electric Reliability Council, 1990 Electrici~ Supply & Demand for 1990-1999 (Princeton, NJ: North American Electric Reliability

Council, Deeember 19[90). With intensified deployment of electric heat pumps, the capacity margins could be squeezed. A detailed study is necessary

to evaluate the regional breakdown of this decline in margin and its potential impact on the capacity needs and reliability of local electric utilitiw.

2SHMt pumps equipped with resistance heat and/or air-conditioning capability generally have somewhat lower efficiencies.

~OTA, Oil Replacement Capability, Supra note 1, pp. 60-61.

ZTOTA The Oil Replacement Capability, supra note 1, pp. 59-60.

mElect~c power R=tirch Institute (EpR1) and ~rrler Corp. have jointly develop~ an advanced unitary hat pump that features variable speed

compressor, variable speed indoor fan, single speed outdoor fan, and integrated water heating. Two and three ton units are commercially available. A.

Lannu.., “Residential Program: Current Research Projects,” Electric Power Research Institute, January 19{90.

~Mofion B1att, E1=tric power Research Institute, pemonal communication to Renova Engineering, p.c., OTA @ntractor, Oct. 12! 1990; and “H~t

Pumps: Developing the Dual-Fuel Option,” EPRIJournal, December 1990, pp. 23-27.
Chapter 3 - U.S. Technical Potential for Replacing Imported Oil ● 57

fuel for prevailing temperatures. The units are targeted to replace existing gas furnace-electric cooling

combination systems common in commercial buildings, but would be suitable for replacing oil units. The

heat pump is commercially available in the 7.5- to 10-

ton range, which is appropriate for commercial buildings of 2,000 to 4,000 square feet, including many

stores, restaurants, and small office buildings. Initial

commercial installations have resulted in savings of

up to 41 percent on monthly utility bills. This combination could make conversion from oil togas electric

systems an attractive alternative for commercial buildings, but we have not included such conversions in

our oil savings. The most likely candidates are already in the target population for oil to gas switching

in the commercial sector.

Coal

The large commercial buildings that are not converted to natural gas could be candidates for conversion to coal or coal slurry fuel (CSF), a coal-water

mixture that contains up to 70 percent finely ground

coal and can be pumped, transported, and stored

much like heavy oil. Because of their energy intensity

and large size, hospitals, nursing homes, educational

institutions, hotels, and motels provide the most promising opportunities for installing coal-based cogeneration systems to provide heat, hot water, and electric power.30 A number of such facilities have already

installed coal-fired cogeneration systems to replace

oil. 31

The potential candidates for coal-based systems

can be divided in three groups:32

● Group 1—100,000 buildings with large boiler

systems that currently use 110,000 B/D) of resid.

● Group 11—300,000 buildings mostly in rural

areas that currently use 106,000 B/I) LPG.

● Group III-200,000 other commercial buildings

that use 160,000 B/I) of distillate oil and kerosene.

Converting to coal is not a small task and the decision

would be determined by individual site characteristics. The site must be able to accommodate fuel

storage, handling, and waste storage or disposal facilities, in addition to the actual boilers, generators,

and pollution-control equipment. Group I buildings

offer the best potential for coal conversion.

OTA has assumed conversion rates of 35,15, and 5

percent for Groups I, II, and III respectively. Thus,

conversion of 88,000 commercial buildings to burn

coal could replace about 62,000 B/D of oil.

Renewable Energy Sources

Increased use of wood as a primary or secondary

heating source could provide a handy short-term

means of cutting residential oil use in some areas.33

The number of U.S. households that use wood as a

primary heating fuel has declined from 6.5 million in

1984 to 5.1 million in 1987.34 Over 19 million households have woodburning stoves or fireplaces as a

secondary heat source, including 3.7 million homes

primarily heated by oil or LPG.35 If 250,000 households converted to wood in a crisis, it would save

about 12,000 B/D.

About half of oil heated homes use oil for water

heating as well. Some of these homes maybe appropriate candidates for solar water heating. Solar hot

water heaters could replace, on average, about 300

gallons per year of oil per household.36 The relatively

high cost of solar equipment and limited insolation

may limit the use of solar energy in colder regions,

however. 37

30A. John Rezalyn et al., “site Specific Gal Energy System Assessments,” paper presented at Coal-Targets of OpPo~unitY WorkshoP> “s”

Department of Energy, July 12-13, 1988, Washington, DC.

slFor example, ficronlz~ ~al ~generation p]ants have been installed at Missouri and Ohio hospital complexes. Micronized ~al is pulverized to

a fineness of 15 to 20 microns, more than 10 times finer than conventional pulverized coal and its burning characteristics are similar to oil or gas making

it an attractive option for rnodificatiom of existing plants. Tom Elliott, “Latest Micronized Coal Mills Consume Less Energy, Cost Less,” Power, July

1990, pp. 39,42-44.

szRenova Engin~ring, P. C., supra note 23, P. 39.

330TA, The Oil Replacement Capabiliy, supra note 1.

%Hou~ing characteristics 1987, supra note 9, table ES-1, P. ‘iii.

3SHousing Characteristics 1987, supra note 9, table 21.

%Michael Wlnenp, ~~A Gulf Question: Don>t You Wish You Had ~lar?” The ~e~ York Times, Tuesday, sept. 25, 19{90.

37use Of Solar hating t. rep]aceoil use in~lrwtly might be an attmctlve Option in aras of the Southmst, such as Florida, ~ a means Of redllCing demand

for oil-fired electricity.
58 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Efficiency Measures

Our 1984 report estimated that residential and

commercial oil use could be reduced on average by

25 percent per unit through a combination of weatherization and burner efficiency upgrades.38 The

residential sector is highly flexible in its ability to

conserve energy and to respond to fuel price changes.39

A significant number of households have already

adopted one or more conservation measures in response to earlier oil supply crises, but some incremental efficiency savings likely remain.40

Replacing inefficient oil burners with more efficient ones can reduce oil consumption by as much as

25 percent. 41 Old oil burners typically have conversion efficiencies of 65 percent, at best. Newer burners

can achieve efficiencies of 85 percent or more. For

example, in one study in Michigan, retrofitting oil

furnaces with flame retention burners, which improve oil and air mixing and thus burn fuel more

completely than do conventional burners, yielded

average fuel savings of 25 percent at installation costs

of $570 per unit, or $0.27 per gallon of oil saved.42

Insulating hot water tanks and pipes and improving

the efficiency of the area heated by adding ceiling and

wall insulation, storm windows, caulking, and

weatherstripping can also have paybacks in reduced

oil consumption and lower energy costs.

The commercial sector could adopt similar options

to reduce oil use. For example, almost two-thirds of

commercial oil users surveyed by DOE reported

adoption of building energy conservation measures.43

Most cited preventive maintenance, ceiling and wall

insulation, and weatherstripping and caulking, but

the data did not indicate whether these measured had

captured all of the potential energy savings available.

Few respondents had adopted more sophisticated

measures such as time clock thermostats, waste heat

recovery, or energy management control systems.

More than 85 percent of these buildings had never had

an energy audit.

It is likely that there remains incremental energy

conservation potential in the commercial sector as

well. Improved operations and maintenance practices

could optimize steam or hot water generation efficiency, reduce thermal losses in distribution piping,

and improve system controls for conserving thermal

energy.

OTA’s earlier analysis found that replacing or

retrofitting commercial equipment with more efficient burners also offers average fuel savings of 20 to 44 Using oil-water emulsion fuels 25 percent per unit.

in residual oil-fired boilers can reduce oil consumption by 5 to 10 percent.45

We estimate that use of various energy conservation and efficiency improvements in existing equipment and buildings could save about 33,000 B/D

additionally.

Deployment Considerations

Table 3-6 summarizes the breakdown of the estimated 1 MMB/D of oil that could be replaced in the

residential and commercial sectors by the various

options assessed above. The major concerns in meeting these oil replacement estimates involve: 1) the

adequacy of the manufacturing and installation capability for new or retrofitted equipment, and 2) the

availability of substitute energy resources—namely,

natural gas and electricity. Neither of these concerns

are expected to be constraints in achieving oil replacement targets if aggressive private and government efforts are made.

~OT’A, The Oil Replacement Capahi/i~, supra note 1, p. 104.

39u.s. D~pafirn~nt of Energy, “En~rgy Conservation Tren&(Jn~~rstan~ing the Factors that AfYect Conservation Gains in the U.S. Economy,” DOE/

PE-0092, September, 1989. and U.S. Department of Energy, National Energy Strategy, Interim Report, a Compilation of Public Comments, DOE/SOO66P, April 1990.

40~ou,Ying characteri~tic~ 1987, ~upra note 9, table ~~ shows installation of various weatherization measures in housing units and indicates there still

are units in cold climates without, for example, storm doors and windows, or adequate insulation in ceilings, walls, and floors.

ql~oma~ J. Lueck, “Taking a New Look at Energy saving,” The New York Times, Sunday, Sept. 16, 1990.

Azsam @hen, “Measured Savings: Fifty Million Retrofits Later,” Home Energy, May/June 19{90, pp. 11-16, at P. 16.

dJCommercial Buil{lings Consumpticjn and Expenditures 1986, supra note 7, table 34.

440TA, The Oil Replacement Capability, supra note 1.

45John Dooher, Adelphl Unlverslty, personal ~munl~tlonto Renova Englneefing, PC,, oTAcontr~ctor, Oct.s, 1990and lnfomatlon received frOm

Petrofirm, Inc.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 59

Conversions to natural gas would involve 6.75

million residential and commercial units over 5 years.

In 1988 manufacturers shipped 2.3 million gas-fired

warm air furnaces and boilers.46 The Gas Research

Institute (GRI) has projected that gas-fired replacement systems will range between 2 and 2.8 million

units per year between 1988 and 2010.47 At this level,

manufacturing capacity for replacement boilers is not

expected to be a constraint.48

The manufacturing capacity for oil-to-gas conversion burners has declined by about 50 percent comr pared with the peak period of 1979-81.9 Residential

gas heating conversions peaked in 1980 at 583,000,

of which 85 percent were oil-to-gas conversions.50 In

recent years, the annual conversions to natural gas

have settled at 150,000 to 200,000, with an increasing

share of conversions from electricity y to natural gas.51

Assuming a 70-percent capacity utilization in 1980,

the current manufacturing capacity for oil-to-gas conversion burners is thus estimated to be only 350,000

units per year. This major constraint could be overcome by shifting some of the new burner manufacturing capacity to the production of conversion burners

during a crisis.

We have assumed, that based on our earlier analysis, there will not be any major manufacturing constraints in converting to electricity .52

Small, modular, pulverized, or micronized coalfired cogenerating units can be designed, manufactured, and installed in 14 months, on average.53 Conversion to CSF will take 2 to 3 years because of the

need to erect CSF plants and obtain the necessary

environmental permits relatively smoothly over a

permitting process of 12 to 18 months.54

Natural gas availability and electric generation

capability considerations are addressed more fully

later in this chapter. While some natural gas and

Table 3-1 O-Deployment Schedule for Oil

Replacement Technologies in the Residential and

Commercial Sectors (thousand barrels per day)

Fuel switching option

Efficiency/

Year GasaElect.a Coa l

b renew.c Tota l

1991 . . . . . . . . . . . . . . . . . 96 81 0 15 192

1992 . . . . . . . . . . . . . . . . . 191 163 0 30 384

1993 . . . . . . . . . . . . . . . . . 287 244 0 45 576

1994 . . . . . . . . . . . . . . . . . 382 326 31 45 784

1995 . . . . . . . . . . . . . . . . . 478 407 62 45 992

aAssumes Uniform deployment over 5 Years.

bAssumes oil replacement in the last 2 years.

cAssumes uniform deployment in the first 3 years.

SOURCE: Office of Technology Assessment, 1991, based on Renova

Engineering, P. C., “Oil Replacement Analysis-Evaluation of

Technologies,” OTA contractor report, February 1991.

electricity supply constraints are possible in the Northeast and Mid-Atlantic States that might limit fuel

switching, we believe that these are not insurmountable. The potential constraints on natural gas conversions may in fact be less than they were in our 1984

analysis because of more abundant supplies of natural

gas and planned new pipeline capacity.

Without these constraints, the conversion to natural

gas and electricity could occur uniformly over the

assumed 5-year period. The use of renewable fuels

and efficiency improvement measures are expected

to show results early in the first 3 years. Coal replacements of oil would begin only in the last 2 years. A

deployment schedule based on such a scenario is

shown in table 3-10.

The estimated investment costs for the various oil

replacement options are shown in table 3-11. The

table shows the range in cost in thousands of dollars

per barrel of oil per day replaced for technologies

considered. If all the identified residential and commercial oil replacement technologies were deployed,

we estimate the total cost to be about $97 billion. The

46~erican Gas ~~soclation, G’as Facts—1988 Data, table 11-*.

q7G&s Research Institute, “19~90-1994 Research and Development Plan and 19{90 Research and Development program,” 1989.

~Messrs Eisenbeis and Newton, Burnham America, Inc., personal communication to Renova Engineering, P. C., OTA contractor, Oct. ~, 1990. Ed

Anderson, Brooklyn Union Gas Co., personal communication to Renova Engineering, P. C., OTA contractor, Oct. 4, 1990.

q~erry Adams, Adams Manufacturing, Inc., personal communication to Renova Engineering, P. C., OTA ~ntractor, Oct. ~, 1990.

s~herican Gas ~~s(lclatlon, ‘<me outlook for Gas Energy Demand: 1990-2010,” May 19{90

511bid.

SZOTA, TIIC oil )lqduc(.ment Capal>ility, supra note 1.

SsElliolt,supra note 31.

SqEd McHale Atlantlc Re\earch Coq., pem(3na1 Comunlcatlonto Renova Englneerlng , OTAcontractor, Sept. 19, 19(90. Clay Smith, Otisca Indu.stries,

Inc., personal c~mmunication to Renova Engineering, OTA contractor, Oct. 3, 1990.

292-892 - 91 - 3 : QL3
60 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Table 3-1 l—Estimated Investment Costs for Oil Replacement Technologies in the

Residential and Commercial Sectors

(approximate investment cost in thousand 1990 dollars per barrel per day of oil replaced)

Option $000 per B/D replaced Remarks a

Minimum Maximum

Natural gas . . . . . . . . . . . . . . . . . . . . . . . 25 38 Minimum-conversion of homes at $800 for

a 160,000 Btu/hr burner.

Maximum--conversion of commercial

buildings at $25,000 for a 25 MM Btu/hr

b burner.

Minimum-replacement boiler for homes at

$2,000 for a 160,000 Btu/hr unit.

Maximum-new boiler for commercial

buildings at $75,000 for a 25 MM Btu/hr

unit.

47 111

Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . 28 113 Electric resistance heat at $500 for

heaters plus hot water heater at $1,000

per household.c

Electric heat pumps at $5,000 plus hot

water heater at $1,000 per household.

Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445 667 Assumes CSF-fired boiler cost at four to six

times that of a gas-fired boiler in

commercial buildings.d

Renewable fuels ............... 147 179 Minimum—1 O% oil savings in a commercial

& efficiency building with a $10,000 Energy

improvements Management System.e

Maximum-in a household, 300 gaI./yr

saving from a solar hot water heater

at $3,500.

KEY: CSF . coal slurry fuel

aFuel use estimated at 0.053 B/D) per residence and 0.679 B/D per commercial building.

bconversion burner and replacement boiler costs from Eisenbeis and Newton, Burnham America, Inc., Personal

communication to Renova Engineering, P. C., Oct. 4, 1990. Terry Adams, Adams Manufacturing, Inc., personal

communication to Renova Engineering, P. C., Oct. 3, 1990. Assumes $500 for piping changes in all cases.

ccmt d~a ~om Gibbs & Hill, Inc., ’’Oil Replacement Analysis, Phase I+election of Technologies,” OTA contractor

report, April 1983.

dcmt ~ a 25 MM Bt~hr gas-fired boiler at $75,000, Eisenbeis and Newton, Burnham America Inc., Personal

communication to Renova Engineering, P. C., Oct. 4, 1990, plus $500 for piping changes.

esolar hot water heater data from Michael Winerip, “A Gulf Question: Don’t YOU Wish YOU Had solar?” me New York

Times, Sept. 25, 1990.

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement Analysis—

Evaluation of Technologies,” OTA contractor report, February 1991.

investment costs for individual technologies per B/I) 3-12). Use of distillates was relatively small: about

replaced range from $25,000 B/D replaced for con- 70,000 B/D of light oils or distillates (No. 2 fuel oil),

verting residential oil burners to natural gas to primarily for startup and flame stabilization in con-

$667,000 B/D replaced for installation of a (CSF ventional steam plants or as a backup fuel in combusboiler in a commercial building. tion turbines and combined-cycle plants. Oil-fired

generation of electricity represents less than 5 percent

ELECTRIC UTILITY SECTOR of U.S. oil consumption and only about 4 percent of

net generation. Utility oil use remains concentrated in

Electric utilities burned about 731,000 B/l) of pe- the Northeast and Mid-Atlantic States, California,

troleum products to generate electric power in 1989.55 Florida, and Hawaii as shown in figure 3-3. These

Heavy oils (mainly No. 6 residual fuel oil) accounted regions together accounted for about 95 percent of all

for most of this demand, or 661,000 B/D (see table utility oil consumption in 1989. Oil-fired generating

55Annuu/ Enere Review 1989, SUpr~ note 6, table 62, p. 139.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 61

Table 3-12—1989 Oil and Gas-Based Electric Generation and Fuel Consumption by Region

(summer generation capacity in 1,000 MWa)

Fuel used

Generation, Gas

Dual fuel billion kWh Oil million cubic

Federal region Oilb Coal/oilc Gas/oilc Gasb Oil Gas MB/Dal feet/daye

1

2

3

4

5

6

7

8

9

New England ,..........................7.0

New York/New Jersey .............8.0

Middle-Atlantic . . . . . . . . . . . . . . . . . . . . . . . . . 5.7

South-Atlantic . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8

Midwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1

Southwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0

Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,,.0.0

North Central . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0

West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............1.2

2.0

0.4

3.9

3.6

7.5

2.8

4,4

2.4

3.0

2.0 0.0

9.2 . 0.0

2.9 0.0

11.7 0.6

0.8 0.2

47.7 8,4

2.2 0.4

0.5 0.0

23.2 0.5

37.0

46.7

21.9

28.0

3.1

2.8

0.3

0.2

17.8

5.2

21,8

3.1

21.8

1.8

145.0

1.9

0.7

58.6

155

195

91

117

13

12

1

1

74

149

624

89

624

52

4,152

54

20

1,678

10 Northwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....0.1 0.0 0.0 0.0 0.5 4.9 2 140

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33.9 30.0 100.2 10,1 158,3 264.8 661 7,583

aUoS. @p~mentof E~rgy, Energy l~ormationAdmini@r~ion, fdontb/y Energy Review, April 199CI; DOE/EIA-035(90/04) W=hington, DC: U.S. Governrnent

Printing Office, July 1990).

bficludes units having dual fuel capability.

clncludes units that cannot burn either fuel COtltinuOuSiy.

dRWion~ ~i[.b=ed gewration estim~ed ~s~ on 1989 ~il~i= con~umption of 241.4 mi[lion barrels of hew oil. This amount w= prorated for each W@On

using oil-based generation reported in U.S. Department of Energy, Energy Information Administration, “Petroleum Fuel-Switching Capability in the Electric

Utility Industry,” E/ectric Power Month/y: June 1990, DOE/EIA-0226(90/06) (Washington, DC: U.S. Government Printing Office, September 1990).

eR~erence a indicates that in 1989 ~ilities consumed 2,768 billion cubic feet of n~ural g~ This amount w= prorated for each region using gas-based

generation reported.

KEY: MW = megawatt; kWh = kilowatt hour; MB/D . thousand barrels per day.

SOURCE: Office of Technology Assessment ,1991, from Renova Engineering, P. C., “Oil Replacement Analysis—Evaluation of Technologies,” OTA

contractor report, February 1991.

700

600

500

400

300

200

100

0

Figure 3-3-Generation of Electricity by Electric

Utilities by Region and Energy Source, 1989

Billions of MWh

Iiiiiil

ECAR ERCOT MAAC MAIN MAPP NPCC SERC SPP WSCC

NERC region

ES Coal = Nuclear _ Oil = Hydroelectric

n Natural m Other Non-utilit y

gas

SOURCE:

utility generators

(Office of Technology Assessment, 1991, from data in North

American Electric Reliability Council, 1990 Electricity Supply

and Demand for 1990-1999 (Princeton, NJ: North American

Electric Reliability Council, December 1990), app. B.

Figure 3-4-Electric Utility Generating Capacity by

Region and Energy Source, 1989

--- Thousands of summer MW

1 6 0

140

120

100

8 0

60

4 0

20

0 . ECAR ERCOT MAAC MAIN MAPP NPCC SERC SPP WSCC#

= Coal ~ Nuclear n Natural = Oil

O Oil or 0 H#r:;c C))~er ~ Non-utilit y

gas

SOURCE: Office of Technology Assessment, 1991, from data in North

American Electric Reliability Council, 1990 Electricity Supply

and Demand for 1990-1999 (Princeton, NJ: North American

Electric Reliability Council, December 1990), app. A.
62 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Table 3-13-Estimated Oil Replacement Potential in the Electric Utility Sector

(oil replacement potential–thousand barrels per day)

Fuel Switching Option

Demand

Federal region Gasa Nuclearb Renewables c Coald management

1 New England ,,,,,..,,,,,,,,,,,....,,, 9

2 New York/New Jersey . . . . . . . . . . . 35

3 Middle-Atlantic ......,.,,,,,,.,..,,.,, 4

4 South-Atlantic . . . . . . . . . . . . . . . . . . . . . . . . 14

5 Midwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

6 Southwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

7 Central . . . . . . . . . . . . . . . . . . . . . ..O

8 North Central .......~-..., O

9 West ....u..u......n...u 12

IO Northwest . . . . . . . . . . . . . ..0

22 I

o I

22 I

o I

o 95* 3(

o I

o I

o I

o I

o I

Subtotal . . . . . . . . . . . . . . . ..8 5 44 95* 36

Total (all sources) ...................599

I

I

I

I 360* 15*

I

I

I

I

I

)* 15*

NOTE: *oil savings not allocated by region.

aU.S. Department of Energy, Energy lnformation Administration, “Petroleum Fuel-Switching Capability in the Electric

Utility Industry,” Electric Power Monthly: June 1990, DOE/EIA-0226(90/06) (Washington, DC: U.S. Government

Printing Office, September IWO)

bExcludes the 809 MW Shoreham Unit in Region 2, if included, an additional 15,000 B/D could be displaced.

cBased on deploying 5,000 MW of renewable fuel-based nonutility generation (NUG) capaci~ in 5 Years.

dBased on a combination of four options --coal or CSF in coal/oil capable units, CSF in oil-only capable units, purchases

from coal-based NUG plants, and coal gasification combined cycle plants.

eBased on 4,000 MW from demand management programs.

capacity is less concentrated geographically. As

shown in figure 3-4, oil-based generating capacity

(including oil/gas dual-fuel units) constitutes a significant share of the resource base in all regions.

(Maps of Federal and NERC regions can be found in

the appendix.)

Oil Replacement Options

The largest potential for oil replacement in the

utility sector is for reducing the use of heavy oil,

which constitutes most of utility oil use. Light oil

consumption is not a significant factor, and most such

uses cannot be easily replaced.56

OTA estimates that it is technically feasible to

replace about 600,000 B/D, or over 80 percent of

utility oil use (90 percent of residual oil use), within

5 years by fuel switching in dual-fuel capable units or

by shifting generating loads to non-oil units. This

potential has remained constant since 1984 even as

non-oil generating capacity and fuel-switching capabilities have increased, because growing demand for

electricity and narrow capacity margins have made

reliance on oil-fired generation essential and the

lower cost of gas and other fuels relative to oil (except

for a brief period in 1986-87) have already induced

many utilities to burn gas or coal in dual-fuel units.

Replacing oil could be accomplished by using

existing equipment, completing planned capacity now

under construction, converting existing equipment to

other fuels, and installing new non-oil generating

capacity. 57 These efforts could be facilitated by and

additional savings could be gained through demandside efforts, but these savings are not broken out

separately in our estimates. Table 3-13 shows the

estimated oil replacement capability in the utility

sector in 1989.

We have included the oil replacement potential of

new nuclear power plants that came online in 1990 in

regions where there is heavy oil use. We also note the

planned addition of new utility and nonutility generating capacity in these regions in 1991-94, but since

these plants are not yet complete, we do not include

S6Nevetihel~s, there maybe some potential to reduce the use of light oil. For example, tests are underway in coal-fired steam Plants to evaluate ‘he

feasibility of using micronized coal in place of light oil for plant startup. Elliott, supra note 31. Similarly, utilities could switch to natural gas for firi’ng

turbines, wherever possible.

STElectriclty demand growth and Mpacity margi~ are key variables in the ability to shift oil-fired generation to other plants.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 63

them specifically in our totals. These capacity additions are, however, implicitly included in our estimates of oil replacement potential since they are part

of utility resource planning.

Natural Gas

Utilities can substitute natural gas for oil in three

ways: by burning natural gas in existing oil/gas, dualfuel units, by shifting load to existing gas-only units,

and by shifting to new gas-fired capacity either in

converted oil units or newly constructed gas units.

About 100,200 MW of existing capacity is classified as dual fuel-gas/oil capable units—and about

two-thirds of these units can burn gas continuously .58

According to DOE, electric utilities can thus replace

about 85,000 B/D of oil in less than 30 days by

increasing natural gas-based generation in these

units. 59 The fuel switching potential, however, is

highly dependent on the seasonal availability of natural gas, and thus ranges from an average of 54,000

B/D in the second quarter to an average of 117,000

B/D in the fourth quarter. This appears to be the

minimum potential that could be achieved almost

immediately on an annual average and would not

require any significant alterations of equipment.

Additional displacement of oil with new or retrofitted natural gas units within 5 years is also feasible,

The American Gas Association has estimated that

natural gas could replace approximately 50,000 B/D

of oil for power generation boilers in the very short

term and 300,000 B/D after 5 years.60 A Gas Research

Institute analysis estimates that natural gas could

displace 95,000 B/D of oil in electric power generation in the short term (2 years or less) and 280,000

B/D over the longer term (10 years) under somewhat

different supply disruption and policy scenarios.61

Because of uncertainties over the availability of addiFigure 3-5-Planned New Non-Oil Capacity Additions

in 1990 to 1995 in Oil Dependent NERC Regions

Thousands of summer MW

5 -

4 -

3 -

2 -

1-

n — w

90 91 92 93 94 95 96

_ MAA C = NPC C

m SERC - Florida = WSCC - Calif.

SOURCE: Office of Technology Assessment, 1991, from data in North

American Electric Reliability Council, 1990 Electricity Supply

and Demand for 1990-1999 (Princeton, NJ: North American

Electric Reliability Council, December 1990), app. D.

tional natural gas supplies in oil dependent regions,

OTA has not included a higher estimate of gas replacement potential. If gas supplies are available, we

expect that additions of new gas generating capability

will reduce the use of coal to replace oil.

Utilities and independent power producers (also

known as nonutility generators, or “NUGs”) have

announced plans to construct and operate new natural

gas-fired generating units. According to figures published by the North American Electric Reliability

Council (NERC), about 24,000 MW of gas-fired

generating units are planned to come on line in 1991

through 1999.62 See figure 3-5. It is not certain how

‘Jeffrey Jones, “Petroleum Fuel-Switching Capability in the Electric Utility Industry,” in U.S. Department of Energy, Energy Information

Administration, E/eco-icF’owerMonthly:.lune 1990, DOE/EIA-0226(90/06) (Wmhington, DC: U.S. Government Printing Office, September 1990), table

FE4, p. 4.

591bid., p. 2.

60~er1can Gas Association, “me Role of Natural Gas in Offsetting Oil, ” A.G.A. Planning &Analysis Group, Mar. 21, 1991, p. 9. Intemtate Natural

Gas Association of America, “Displacing Imported Oil With Natural Gas,” Issue Analysis, Report No. 91-1, Rate and Policy Analysis Department, May

1991.

Glpaul D. Holtberg and David (1. Webb, ‘The Potentia] for Natura] Gas To Displace Oil in Response to the Middle East Crisis and the 1rnplieations for

the GRI R&D Program,” Gas Research Insights, Gas Research Institute, Chicago, IL, November 1990. Natural gas offers substantial promise for utilities

in the 1990s; however, utility analysts believe that uncertainties over future natural gas prices and deliverability pose some financial and reliability risks

for utilities that must be addressed in resource planning. See Strategic Decisions Group, Natural Gas for Electric power Generation: Strategic Issues,

Risks, andOpportunities, EPRI P-6820 (Palo Alto, CA: Electric Power Research Institute, 1990); and Putnam, Hayes&Bartlett, Inc. and Energy Ventures

Analysis, Fuel Switching and Gas Market Risks, EPRI P-6822, vols. 1 &2, final report (Palo Alto, CA: Electric Power Research Institute, July 1990).

@See Nofih ~erican Electric Reliability Council, 1990 Electricity Supply & Demand for 1990-1999 (Princeton, NJ: Noflh Ametican El@ric

Reliability Council, December 19[90) table 29, p. 48.
64 • U.S. Oil Import Vulnerability: The Technical Replacement Capability

much of this planned capacity will be built on schedule and whether there is access to adequate natural gas

supplies. It is clear, however, that utilities view new

natural gas capacity as an important and economic

option in the years ahead.

One of the largest new facilities in an oil dependentregion is the Ocean States Power Project (two 250-

MW combined-cycle plants) under construction in

Rhode Island. The first 250-MW gas-fired unit began

operation in December 1990.63 Ocean States is a

“hybrid” independent power producer that includes The project will several utility affiliates as partners.64

be dispatched as part of the New England Power Pool

and will likely serve as baseload capacity. Gas supplies for the project will be under a contract for firm

deliveries and one of its joint venture participants is

an affiliate of its gas supplier.

Nuclear Power

Three nuclear power plants began commercial operation in 1990: the 1,150 MW Limerick Unit 2 in

Pennsylvania, the l,150MW Seabrook in New Hampshire, and the 1,150 MW Comanche Peak Unit 1 in

Texas (an area where oil consumption is not a major

concern).

65 The Limerick and Seabrook units with a

total of 2,300 MW are in areas that are heavily reliant

on oil-fired generation and together could replace

about 44,000 B/D in intermediate loads.66

In addition, the 809 MW Shoreham Unit in New

York has been completed but has not proceeded to

commercial operation.67 Concerns over the feasibility of emergency evacuation plans led State and local

officials to negotiate a takeover of the plant from

Long Island Lighting Co. Under the takeover plans,

the Shoreham Plant will be decommissioned. It is

estimated that the Shoreham Plant might have displaced about 14,000 B/D of oil. Secretary of Energy

Watkins has opposed decommissioning Shoreham

and has joined litigation to stall the plant’s dismantling.

68 No other nuclear units are scheduled to come

on line before 1995 in the oil-dependent regions.

Renewable Energy

In 1989, renewable energy sources, including hydroelectric, geothermal, wood, solar, municipal solid

waste (MSW), and wind, provided just under 10

percent of net electric generation.69 Many of these

facilities were built and operated by NUGS. In 1989

about 2,500 NUG plants were in operation with an

installed capacity of about 28,000 MW. About 60

percent of these plants used renewable fuels and

together had an installed capacity of about 11,000

MW, or about 40 percent of the total NUG capacity .70

Various forecasts indicate a significant growth during the 1990s in the NUG capacity, including capacity based on renewable fuels. For example, in 1989

DOE estimated an addition of 4,000 MW of renewable fuels-based NUG capacity between 1990 and

1995. And, based on its database, RCG/Hagler, Baily

Inc., has recently projected a 7,400-MW addition

through 1996.

Hydroelectric Power—According to NERC, about

1,300 MW of new hydroelectric generation is scheduled to come on line between 1991 and 1999.71

@’ocean State power Comes on Early,” Energy Daily, Jan. 15, 1991, P. 6.

~See ~ngrws of the United States, Offlce of Technology Assessment, Electric Power Wheeling and Dealing: Technological Considerations for

Zncreusing Competition, OTA-E-409 (Washington DC: U.S. Government Printing Office, May 1989), p. 129, for further discussion of the Ocean State

Project.

cSMona Reyno]ds, “Utllltles Bring a Variety of New plants on Line,” Power Engineering, P. 23, April 1990. Douglas J. smith “NOn-UtiW power

Production Increw~s,’’powerEngineering, page 13, July 1990. Douglas J. Smith, PowerEngineering personal communication to Renova Engineering,

Oct. 4, 1990.

‘

i

’This Potential is based on displacing an equivalent oil-based capacity operating at a 50 percent capacity factor (intermediate duty) with an average

heat rate of 10,000 Btu/kWh. The heat content of residual oil is assumed to be 6.3 million Btu/bbl.

@Nofih ~erlcan Electric Reliability Council, E/ectric flupp/y & Demand 1989-1998 (Princeton, NJ: North AmeriGin Electric Reliability ~uncil!

October 1989).

68At DOEJS request, the Justi~ Department joined a lawsuit by two local groups opposed to the decommissioning. The challenge~ allege ‘hat ‘he

Nuclear Regulatory Commission’s (NRC) decision was improper because it failed to assess the environmental impacts of shutting down the plant as

required under the National Environmental Policy Act of 1~969. The Federal Appeals COUII for the D.C. circuit has rejected the plaintiffs request for an

order staying the NRC’s approval of a possession-only license that allows dismantling of the Shoreham plant. ZMS1~E ENERGY/with FEDERAL LANDS,

July 22, 1991, p. 10.

@Shor[-Term Petroleum Fuel Switching, supra note 16, table FE2.

701-.hese include electrlc generation from such renewable sources ~f Wrote, \vood, agrlcultuml waste, biomethane, MSWI, solar, wind, geothermal, and

hydro.

TINo~h ~encan Electric Reliability Council, supra note 62.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 65

Expansion of transmission facilities in New England

and Canada was recently completed to bring 2,000

MW of power from Hydro-Quebec to the Northeast

under long-term contract.72 The power deliveries that

began in 1990 are considered an interruptible supply

at present, but are expected to be reclassified as firm

capacity in summer 1991. This bulk power purchase

further increases regional capacity margins, providing additional flexibility to the region if oil generation

is constrained by fuel shortages. 73

Other Renewable Power Generation—During

an oil supply shortfall, the growth in renewable fuelsbased capacity is expected to accelerate, based on the

mix of fuels specific to a region. For example, solar

thermal technology is available commercially and

could be deployed to a much greater extent in Western

States. 74 Similarly, wind power, which has been

concentrated in California, is expected to be deployed

commercially within 2 to 3 years in colder climates

such as that of the Northeast.75

OTA estimates that in a crisis, about 5,000 MW of

renewable fuels-based generation—from MSW, biomass, solar, and wind—could be added to displace

about 95,000 B/D.76 Although this would be as significant increase in capacity (a 45-percent increase over

1989), it would not appear to be out of line with some

current projections, given the current state of development of renewable technologies. For example, Luz

International plans to have 680 MW of hybrid solar

thermal capacity in California by 1994, with module

size increasing from 80 to 200 MW. The first installed

80 MW unit has started operating, but financial difficulties threaten to delay completion of the remaining

capacity additions. Moreover, the United States already has an installed wind turbine capacity of 1,500

MW. Finally, a 10,000 tons per day (TPD) MSW

plant, equal to about 30 percent of New York City’s

daily waste generation, can produce 200 MW, based

on an average potential of 2 MW per 100 TPD of

MSW throughput. In general, utilities have been

more receptive to renewable technologies as the result of their experience with existing units. Several

independent power subsidiaries of large utilities are

already participants in renewable energy ventures in

California and elsewhere.

Coal

Electric utilities could further reduce oil consumption by greater use of coal-fired generation. Three

technical options are available:

1. shifting to existing or new coal-fired generation,

2. switching from oil to coal in oil/coal-capable

facilities, and

3. converting oil-fired generating plants to burn

coal.

Load shifting from oil plants to coal-fired plants has

been used within a utility or power pool and through

negotiated agreements for sale and transfer of electric

power from coal. Expansion of interregional “coal by

wire” transfers may be limited by available transmission capacity in eastern utility systems. Even though

construction and upgrading of transmission lines has

become more controversial and difficult because of

environmental and other siting concerns in recent

years, new or upgraded lines have been built to take

advantage of coal-fired generation. There may be

some additional instances where such transfers and

needed transmission upgrades may be cost-effective

and feasible for backing out oil.

According to DOE, there are about 30,000 MW of

dual-fired, coal/oil generating units. Most of these are

in the South and Midwest.77 Probably most of these

Tzsee discussion Of the phase I and phase II Hydro-Quebec transmission projects in OTA, Electric Power Wheeling and Dea/ing, supra note 64, PP.

188-189.

730TA E/ectr;cPower W}lec/ingun(/Dea/ing, supra note 64, and personal communication to OTA from Paul Shortley, Manager, New England power

Exchange’ (NEMEX) Operations, Planning and Procedures, Springfield, MA, Nov. 9, 1990.

TqDennis Horgan Luz International Personal communication to Renova Engineering, P. C., OTA contractor, Sept. 19, 1990 and Dan Jaffe and Robefl

E. Herbster, “SEGS’VIII Solar-Power’ Project: Apply Latest Technology at Solar-Powered Generating Plant,” Power, April 1990, p. S-19.

TsMarkT Ho\ke “Vermont De-Icing Demonstration may Allow Northern Wind Farrm,’’E/ectricLight andPower, p. ~, September 19(90. David Ward,

. ,

U.S. Windp~~wer, Inc. personal communication, to Renova Engineering, P. C., OTA contractor, Sept. 26, 1990.

TGWe have assumed a deployment Of 5,00() MW in 5 years—a mid-range between the DOE estimate and that by RCG/Hagler. ~sufing this caPacitY

replaces an equivalent oil-based capacity operating at a 50 percent capacity factor with an average heat rate of 10,000 Btu/kWh, to yield an estimated oil

replacement potential of 95,()()0 B/D.

TTJones, supra nOte 58.
66 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

dual-fuel units are burning coal for economic reasons,

and little switching capability remains.

Many utilities converted to coal in response to the

energy crises of the 1970s. The easiest conversions

involved plants originally designed to burn coal and

later converted to burn oil. It is likely that most such

oil units have already been reconverted for coal,

while the rest remain oil units because of cost, emissions problems, or lack of space for auxiliary coal

transport, storage, handling, and waste disposal facilities.

Other oil-fired boilers suitable for conversion to

coal are those that are technically similar to coaldesigned boilers. OTA’s 1984 analyses found that

114 oil-burning utility boilers in Federal regions 1

through 4 and 9 might be suitable for converting to

coal or CSF.78 Finally, the remaining oil boilers are so

dissimilar to coal boilers that it would be neither

technically nor economically practical to convert

them to coal.

Converting oil-only units to burn CSF usually entails derating these units. The extent of derating

depends on plant-specific and CSF-specific factors.79

On average, the loss in capacity would be about 35

percent. If all 26,500-MW of oil-only capacity in

Regions 1,2,3, and 4 (see table 3-12) were converted

to CSF, capacity could be reduced by about 9,500

MW. Such coal conversion would require permit

approvals and significant alterations to the generating

plant. However, incorporating capacity and efficiency

improvement measures as part of these conversions

would minimize any potential derating of the units.

Building new coal-fired capacity to displace oilfired units is also an option. Commercially available

options include conventional coal-fired steam turbines, fluidized-bed combustion systems (now being

adapted for use at utility scales), and integrated gasification combined-cycle (IGCC) systems (only recently available commercially for utility applications). According to NERC, 14,400 MW of additional

utility and NUG coal-based generating capacity is

planned to come on line between 1991 and 1999.80

Although the technology is relatively new, IGCC or

coal gasification combined cycle (CGCC) plants have

been successfully demonstrated at the Coolwater

plant in California and at Dow Chemical ’s Plaquemine,

Louisiana, plant, and CGCC technology is now being

offered for commercial deployment.81 Several utilities plan to install CGCC plants.82 The CGCC technology also has attracted independent power producers. For example, assuming that public opposition is

overcome, Texaco plans to bring on line in 1995 a

440-MW plant in the Northeast. Destec Energy, a

Dow Chemical subsidiary, is offering a 200-MW

module and has announced a 230 MW repowering

project in Indiana scheduled to go commercial in

1995.83

The oil-replacement potential for the above coalbased options will depend on the final decisions made

by industry participants and may well rest on considerations other than the desire to reduce oil use. It is

nevertheless technically feasible to use coal-fired

generation to eliminate virtually all of utilities’ heavy

oil consumption. If natural gas, nuclear, and renewable fuels options replaced about 240,000 B/D, coal

could, at a minimum, replace 85 percent of the remaining oil, or about 360,000 B/D. (This assumed use

of coal-based options is tied to uncertainties over

natural gas availability and the acceptability of coal

burning to local communities. Greater availability of

natural gas could reduce the amount of coal used to

replace oil.)

780T~ The oil Replacement Cupubili~, supra note 1, pp. 60-62 and 79-81.

79H.R. Beal et al., ‘t~al-water Fuel Retrofit Evaluations,” paper presented at Coal-Targets of Oppotiunity Workshop, U.S. Depafiment of Energy,

July 12-13, 1988, Washington, DC.

~Jea-~uis polner , “HOW NUG Capacity IS Growing,” Electric Light andPower, p. 22, February 1990. Douglas J. Smith, “Natural Ga.. Will Fuel

Future Non-Utility Plants,” Power Engineering, p. 13, September 1989.

8

1’’ Gasifier Demo Heralds New Era for Gas Turbines,” Power, page S-24, October 1989. Jason Makansi, ” Coal Gasification Breaks Out of Synfuels/

Clean Coal Pack, ’’Power, p. 56, April 19~90. M. Rao Goineni et al., “Advanced Energy Technologies at ~mbustion Engineering, Inc.,” paper presented

at C’Coal-Targets of Opportunity Workshop,” U.S. Department of Energy, July 12-13, 1988, Washington, DC. Mark Roll, Destec Energy, personal

communication to Renova Engineering, P. C., OTA wntractor, Oct. 12, 1990 and information submitted by Destec. Robert Smock, “Repowering Old

Plants Gains Favor,” Power Engineering, p. 25, May 19~90.

gzRobe~ Smock “New Gas Turbines Show High Efficiency, bw NOX Emission,” % Power Engineering, p. 43, August 19{90.

gsMa~e bone, ‘tNew powe~lant Projects, ” Pbwer, December 19(90, p. 15.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 67

Demand Management

In addition to conventional supply side resources,

many utilities now look to improved efficiency and

conservation efforts on the demand side as a costeffective means to provide needed capacity. Demand

management broadly refers to activities undertaken

by a utility or a customer to influence electricity use.

Among the variety of activities used for demand

management are: utility rate programs (time of use or

time of day, interruptible rates, real-time pricing,

waiver of demand charge under certain conditions,

and other financial incentives, such as rebates, for

consumers who invest in energy efficient equipment.

The use of demand management programs by utilities for energy efficiency and peak load reduction is

widespread and the benefits are obvious. For example, the Northeast Power Coordinating Council,

which includes New England and New York, plans

demand management programs totaling 3,850 MW

between 1990 and 2000. During a crisis, oil dependent utilities could intensify demand management

programs. A reasonable assumption is that such expanded efforts could reduce peak demand by about

4,000 MW (3 percent of peak for oil dependent

regions). Thus, they could displace about 15,000 B/D

of oil based on an equivalent oil-based capacity

operating at a 10 percent capacity factor and an

average heat rate of 10,000 Btu/per kilowatt hour

(kWh). 84

Deployment Constraints and Schedule

Achieving this level of oil replacement does, however, present some uncertainties. Areas of potential

constraints include natural gas supplies, turbine manufacturing capability, environmental permitting, effects of electricity demand growth, and capacity

margins.

Natural Gas Availability

Several new pipeline projects are being developed

to supply domestic and Canadian natural gas to the

Northeast and California and should make natural gas

more available to all sectors. These projects are in

various stages of development and approva185 and,

once approved, could displace more utility oil use

directly or through NUGs. The Iroquois pipeline

approved by the Federal Energy Regulatory Commission (FERC) in fall 1990 will bring 576 million

cubic feet of natural gas from Canada to New York

and New England—the equivalent of 100,000 B/D of

crude oil. Some portion of this gas will be committed

under firm deliveries to electric utilities and independent power producers. Natural gas availability issues

are further discussed later in this chapter.

Manufacturing of Turbines

In 1989, the total installed summer generating

capacity of the United States was about 673,000 MW.

By 1995, that capacity is projected to grow by about

40,000 MW. Of this new capacity, about 16,000MW

is not yet under construction, and of this amount about

10,000 MW will be based on short lead-time generators, such as combustion turbines (also known as gas

turbines), jet engines, and internal combustion (diesel) engines. Some analysts have questioned whether

the combustion turbine manufacturers can meet this

normal growth in new orders, since most of the

capacity will be installed after 1992. In our 1984

report we concluded that manufacturing capability

should not be a problem, even with an acceleration in

orders. We still believe that this conclusion is valid

and note that other analysts have reached similar

results.86 The annual production capacity of major

U.S. combustion turbine manufacturers in 1990 was

14,000 MW, more than adequate to meet U.S. and

foreign demand, and manufacturers note plans to

expand capacity to meet expected new demand in the

1990s. Annual planned additions of combustion turbines by domestic utilities, according to NERC data,

were up to 5,000 MW per year. Lead-time from

purchase to commercial operation is 18 to 24 months.

It would appear that an increase of l,000 to 2,000 MW

in orders for accelerated oil replacement capacity

could be met. We have therefore assumed that this

would not delay the deployment of oil replacement

technologies in the electric utility sector.

Environmental Permitting Process

All of the oil replacement technologies can attain

compliance with environmental regulations. However, a relatively smooth permitting process would be

~Renova Engineering, P. C., supra note 4, at P. 23s

~~e~mn Gas Association, “New pipeline Construction Projects-Status Report,” Issue Brief 19(90-95, Apr. 13, 1~~.

86John R. Riley, Gregory L. Gould, and Richard A. ~over, “Can Manufacturing Capacity Keep Up With New Orders for CTs’?” Power Engineering,

vol. 94, No. 4, @il 1990, PP. 45-47.
68 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

necessary so that the various conversion and replacement projects could obtain the required environmental permits in 12 to 18 months. This appears to be

feasible. A survey of combustion turbine installations

found that permitting is achieved in most cases in

under 18 months.87

Shoreham Nuclear Plant

The State of New York is exploring the feasibility

of converting the mothballed Shoreham plant to natural gas. Such a conversion will have to overcome

natural gas supply, permitting, and financing hurdles.

On the other hand, a nuclear restart might entail less

financial difficulties but would have to overcome

public, State, and local government opposition. We

have not assumed the availability of Shoreham capacity.

Capacity Margins and Demand Growth

Some analysts have made dire projections of an

impending crisis in supplying generating capacity if

high rates of electricity demand-growth reappear and

utilities do not accelerate construction plans. Others

have voiced concern that oil replacement options

might worsen any possible capacity shortfall.

Of the various options, only CSF firing in oil-only

units would reduce generating capacity through

derating, thus narrowing capacity margins. But capacity losses through plant derating are not expected

to be a significant deterrent to fuel switching. The loss

could be made up by other capacity additions, in

particular, existing nuclear plants, renewable fuels,

coal-based plants, and CGCC or by repowering some

of the older oil and non-oil units. According to one

study, repowering of old oil-steam plants to combined cycle gas turbines could add 2 MW of gas

generation for every 1 MW of oil generation replaced. 86

We have not made any detailed examination of the

impacts of differences in electricity demand growth

on our oil replacement estimates. We do note that

capacity margin estimates include some consideration of demand growth. Where judgments are based

on availability of sufficient capacity margins to displace oil, some demand growth is implicit.

Estimated Oil Replacement Technology

Deployment

Table 3-13 summarizes the breakdown of the 0.6

MMB/D of oil that could be replaced in electric

utilities by the various options assessed above. Assuming that the possible constraints are indeed overcome, the actual replacement of oil over the 5-year

period could take place as follows:

1.

2.

3.

4.

Switching to natural gas immediately to replace 85,000 B/l) of oil.

Operation of the completednuclear plants could

replace 44,000 B/D. The schedule would depend on debugging delays for Limerick Unit 2

and Seabrook Unit 1. We have assumed that the

nuclear option displaces oil starting in 1993.

Several renewable fuel-based NUGs are probably under construction. There also exists a

diverse mix of technology options for any new

capacity that is in planning. Hence, renewable

fuels might replace 95,000 B/I) uniformly over

the 5-year period.

The coal-based options are a mixed bag. It is

assumed that coal-based plants in the design

and construction phases will replace about

90,000 B/I) over the first 3 years, while the

remaining 75 percent, or 270,000 B/D, are

replaced uniformly over the last 2 years. One

reason for this delay is that the suppliers of CSF

technology have shelved their developmental

efforts during the last 3 to 4 years because of

low oil prices and, therefore, a 12 to 18-month

mobilization period will be required.

The estimated deployment schedule over 5 years is

shown in table 3-14. Natural gas fuel switching, coal,

renewable, and demand management are available

to displace oil in the first 2 years. In years 3 to 5,

nuclear capacity, and larger coal-fired units begin to

come on line.

Estimated investment costs for the various oil replacement options are shown in table 3-15. Estimated

investment costs for each B/D replaced range from $0

for use of available capacity from existing gas and

nuclear units to as much as $420,000 for a MSW plant

operating at a 50 percent capacity factor. Actual costs

could vary significantly from these depending on the

characteristics of local utilities and loads.

‘Ibid.

8sSmock, Supra note 81, PP. 25-27”
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 69

Table 3-14-Deployment Schedule for Oil Replacement Technologies in the

Electric Utility Sector (oil replacement potential-thousand barrels per day)

Fuel switching option Demand

Year Gasa Nuclear b Renewables c Coald management Totalc

1991 85 0 19 30 3 137

1992 85 0 38 60 6 189

1993 85 15 57 90 9 256

1994 85 29 76 225 12 427

1995 85 44 95 360 15 599

a Assumes utilities could switch to natural gas in the first year.

b Uniform displacement after 1992. Excludes Shoreham Unit.

C Assumes a uniform oil displacement over 5 years.

d Assumes that coal-based NUG plants in the design and construction phase replace 25% of the oil over the first 3

years with the remaining 75% replaced by all coal-based options over the last 2 years.

SOURCE: Office of Technology Assessment, 1991, based on Renova Engineering, P. C., “Oil Replacement AnalysisEvaluation of Technologies,” OTA contractor report, February 1991.

THE INDUSTRIAL SECTOR

The industrial sector includes both manufacturing

enterprises (i.e., businesses that convert raw materials into intermediate or finished products) and

nonmanufacturing activities, such as agriculture, forestry, construction, mining, and oil and gas production. This diversity is reflected in the variety of oil

products, and end-use applications in the industrial

sector. Although oil use is widespread in this sector,

much of the oil consumption is concentrated in certain industries, applications, and regions. (See figure 3-6.)

Oil use in the industrial sector in 1989 totaled 4.26

MMB/D or about one-quarter of total U.S. oil consumption. 89 Petroleum accounted for about 36 percent of industrial sector energy use in 1989, down

from 38 percent in 1983.90 Petroleum products used

in industrial applications consisted of 820,000 B/D of

distillate and residual fuel oil, and 3.4 MMB/D of

nonfuel oil products, mostly feedstocks. 91 By 1989,

the industrial sector was using 1 MMB/D less oil, and

less energy overall, than it was in 1979. Table 3-16

shows industrial oil use in 1979, 1983, and 1989.

The industrial sector is characterized by diverse,

complex, and rapidly changing technology, which

complicates estimates of future consumption and

potential oil savings. The sector has a variety of

effective options for adjusting to oil supply or price

disruptions, including fuel switching, substitution of

non-oil based products, process changes, and improvements in management and control technologies. OTA estimates that potential oil savings in the

industrial sector during a prolonged oil import disruption could total about 800,000 after 5 years.

Patterns of Industrial Oil Use

The major energy and oil needs of the manufacturing sector are for heat, power, and feedstocks (see

figure 3-7 and table 3-17). The manufacturing sector

consumed 275,000 B/D of distillate and residual fuel

oil in 1989, almost exclusively for steam generation

in boilers, process heat, and cogeneration of electric

power. Although these applications are but a small

portion of total industrial oil use, they represent major

opportunities for displacing oil use in the near-term.

Nonfuel oil use in manufacturing was 979,000 B/Din

1989.

The nonmanufacturing sector consumed about 3

MMB/D of petroleum products in 1989 (see table

3-17). Distillates, primarily diesel fuel, accounted for

about 493,000 B/D, and residual fuel oil consumption

SgAnnuul Ener~ Review 1989, supra note 6, table 61.

~~ong the major factom that amount for the decline in oil use and energy demand in the industrial sector in the pmt two deeades are incr=sed

efficiency, greater use of electricity, and waste and byproduct fuels, and structural changes in the composition of the industrial sector. Precise estimates

on the relative contributions of these factors to oil savings are not easily derived. However, OTA’s own review found that for the economy as a whole,

increased efficiency was responsible for two thirds of the decline in energy consumption and structural change for the remaining third. Changes in the

manufacturing sector accounted for two fifths of these savings. U.S. Congress, Office of Technology Assessment, Energy Use and the U.S. Economy,

Background Paper, OTA-BP-E-57 (Washington, DC: U.S. Government Printing Office, June 1990), p. 4.

91Annuu/ Ener~ Review 1989, supra note 6, table 62.
70 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Table 3-15-Estimated Investment Costs for Oil Replacement Technologies

in the Electric Utility Sector

(approximate investment cost in thousand 1990 dollars per barrel per day of oil replaced)

$000 per Percent

B/D replacedacapacity

Option Minimum Maximum factor Remarks

Natural gas . . . . . . . . . . . . . . . . . . 0

Nuclear . . . . . . . . . . . . . . . . . . . . . . . . O

Renewable fuels

Solar . . . . . . . . . . . . . . . . . . . . . . . . 131

Wind energy . . . . . . . . . . . . 63

Wood . . . . . . . . . . . . . . . . . . . . . . . 79

Municipal solid .........263

waste

Coal

Coal/CSF . . . . . . . . . . . . . . . . . 4

CSF . . . . . . . . . . . . . . . . . . . . . . . . . 4

Coal . . . . . . . . . . . ..6 8

CGCC.... . . . . . . . ..6 3

Demand management ..92

34

13

153

125

95

420

16

29

89

74

105

50

50

36

21

50

50

50

50

50

50

10

Maximum cost based on replacing the capacity with

a 240-MW combined cycle plant at $650/kW.b

Maximum cost assumed at $250/kW to debug plants

that went into commercial operation in 1990.b

80-MW solar thermal plant with gas firing at supplemental $l,800-$2,100/kW.c

21 Wind energy farm at $500-$l,000kW.d

50 20-MW wood-fired plant at $l,500-$l,800/kW.e

50 20-MWMSW-fired plant at $5,000-$8,000/kW.e

Conversion of coal capable units assumed at at

$80-$300/kW. f

Conversion of oil-only capable units at $80-$550/kW

of derated capacity.f

150-MW plant using pulverized or circulating fluid–

ized bed coal at $1,300-$1,700/kW.b

200- to 360-MW CGCC plant at $1,400-$1,200/kW.g

Equivalent to an 80-MW combustion turbine at

$350-$400/kW. b

aAsumed that the option replaces an equivalent oil-based capacity operating at 10,000 Btu/kWh and the specified caPacitY factor.

bRobe~ W. Smock, “Need Seen for New Utility Capacity in ‘90,’ Power Engineering, April 1990, P. 29.

cDennis Horgan, Luz [~ernational, persona communication to Renova Engineering, P. C., Sept. 19, 1 ~0, and information ‘ade

available by Luz International.

dDavid Ward, IJ.S. Windpower, Inc. personal communication to Renova Engineering, P. C., Sept. 26, 19~.

eln.house Renova Engineering ‘ii=.

f HR. Beal ~ al. 1lCoal-W~er Fuel Retroffi Evaluations,” paper presented at CCXII —Targets of Oppotiunity Workshop, DOE, J1.dy 12-

13, 1988, Washington, DC mentions 1985 conversion cost of $60-$420/kW of derated capacity for noncoal-capable units, depending

on the CSF quality and unit constraints. This cost was increased by 30 percent to get 1990 dollars. For coal capable units, it was

assumed that the cost would vary between $80-$300/kW depending on the CSF quality and the extent of flue gas clean-up system.

gMark Roll, Destec Energy, personal communication to Renova Engineering, P. C., Oct. 12, 1990. Eric Jeffs, “Coal Fired IGCC Plarlts

are at the Threshold of Commercial Operation,” Gas Turbine World, March-April 1988. U.S. Congress, Office of Technology

Assessment, New Electric Power Technologies: Problems and Prospects for the 1990s, OTA-E-246 (Washington, DC: U.S.

Government Printing Office, July 1985).

SOURCE: Office of Technology Assessment ,1991, from Renova Engineering, P. C., “Oil Replacement Analysis—Evaluation of

Technologies,” OTA contractor report, February 1991.

was about 52,000 B/D. Farm use includes fuel for other applications. The remaining nonmanufacturing

tractors, irrigation pumps, agricultural machinery, uses include fuels for oil drilling and production

crop drying, space heating, and cooking. Off-high- equipment, remote electric generators, and nondiesel

way distillates are used to power construction equip- construction equipment, and other miscellaneous activities. 92 ment (cranes, compressors, and generators) and for There are only limited short-to mid-term

g20TAe\timate\ based on data fr~mAnnuu]Enera Review 1989, supra note 6, and product shares repOIled in Short-rerm petroleum Fuelswitch%

supra note16, pp. 12-14, and tables 5 and 8.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 71

23

22

21

20

19

18

17

16

15

14

13

0

J

s 12

;

11

10

9

8

7

6

5

4

3

2

1

0

Figure 3-6--Oil Use in the industrial Sector

by Region and Application

Figure 3-7—Profile of Energy Use in

the industrial Sector, 1985

Major Fuel Functional

sector type use , Petroleum product

/ /

c O a

’ ’

cOk e

Nonmanufacturing

--------- -

(Lease and

plant)

Manufacturing

feedstocks

Manufacturing

heat and

power

Petroleum Various

products petrochemicals

I I

l----i Cogeneration

Waste

products Boilers

Petroleum

t---- i

Boilers

products

Process heat

1

I

t--- i

Cogeneration “ Process heat

I-----4 Boilers

Natural gas

Process heat

I I

NOTE: Excludes about 315,000 B/D of off-highway use in agriculture.

mining, and construction for which regional data-are not available. 

SOURCE: Office of Technology Assessment, 1991, adapted from data in

Paul D. Holtberg and David O. Webb, ‘The Potential for Natural

Gas to Displace Oil in Response to the Middle East Crisis and the

Implications for the ORI R&D Program,” Gas Research Insights,

Gas Research Institute, November 1990.

““””~

1,500 -

1,000 -

PAD 1 PAD 2 PAD 3 PAD 4 PAD 5

= Feedstoc k D Process heat

n Process steam and power

SOURCE: Office of Technology Assessment, 1991, from data in Gas

Research Institute, “Industrial Natural Gas Markets: Facts,

Falacies and Forecasts,” March 1989.

options for replacing most of these nonmanufacturing

oil uses.

In 1989 over 2.46 MMB/D of nonfuel oil products

were consumed in nonmanufacturing activities. The

products in this category include LPG, petrochemical

feedstocks, still gas (a byproduct of the petroleum

refining process used primarily as a captive fuel and

not sold commercially), petroleum coke (another

refinery byproduct), asphalt, road oil, motor gasoline,

kerosene, lubricants, waxes, and other petroleum

products (table 3-16).93 This category, often referred

to simply as “feedstocks,” accounts for over 11 percent of total U.S. petroleum consumption—an amount

second only to transportation uses. As in our 1984

report, we found that there continues to only limited

technical potential for replacement of nonfuel oil

products in the short term.

LPG accounts for the largest quantity of nonfuel oil

products in the industrial sector. About 97 percent of

industrial LPG consumption is for nonmanufacturing

applications, such as crop drying or feedstocks in the

petrochemical industry.

mAnnua / Enerp Review ]989, supra note 6, table 62, Short-term Petroleum Fuel switching, Supra note 16, table 8.
72 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Table 3-18-industrial Consumption of Oil Products, 1979,1983, and 1989

(million barrels per day)

Oil product 1979 1983 1989

Fuel oils . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.55 0.93 0.82

Distillate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.83 0.61 0.57

Residual..ti~~.ti...~.._.. .~..q...~~.~..~~~.~..~~. ,.,,...0.72 0.32 0.25

Feedstocks & other non-fuel oil products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.80 3.02 3.44

Asphalt and road oil . . . . . . . . . . . . . . . . . . . . . . . ........,......,..,....0.48 0.37 0.45

Liquefied petroleum gases .~.........~. . . . . . . ................,.... 1.27 1.17 1.25

Lubricants Hm.Hti..titi..fiuftimtHvHHvH .H H

. .H. . .H. .H H H. H 00.0 9 0.08 0.08

Motor gasoline .,.,.,.,....,..,.., .~~~~~.~~..~~.....~.ti.~ ...........0.08 0.06 0.10

Kerosene . . . . . . . . . . . . . . . ..tititi.~.~.ti.~q.ti,ti,~.~.~~,~.~ti ...,,...,,....0.08 0,07 0.02

Other products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.79 1.27 1.54

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5.34 3,93 4,26

SOURCE: Office of Technology Assessment, 1991, based on data from U.S. Department of Energy, Energy Information

Administration, Annal Energy Review 1989, DOE/EIA-0384(89) (Washington, DC: U.S. Government

Printing Office, May 1990); Annual Energy Review 1984, DOE/EIA-0384(89), April 1985; and Annual Energy

Review 1985, DOE/ElA-0384(85), May 1986.

. . . --

Also included among nonfuel oil products are waste

fuels and byproducts such as still gas and petroleum

coke used in the petroleum refinery and petrochemical industries in preference to purchased fuels such as

natural gas. This pattern of internal-captive fuel use

means that operators will tend not to replace these oil

products even when technically feasible to do so

unless there are significant cost advantages to switching to other fuels.Moreover, some of these byproducts

could not be easily diverted to other applications and

might have to be disposed of in some other manner if

not used as waste fuels.

Oil Replacement Potential

OTA estimates that theindustrial sector could technically displace about 800,000 B/D of petroleum

products, or about 20 percent of its consumption, as

shown in table 3-18. The oil replacement options in

the industrial sector include credit for reducing refinery throughput (360,000 B/D) and the savings that

would result from switching to natural gas (297,000

B/D) and other fuels (50,000 B/D) for process heat,

steam, and power generation, and from intensifying

the adoption of more energy-efficient process changes

(100,000 B/D) in manufacturing.

In our 1984 report, we estimated that the industrial

sector could save 1 MMB/D, or 25 percent of its

energy use through increased efficiency and process

changes (including credit for reducedrefinery throughput of 220,000 B/D).

Our present analysis suggests that U.S. flexibility

in replacing oil in the industrial sector has declined by

over 340,000 B/D since 1984 (exclusive of net savings from reduced refinery throughput). This decline

partly reflects a greater reliance on natural gas, electricity, and byproduct fuels and already achieved

efficiencies in oil use.

Reduced Refinery Throughput

OTA estimates that about 360,000 B/l) of oil could

be saved through reduced internal fuel consumption

in the next 5 years. Refineries use about 580,000 Btu,

or about 0.1 barrel of fuel per barrel of crude input as

fuel for various internal processes such as distillation

and cracking.94 A reduction in crude oil processed

through U.S. refineries yields a net savings in refinery

oil consumption of about 10 percent of the lost throughput. In 1989, U.S. refineries imported about 5.8

MMB/D of crude oil and 2.2 MMB/D of other petroleum products.

95 Based on this import mix, we have

assumed that the 5 MMB/D of total shortfall in

imports consists of about 3.6 MMB/D of crude oil and

1.4 MMB/D of petroleum products.

~OTA The Oil Replacement capability, supra note 1, p. 112 and Oak Ridge National Laboratory, Enery Technology R&D: What could Make a

Difference, vol. 2, Part 1 of 3, End Use Technology, ORNL 6541/V2/Pl (Oak Ridge, TN: Oak Ridge National Laboratory, December 1989), p. 74.

Ann ual Energy Review 1989, supa note 6.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil • 73

Table 3-17—lndustrial Oil Use: Consumption in the Manufacturing and Nonmanufacturing Subsectors, 1989

(thousand barrels per day)

Nonmanufacturing use Total

Farm and manufacturing

Manufacturing off-highway Other Total and

Product usea diesel usea nonmanufacturing a nonmanufacturing b nonmanufacturing

Fuel oil

Distillate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....,,,,, 77 310 183 493 570

Residual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .....198 0 52 52 250

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275 310 235 545 820

Non-fuel oil

LPG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 c c 1,208 1,250

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..........937 c c 1,253 2,190

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 979 c c 2,461 3,440

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,254 c c 3,006 4,260

aConsumption prorated from U.S. Department of Energy, Energy Information Administration, Estimates of Short-Term Petroleum Fuel Switching Capability, DOE/

EIA-0526 (Washington, DC: U.S. Government Printing Office, May 1989).

bTotal consumption as reported in U.S. Department of Energy, Energy Information Administration, Annual Energy Review, DOE/EIA-0364(89) (Washington,

DC: U.S. Government Printing Office, May 1990), table 62.

cThe breakdown of non-fuel oil use in nonmanufacturing applications is not reported separately. The non-fuel oil amount is reported as a subtotal for nonmanufacturing use.

d

Includes asphalt and road oil, still gas, petroleum feedstocks, petroleum coke, and other petroleum products.

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement Analysis-Evaluation of Technologies,’’ OTAcontractor

report, February 1991 .

Table 3-18-Estimated Oil Replacement Potential in the Industrial Sector (thousand barrels per day)

Manufacturing Nonmanufacturing

Oil replacement option Fuel oila Non-fuel oilb Subtotal Fuel oila Non-fuel oilb Subtotal Total

Reduce refinery 360 360 360

throughput

Switch to natural 177 65 242

gas

Convert to c c

other fuels

55

c

55 297

Process changes d d d d 100

Total 807

aConsists of distillate and residual oil.

bConsists of LPG and other non-fuel oil products.

c

Less than 50,000 B/D in all uses.

dLess than 100,000 B/D in all uses.

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement Analysis-Evaluation of Technologies,’’ OTA contractor

report, February 1991.

In the significant oil supply shortfall assumed in domestic production or crude oil stock drawdown

this study, refinery throughput would be reduced by from the SPR or private stocks.

3.6 MMB/D, thus cutting internal fuel consumption

by about 0.36 MMB/D. This would effectively Conversion to Natural Gas

reduce the imported crude oil shortfall from 3.6 Natural gas is already a major fuel and feedstock in

MMB/D to 3.24 MMB/D, an amount offset some- the industrial sector, representing about 37 percent of

what by any increase in refinery runs from increased industrial energy use. Switching-to natural-gas could
74 Ž U.S. Oil Import Vulnerability: The Technical Replacement Capability

displace 232,000 B/D of fuel oil. Natural gas could

displace oil in dual-fuel capable facilities and as a

feedstock for some uses. Existing oil-only facilities

might be converted for natural gas, provided that gas

supplies are available.

DOE lacks the detailed information on fuel switching capability in the industrial sector comparable to

that for electric utilities. Their estimates are based on

extrapolations from surveys of a carefully selected

pool of industrial users in the five most energy intensive manufacturing industries. Estimates of potential

savings are based on assumptions that certain comparable savings could be achieved across the sector.

Fuel Oil Replacement—In the industrial sector,

switching from fuel oil to natural gas could displace

177,000 B/D of oil. Price volatility and gas supply

curtailments have spurred U.S. industry to improve

its flexibility in fuel choices for industrial facilities

over the past 2 decades. Many dual-fuel capable

industrial facilities are already using gas rather than

oil because of the lower relative price of natural gas.

The switching that has already occurred, however,

limits the potential for further switching from oil to

gas.

The major target for fuel switching in the industrial

sector is oil used for industrial boilers. Some 36,820

boilers are used in the manufacturing sector.96 (See

figure 3-8.) Natural gas is the dominant boiler fuel in

68 percent of all industrial boilers. Oil-fired boilers

include 5,845 units that burn fuel oil (mostly residual)

and 575 that burn petroleum products (mostly still

gas). Oil-fired boilers make up a large share of boiler

units and capacity in the Northeast and South Central

regions as shown in figure 3-8.

About half of all industrial boilers now have dualfuel or backup fuel capability. About 53 percent of

fuel oil-fired boilers and almost all of the petroleum

product boilers have dual-fuel capability.

9 7

 Among

some dual-fuel boilers, the backup fuel is distillate or

residual fuel oil. There is no oil replacement capability for these boilers, but perhaps some flexibility in

fuel choice could ease demands for fuels in shorter

supply in a crisis.

Figure 3-8--Distribution of Industrial Boilers

by Region and Primary Fuel Type

Number of units

:::~“

8,000

1

6,000

in

4,000

2,000

nw

SOURCE:

DOE

North east North South South West

Central Atlantic Central

Region

❑ Natural gas = Coal ❑ Fuel oil

■ Petroleum products ❑ Byproducts

Office of Technology Assessment, 1991, from data in Gas

Research Institute, “Industrial Natural Gas Markets: Facts,

Falacies and Forecasts,” March 1989.

estimates that the manufacturing sector’s

large built-in flexibility for switching residual and

distillate fuel oil to other fuels, primarily natural gas,

could reduce fuel oil consumption in less than 30 days

by about 79,000 B/D of fuel oil, consisting of 7,000 

B/D of distillate oil and 72,000 B/D of residual fuel

oil.

The almost 2,700 oil boilers that do not have fuel

switching capability may be attractive candidates for

replacement with gas-fired units. Assuming a 20-year

equipment life, typically 25 percent of the boilers

would be replaced over a 5-year period under normal

conditions. 98 (About 67 percent of the oil-fired boilers were installed before 1970, and 44 percent were

installed before 1960).9 This normal replacement

rate, assumed by DOE, could be doubled in a crisis.

Doing so would displace an additional 50 percent of

the remaining 196,000 B/D, or about 98,000 B/D of

fuel oil, consisting of 35,000 B/D of distillate oil and

63,000 B/D of residual fuel oil.

%GaS Research 1nstltute, In f/u,Ytrja[ Gas Markets: Facts Falacies and Forecasts, March 1989.

‘Ibid.

~u.-j. Depafiment of Energy, Manu~ac~uring Enera Consumption Survey: Fuel Swi(ching 1985, DoVEIA-OSls(g$ (wash@tOn~ ‘c: ‘“SC

Government Printing Office, May 1989), figure 1, p. 18.

~~Gas Research Institute, supra note ’96.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 75

Information on the fuel oil-switching capability in

the nonmanufacturing sector is sparse to nonexistent.

However, patterns of oil product use in these sectors

suggest that farm and off-highway diesel usages offer

a very limited potential. In its analysis DOE assumed

that oil companies and other miscellaneous users in

the nonmanufacturing sector have a switching potential comparable to that for the manufacturing sector.

As a result, DOE has estimated the gas conversion

potential in the nonmanufacturing sector to be about

10 percent, or about 55,000 B/D.l00 In the absence of

more detailed information on manufacturing fuelswitching capability, we have adopted the DOE estimates.

Nonfuel Oil Replacement—The near-term potential for replacing oil directly in nonfuel oil uses is

limited to the manufacturing sector where natural gas

could substitute for some LPG and marketable petroleum coke. Assuming a switching capability comparable to that for coal and coal coke used as fuel in the

manufacturing sector, DOE has estimated the potential to be about 6 to 7 percent of the 979,000 B/D of

nonfuel oil products consumed in the manufacturing

sector, or about 65,000 B/D of nonfuel oil petroleum

products. l0l

In summary, natural gas could replace about 297,000

B/D of petroleum products, comprising 232,000 B/D

of fuel oil (177,000 B/D in the manufacturing sector

and 55,000 B/D in the nonmanufacturing sector), and

65,000 B/D of nonfuel oil products in the manufacturing sector.

Conversion to Other Fuels

About 10 percent or 50,000 B/D of the remaining

consumption of distillates and residual fuel oil could

be displaced by some combination of coal, electrification, and renewable technologies.

Coal-Some manufacturing applications that use

residual fuel oil might be suitable for coal-based

technologies such as CSF, micronized coal, and coal

gasification. Assuming that 50 percent of the oil-only

capable units are replaced by natural gas-fired units

over 5 years, coal-based technologies could, in principle, displace the remaining 50 percent, or about

63,000 B/D of residual fuel oil. The CSF and coal

gasification technologies are commercially available,

as discussed in the previous section on electric utilities. Some ongoing experiments and demonstrations

involving the use of coal in utility boilers might be

applicable to industrial uses. Micronized coal technology has also been used successfully in packaged

oil-fired boilers.

102 It is not known how suitable some

of these uses may actually be for conversion to coal

burning from a size, applications, or environmental

permitting perspective. However, based on earlier

reviews, it seems technically feasible to convert at

least some of these facilities to coal. There are already

several examples of coal gasification-driven industrial applications in operation or planning.l03

Renewables-Small, biomass-fired, electric generating units could be deployed to displace distillate

oil used in some of the agricultural applications such

as space heating, irrigation pumps, and farm machinery. Units in the range of 1.5 to 5 MW are offered

commercially. 104These would seem most appropriate to larger operations, however. Units fired by

agricultural and wood wastes are increasingly used in

the timber and food processing sectors. Small, mobile

biomass gasifiers could be deployed in rural areas.l05

In our 1984 report we estimated that contributions

from solar photovoltaic (PV) systems and wind turbines would be negligible. Experience since then has

indicated that they can be appropriate alternative

technologies for certain remote applications. Wind

turbines and PV units could be deployed to generate

electricity and displace some of the distillate oil used

in nonmanufacturing applications. Wind turbine technology is commercially available, as discussed earlier under electric utility technologies. Solar PV systems for remote applications have also been used.

They can be cost-effective when compared with tieins to central generation. In 1988 about 9,700 kilowatts (kW) (peak) of PV modules were shipped, of

lmShort.Term petroleum Fuel Switching, supra note 16, at p. 18.

l~lIbid., tables 5 and 7.

1°21bi(l., table 8.

IosSee for example, Dow’s plant in ~ulsiana, under the utility sector mrlier in this chapter.

lw’’Biomass-fired Projects Promoted by Cost of Oil,” Engineering News Record, Sept. 25, 1!XW, page 25.

10SOTA, The Oil Rep\ucement Capability, supra nOte 1.
76 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

which 2,200 kW were for water pumping and industrial or commercial applications.l06

Electricity could be used in some manufacturing

and nonmanufacturing applications to substitute for

fuel oil and distillates in limited applications, but the

amount saved is probably small.

Efficiency Gains and Process Changes

In the past 20 years, the industrial sector has grown

less energy intensive (and less oil intensive), reflecting improved efficiencies in manufacturing and processing facilities, especially in process control equipment, electrification, industrial cogeneration, and use

of waste heat. This improvement also partly reflects

a structural shift in the industrial sector toward goods

that require less energy to produce per dollar of final

product, and this trend is expected to offer continued

savings. 107

Among the major energy-intensive applications in

the industrial sector are thermal processes-heat,

distillation, separation, and drying. Several options

are available to improve efficiencies in these processes and to replace or reduce oil use. For example,

the industry could use alternate non-oil-based feedstocks in certain applications. Heat pump and membrane technologies could cut the demand in chemical

and petrochemical plants for heat required in distillation columns. Finally, both industry and consumers

could intensify waste minimization and reduction

programs.

Use of Heat Pumps in Distillation—Distillation is

the most widely practiced energy-intensive/thermal

method of separating the components of chemical

mixtures in the chemical, petroleum, and gas liquids

industries. 108 Almost 30 to 60 percent of the energy

demand in chemical and petrochemical plants is for

heat required in distillation columns. This energy

consumption can be reduced by using heat pumps

having payback periods of 1 to 2 years. For example,

a propylene plant with a conventional distillation

column for propane-propylene splitting uses 2.4 lb of

steam per pound of product. This consumption can be

replaced by electricity by using a heat pump, saving

600 to 700 B/Din a small 120,000 tons/yr propylene

plant. Similarly, a typical 250,000 tons/yr styrene

plant could save about 400 to 500 B/D of oil.109

In 1990, propylene and styrene plants are estimated

to produce about 21 and 8 billion pounds, respectively.110 More detailed analysis would be necessary

to verifiy the actual industrywide potential of heat

pumps in these plants because some plants use waste

heat or natural gas, some already have heat pumps,

and retrofitting plants for heat pumps would increase

the consumption of electricity. Also, many petrochemical plants that already use waste products as a

source of heat or electricity may not see a net savings

from the use of heat pumps.

Use of Membrane Technology-Membrane technology provides a mechanical means for separating

individual chemicals from mixtures by exploiting the

differential rates at which various components permeate membrane structures because of their molecule sizes.lll The traditional applications of membrane technology include gas separation and water

desalination plants. Other commercial applications

are air drying and dehydration of organic solvents.

The dehydration applications use pervaporation membranes in which the permeate is removed as vapor

from the downstream side. DOE has identified

pervaporation as a top research priority. If a sufficient

quantity of selective pervaporation membranes could

be made available, these membranes could replace oil

products used to provide process heat for distillation. 112

Waste Minimization—Each year U.S. industry

generates 300 million tons/yr of liquid and solid

hazardous wastes. It also generates millions of tons of

waste gases, which contain about $500 million worth

of chemicals. Those nonhazardous industrial solid

wastes and wastewater classified as solid waste by the

Environmental Protection Agency (EPA), are estimated to be about 613 million tons/yr.113

l~Annual Energy Review 1989, supra note 6, table 103.

loTEnern Use in the U.S. Economy, supra note 90.

l~oRNL, supra note 94, at p. 70.

l~~befl Meili, “H~t pumps for Distillation ~lumn.$,” Chemicul Engineering Progress, June 19{90, p. 60.

llOChemyc/oPe~ia 91, VOI. 9, American Chemical sOCkty, 1991.

lll(_jRNL, wpra note 94.

112Joseph Haggin, ~fMembrane Technology H= AChleve~ SuCC~s, yet ~gs po~entia],” chemical & EngineeringNews, OCt. 1, 1990, p. 22.

113u.s. Depafiment of Energy, Nationa/ Enerfl Strategy, Interim Report, SUpHi I10tf3 39.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 77

The industrial sector has intensified its efforts to

minimize waste and reduce emissions through process changes in order to attain environmental compliance in a cost-effective manner. For example, 3M Co.

switched from a solvent-based to a water-based carrier in a tablet-coating operation.114 Du Pont Co. cut

its plastics waste disposal by 50 million lb/yr through

tighter equipment and process controls and by finding

markets for off-spec material. Air Products and Chemicals reduced its plants’ emissions by over 90 percent,

largely by recycling or substituting for solvents. In

general, the industry has begun to emphasize that

efforts aimed at waste minimization could also improve product yields.115 Clearly, reduction in petroleum consumption is a potential added benefit, but no

estimates of specific overall savings have been calculated.

Post Consumer Recycling

Because of the costs and environmental consequences from solid waste disposal, recycling of wastes

has gained added significance. As an additional benefit, some recycling efforts could contribute to reduced oil consumption.

Recycled Plastics—In 1988, 10.3 million tons of

plastics were discarded as MSW. Only about 1 percent, or 125,000 tons, was recycled.ll6 Recently,

several firms have announced plans to expand plastics recycling. 117 To the extent that these plans become successful in substituting or reducing the need

for virgin plastics, they could lead to a corresponding

decrease in oil consumption.

Redesigned Packaging-Replacing plastic packaging with biodegradable, nonpetroleum-based material has also been suggested as a way to reduce the

environmental impacts of waste disposal. McDonald’s

Corp. has announced plans to switch from polystyrene to (ultimately recyclable) paper packaging.118

Replacing nonrecycled with recycled plastic packaging has also been suggested as an alternative, but it is

not clear how much oil, if any, this would save.

Used Oil—About 720 million gallons of used oil

are recycled each year, mostly by burning it as fuel.

Most of the remaining 400 million gallons represents

the amount generated at households and then disposed of in the trash, on the ground, or down sewers.

With proper education, incentives, and enforcement,

the portion of such oil recycled might be increased.

Reuse of this oil as fuel oil has been limited because

of costs and technical problems, but it has been

done.119

Used Tires-The mountains of used tires accumulated around America represent a resource that potentially could be tapped for materials or fuel.Y120 Old

tires can be burned as fuel-either directly or in a

processed tire-derived fuel. Pulverized rubber from

old tires can be added to asphalt. Efforts are under

way to develop an 18-percent rubberized asphalt. If

successful, such a ground rubber asphalt could not

only consume more than 1,000 old tires in every lane

mile,121 but also reduce the Nation’s asphalt and road

oil consumption, which was about 450,000 B/D in

1989. 122 Efforts at increasing recycling or reuse of

tires must confront the challenges of removing

nonrubber belting and additives in a cost-effective

way.

Use of Alternate Feedstocks

LPG and petrochemical feedstocks are used primarily to produce plastic resins, accounting for almost

30 percent of industrial petroleum consumption. It

114A n~ber of a~~ltional exarnpl= are pr~ente~ in U.S. Congress, Office of Technology Assessment, Serious ReAction ofHUZardou.$ ~astefor

Pollution Prevention and Industrial Eficiency, OTA-ITE-317 (Washington, DC: U.S. Government Printing Office, September 1986), ch. 3.

115’’Reducing Wastes can be Cost-Effective,” Chemical Engineering, July, 1990, p. 31.

116u s ~ngrfi~, offiW of T~hnology Assfisment, ~acingAmerica’s Trash: What Next for Municipal Solid Waste?, OTA-O-42,4 (Washington>

DC: U. S. ”Government Printing Office, October 1989).

117- M. Thayer, “solid Waste ~n~rns Spur plastic Recycling Efforts,” Chemical& Engineering News, Jan. 30, 1989, p. 7. “Plastia R=ycling

Expansion Planned,” Chemical& Engineering News, Oct. 1, 1990, p. 5.

11~’McDonald’s to Drop polystyrene Packaging,” Chemical& Engineering News, NOV. 12, 1990, P. 5.

ll~acing ~e~=’s Trash, supra note 116.

l~pAatimt= that about 250 ~lllon tir= are dism~~ ~nnwlly and that the stockpile of old tir~ ~uld to~l 2 to 3 billion nationwide. ody dollt

30 percent of the tires discarded each year are reeycled in some form. Hearings on Scrap Tire Management and Recycling Opportunities before the

Subcommittee on Environment and Labor and the Subcommittee on Regulation, Business Opportunities, and Energy of the House Committee on Small

Business, IOlst Chg., 2d se-w., Apr. 18,1990.

121’’Supenor Materials are in the Offing,” Engineering News Record, Oct. 4, 1990, p. 33. Such efforts to tap resources contained in old tires present

a limited opportunity, however. If just 10 percent of U.S. annual needs for asphalt cement were required to be mbberized asphalt exmcrete, that use alone

would exhaust almost all the tires discarded in a single year. Hearings, supra note 120, at p. 55.

lzzAnnualEnerD Review 1989, Supra note G.
78 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Figure 3-9-Chemical Feedstocks: Sources and Applications

Acrylics,

synthetic

rubber

Polyvinyl

acetate

Pvc

Phenoles

Formaldehyde

resins

SOURCE:

~ ~.y,on.~~ ‘i@=j yij+@j-.@ > Plastics

Office of Technology Assessment, 1991, adapted from U.S. Congress, Office of Technology Assessment, /ndustria/ Energy Use, OTA-E-198

(Washington, DC: U.S. Government Printing Office, June 1983), figure 28, p. 117.

might be possible to use natural gas, coal, or biomass

to produce alternatives to oil-based feedstocks. In

theory, it is possible to replace crude oil with natural

gas in feedstock production, as shown in figure 3-9.

Whether it can be economically feasible to do so will

require additional study. At present, there are several

examples of commercial ventures that use alternative

feedstocks.

Eastman Chemicals Co. has been producing about

560 million lb/yr of acetic anhydride using Texaco’s

coal gasification technology. The plant, which went

on line in 1984, uses about 900 tons/day of highsulfur coal. Construction is currently underway to

double the output by early 1992.123

Warner-Lambert Co. has announced that it will

build a corn and potato starch-based plastics plant in

Illinois. The 100 million lb/yr plant is scheduled to go

on line by the end of 1991.124

Many ethylene plants are capable of operating on a

wide range of hydrocarbon feedstocks; for example,

some of the alternate feedstock requirements for 100

lb of ethylene are: 125 lb of ethane, 240 lb of propane,

or 320 lb of naphtha.125

lzs~lvln ~derson, E~trnan Chernimls CO., personal communication to Renova Engineering, OTA contractor, Jan. 2S, 1991.

lw’’Warner-Lambert Revs Up Starch-based Plastic,” Environment Today, October 1990, p. 27.

IZSBNW F. Greek, “Margins Plunge for Steam Cracker Ethylene and COprOdLIct%” Chernicxd & EngineeringNews, Oct. 29, 1990, p. 14. Petroleum

reduction estimated by Renova from the data reported in the paper.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 79

The 1989 ethane and propane production was about

470,000 B/D each, while the natural gas production

was about 17 trillion cubic feet (TCF).126 Of the total

ethane and propane used in the country, about onethird is derived from natural gas. 127 During a crisis, if

natural gas production is increased by 1 TCF, ethane

and propane supply would increase by about 9,000

B/D each. This increase could displace, in principle,

about 35,000 B/D of naphtha.128 The 1990 ethylene

production is forecasted to be about 36 million lb.129

Since some of the plants already use non-oil-based

feedstocks and the feedstocks also determine the

quantity of ethylene coproducts, a detailed study

would be necessary to verify the actual potential.

Potential Savings

Based on the above discussion, we conclude that

process changes would embrace a multitude of options. Each of the foregoing options could replace a

small amount of petroleum on an individual basis,

leading to a significantly larger collective potential.

While we were not able to analyze each option in

detail, we have assumed an optimistic scenario,

wherein the overall replacement from these and other

process changes is assumed to be about 100,000 B/D,

or approximately 3 percent of the remaining petroleum consumption.

Deployment Considerations and Costs

A deployment schedule, based on such a scenario,

is shown in table 3-19. We have assumed that reduced

refinery throughput will decrease oil consumption in

the first year. Similarly, about two-thirds of the natural gas conversions, corresponding to the DOE estimates of short-term fuel switching capability, will

also occur in the first year. The remaining third of the

natural gas conversions are assumed to occur uniformly over the 5-year period. Conversion to other

fuels and process changes would become effective in

the last 2 years as they generally would require longer

lead times for construction.

Estimated capital costs for the various oil replacement options are shown in table 3-20. These investment costs are representative of oil replacement

projects in the industrial sector and do not include the

full range of replacement options. Minimum investments costs per barrel of oil replaced range from $0

for reduced refinery throughput, natural gas fuel

switching in existing equipment, and some process

changes to about $31,000 B/D for converting a 100,000

lb/hr steam boiler to use CSF. More extensive process

changes and fuel conversions would be considerably

more expensive. It is conceivable that some replacement options would result in net cost savings, but

none are assumed here.

For reasons discussed at length in our 1984 report

and background paper, the availability of manufacturing capacity and of engineering, technical, and

craft personnel to convert industrial boilers to non-oil

fuels is not expected to be an absolute constraint. As

discussed later in this chapter, shortages of qualified

engineering and craft personnel could result in some

delays in completion of large-scale conversions and

retrofits, however. It is also assumed that the necessary environmental permits for plant modifications

and/or fuel conversion projects will be obtained relatively smoothly over a 12- to 18-month permitting

process.

As discussed in the section on resource availability

later, natural gas supplies and delivery capabilities

are assumed to be adequate. Seasonal limitations

currently exist on the deliverability of natural gas for

some industrial users. To overcome these limits,

some industrial and utility natural gas consumers are

examining the possibility of constructing or reopening liquefied natural gas

130 plants and storage facilities to stockpile natural gas for continued use during

periods of peak demand.131

1

26’’ Warner-Lambert Revs Up Starch-based Plastic,” supra note 124.

~2~Short.Term petroleum Fuel Switching, supra note 16.

l~petroleum re~uctlon estlmat~ by Renova from the. data reported in Greek, supra note 125.

129Annua/Ener6T Review 1989, tables 159 and 71”

130Natural gas that has been turned into a liquid by coolingittominus260‘Fat atmospheric pressure. Liquefaction a]iows natural gas to be mom easily

stored and transported long distances by ship.

lslDisclNslons at OTA workshop, Dec. 5, 1~{~.
80 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Table 3-19-Deployment Schedule for Oil Replacement Technologies

in the Industrial Sector (oil replacement potential, thouaand barrels per day)

Fuel switching

Reduced

refinery Natural Other Process

Year throughput gasb

fuelscchangesc Total

1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .360 219 0 0 579

1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .360 238 0 0 598

1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .360 258 0 0 618

1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .360 277 25 50 712

1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .360 297 50 100 807

a Oil replacement occurs in the first year.

b About 75% oil replacement in the first year.

c Assumes uniform deployment in the last 2 years.

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement Analysis—

Evaluation of Technologies,” OTA contractor report, February 1991.

Table 3-20-Estimated Costs for Oil Replacement Technologies

in the Industrial Sector

$000 per

B/D replaceda

Option Minimum Maximum Remarks

Reduce refinery . . . . . . . . . . . . . O 0

throughput

Natural gas . . . . . . . . . . . . . . . . . . . . O 5 Minimum assumes existing equipment,

maximum assumes that a replacement boiler

rated at 25,000 lbs/hr steam costs $250,000

and it replaces an oil-fired unit operating at 75

percent efficiency and 40 percent capacity

factor.

Other fuels !.... . . . . . . . . . . . . . . . 31 98 CSF conversion of a 100,000 to 400,000 lbs/hr

steam boiler operating at a 40 percent capacity

factor.

Process changes . . . . . . . . . . 0 20 LPG could displace naptha in ethylene plants

at essentially zero cost. At the other extreme,

assumes a $10 million retrofit cost for a heat

pump add-on to a 250,000 tons/yr styrene

plant to reduce oil consumption by 500 B/Db 

.

a Approximate investment cost in thousand 1990 dollars per barrel Per day of oil replaced.

b A cost of $40 to $125 per lb/hr of steam derated output (1985 dollars) was cited in H.R. Beal et al.,’’coal-water

Fuel Retrofit Evaluations,” paper presented at Coal-Targets of Opportunity Workshop, DOE, Washington, DC July

12-13, 1988. This cost was increased by 30 percent to reflect 1990 dollars.

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement Analysis—

Evaluation of Technologies,” OTA contractor report, February 1991.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 81

TRANSPORTATION SECTOR

The transportation sector is the U.S. economy’s

largest oil user, accounting for almost 63 percent of

the Nation’s total oil consumption. In 1989 the transportation sector used about 10.8 MMB/D of petroleum products, more than twice as much as the second

largest user (the industrial sector) and more than

domestic oil production.

132 Over 80 percent of transport sector oil is consumed by motor vehicles (cars,

trucks, and buses), about 14 percent is used by aircraft, and the rest is split between water and rail

transport. Table 3-21 summarizes the 1989 oil con–

sumption in the transportation sector.

The most promising opportunities for fuel savings

in both the short- and long-term in this sector involve

oil replacement options for automobiles and light

trucks. These light-duty vehicles (LDVs) represent

the largest number of vehicles on the road and well

over half of transport oil use. Although one can expect

continued incremental improvements in fuel efficiency in other motor vehicles and other modes of

transportation, the short-term technical potential for

reducing petroleum consumption there is relatively

small, and no net savings are included in our estimates.

Oil Use in the Transportation Sector

Petroleum products supply over 95 percent of this

sector’s energy needs. The transportation system is

basically locked into petroleum use for all but the

long-term, and efforts to shift to alternate energy

sources face significant hurdles. Transportation’s share

of total oil use has increased from 54 percent in 1979

to 63 percent in 1989. Since 1984, transport sector oil

use has grown by 1.15 MMB/D. As transportation

uses make up an even larger share of domestic energy

use, U.S. flexibility to respond to oil supply and price

disruptions has shrunk.

Motor vehicles consumed 8.8 MMB/D of oil in

1989, divided between passenger cars (about 4.9

MMB/D, or about 56 percent), and buses, trucks, and

other vehicles (3.9 MMB/D). Aviation used about 1.5

MMB/D or about 14 percent of the total.

Energy consumption in the transportation sector is

driven by five factors: technical potential, existing

fleet characteristics, manufacturing capacity for replacement vehicles and retrofit equipment, consumer

preference (i.e., for model size or horsepower, as

influencing fleet replacements), and consumer behavior (miles driven, driving habits, other practices).

Our analysis of technical options focuses primarily

on the first three factors. Measures targeted at the last

two factors could also result in (sizable) fuel savings.

More than with any other sector, achieving fuel

savings in the transportation sector is like hitting a

moving target, because of the continuing growth in

transportation demand and the importance of behavioral factors.

Oil Replacement Options for

Light-Duty Vehicles

The major short-term oil replacement opportunities

for LDVS are improved fuel efficiency, conversion of

some fleet vehicles to natural gas and other alternate

fuels, and better traffic management. Electric vehicles, 133 while offering significant promise, are not

expected to contribute substantial fuel savings within

the next 5 years. We estimate that these options could

displace about 555,000 B/D of petroleum products,

about 5 percent of the consumption in the transportation sector. This would be accomplished using existing technologies and with some shifts in customer

preference and new-vehicle fleet mix favoring higher

fuel efficiency. The estimated savings are highly

contingent on manufacturers’ willingness to accelerate dispersion of existing fuel economy technologies

in the new vehicle fleet and consumer acceptance.

Additional savings are possible with considerable

effort if there is a major shift in consumer preferences

toward smaller, more efficient models, and if manufacturers accelerate the use of available fuel saving

technologies to more models in advance of current

product plans.

Fuel Efficiency Improvement

We estimate that under our severe import disruption scenario the introduction of new, more fuelefficient vehicles in the LDV fleet could reduce

lj2Annuul Ener~ Review 1989, supra note 6, table 62.

13%m_y O’Connell, Electric Power Research Institute, personal communication to Renova Engineering P. C., OTA contractor, Oct. 12, 1990.

“A Los Angeles Clean-Air Car,” The New York Times, Monday, Sept. 10, 1990.
82 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Table 3-21-Oil Consumption in the Transportation Sector, 1989

Vehicle

Oil consumption Vehiclesb miles per year

Transportation mode MMB/Da

(millions) (thousands) c

Motor vehicles

Passenger carsd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.86 144.4 10,12

Otherse

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.95 48,6 12.50

Subtotal f

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.81 193.0 10.72

Aircraft g . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.49

Shipsh. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.33

Railroads’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.22

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.85

a Estimaed breakdown from U.S. Department of Energy, Energy Information Administration, Annual Energy Review

1989, DOE/ElA-0364(89) (Washington, DC: U.S. Government Printing Office, May 1990), table 62.

b Registered vehicles in 1989 from Annual Energy Review 1989, table 24.

C Assumes that the 1988 data for passenger cars and all motor vehicles from Annual Energy Review 1989, table 23 is

valid for 1989. Mileage for other vehicles calculated by difference.

d Includes passenger cars only as reported by DOE. Assumes that passenger cars consumed 55.2% of the tOtal fOr all

motor vehicles, the ratio calculated for 1988 from Annual Energy Review 1989, tables 23 and 24.

e Other vehicles include about 44.2 million buses and trucks, and about 4.4 million motorcycles. Calculated consumption

for other vehicles by difference.

f Includes motor gasoline, gasohol, distillate fuel oil (diesel oil), and LPG and kerosene, when used in highway vehicles.

g Assumes 100% of the jet fuel.

h Assumes 100% of the residual fuel.

i Equal to the total supply of 10.85 MMB/D of petroleum less consumption by all other sectors.

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement Analysis—

Evaluation of Technologies,” OTA contractor report, February 1991.

overall fuel consumption by from 67,000 B/D to as

much as 545,000 B/D over 5 years. This range in

estimates of fuel savings are tied to different assumptions about the characteristics of the existing LDV

fleet (e.g., size and fuel economy) and future changes

(e.g., fuel economy and market share of new vehicles,

fleet growth, and changes in vehicle miles traveled).

Although fuel efficiency has increased since 1973,

these gains have eroded in recent years. From 1973 to

1988, fuel efficiency improved dramatically, with

average fleet fuel economy increasing by about 50

percent from 13.5 mpg to 20 mpg.134 Table 3-22

summarizes the historical fuel economy for LDVs.

By 1987-88, sales-weighted new car fuel economy

had increased to over 28 mpg. These gains were not

as great as they could have been, however, from 1984

through 1988 consumers sought more luxury options

and performance in cars at the expense of fuel econ–

omy.

135 Moreover, light trucks, including minivans

and sport/utility vehicles (i. e., 4x4’s and other

machomobiles) became more popular; by 1989 they

comprised about one-third of the combined passenger car and light truck sales. The fuel economy of new

light trucks showed a smaller gain than that of cars,

reflecting the increased market share of less fuel

efficient small vans and small utility vehicles136

These factors, combined with an increase in average

fleet age to about 8 years,

137 limited the 1984 to 1988

gain in onroad miles per gallon to about 7 percent. The

LDV data for 1989 and 1990 model years shows an

actual decline in the fuel economy compared with the

1988 model units.138

OTA estimates that in the absence of a crisis, the

1995 model year car fleet could attain a fuel economy

of about 32 to 33 mpg (EPA rating) if each automobile

manufacturer applies existing technology to improve

l~stacy C. Davis and Patficia S. Hu, Transporfufion Energy Data Book: Edition 11, ORNL 6649, (Oak Ridge, TN: Oak Ridge National ~bomtory,

January 1991), tables 3.18 and 3.8.

IBSNational Ener~ strute~, Interim Report, S1.lpi IIOt~ 39.

136L1n~as. Wllllam, and Patncla s. Hu, “Light.Duty Vehicle MPG and Market shares Report: Mode] Yar 1989,” oak Ridge National Laboratoy,

ORNL-6626, 1989.

IBTNational Ener~ Strate~, Interim Report, supra note 39.

138 Tran~portation Ener~ Data Book: Edition 11, supra note 134, figure 3-33.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 83

Table 3-22—Fuel Economy Data for Light-Duty Vehicles, 1984-90

Percent change 1990

1984 1988 1984-88 1989 6-months

New light-duty vehicles solda

Automobiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .............. 10,2 million 10,4 million 2.0% 10.1 million 4.3 million

Light trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 million 4.7 million 30.6% 4.8 million 2.2 million

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................13.8 million 15.1 million 9.4% 14.9 million 6.5 million

Fuel economy

New vehicles (EPA)a

Automobiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...........26.3 mpg 28.5 mpg 8.4% 28.0 mpg 27.7 mpg

Light trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...20.0 mpg 20.7 mpg 3.5% 20.2 mpg 20.6 mpg

Total new fleet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......24,3 mpg 25.5 mpg 4.9% 25.0 mpg 24.8 mpg

On road fuel economy

all light-duty vehiclesb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.4 mpg 17,5 mpg 6.6% NA NA

NA = Not Available.

a Includes automobiles and Iight trucks. Model year new vehiclesales and EPA fuel economy data from Linda S. Williams and Patricia S. Hu, “Light-DutyVehicle

Summary: First Six Months of Model Year 1990,” ORNL-6626/S1, Oak Ridge National Laboratory, July 1990.

b Includes cars and light trucks. On-road mpg data from U.S. Department of Energy, Energy [formation Administration, Energy Conservation TrendsUnderstanding the Factors That Affect Conservation Gains in the U.S. Economy, DOE/PE-0092, September 1989, table 16, app. A. The efficiency of atl

light-duty vehicles would be 15 to 20 percent higher, if expressed in terms of EPA mpg which is a laboratory-based measure of fuel economy.

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement Analysis-Evaluation of Technologies,’’ OTA contractor

report, February 1991.

its fuel economy according to the technological potential of its fleet and assuming a new fleet mix

comparable to 1990.139 Mechanisms for this shift in

fuel economy trends could be in the form of direct

requirements on auto fuel efficiency through revised

Corporate Average Fuel Efficiency (CAFE) standards, increased gas guzzler taxes, or, most unlikely,

a sudden enlightenment about and dedication to fuel

efficiency among auto industry executives. The 1995

new car fleet economy could be even greater if buyer

preferences changed significantly in response to, for

example, higher oil prices or anticipated gasoline

shortages, resulting in a shift in sales toward smaller,

less powerful cars and/or to more fuel-efficient models within size classes. 140 Without dramatic shifts in

manufacturers’ perceptions of consumer preferences,

substantially higher oil prices, or changes in fuel

economy standards, OTA estimates that new car fleet

fuel economy under the manufacturers’ business as

usual product plan will be only about 29 mpg by

1995. 141

OTA estimates that 1995 model year light trucks

could attain a fuel economy of about 24 mpg. Assuming that new light trucks continue to account for onethird of all new LDV sales, the fuel economy for the

total new 1995 LDV fleet would be about 29 mpg.142

Compared with the 1990 new fleet fuel economy of

about 25 mpg (see table 3-22), this would amount to

an average increase of about 3 percent per year.

Achieving these efficiency gains is contingent on

automobile manufacturers making more efficient

vehicles and on consumers buying them. Under normal circumstances, automobile manufacturers will

have already put into place their design and production plans and schedules for model years 1991 through

1995 based on the anticipated market demand. Supplier contracts will be out for bid and negotiation.

Radically altering these schedules to produce a different mix of vehicles or to accelerate introduction of

more efficient technologies could cause financial,

logistical, and legal headaches. Of course, disastrous

IW~e u-s. congra~s, Offlce of T~hnology ~sessment, ImprovingAutomobile Fuel Economy: New Standards, New Approaches, expected to be

published in October 1991. This OTA report examines the technical potential of various fuel economy technologies and alternative government standards.

Interim results were presented in congressional testimony. Steven E. Plotkin, ’’Estimating Levels of Corporate Average Fuel Economy, ” testimony before

the Senate Committee on Energy and Natural Resources, Mar. 20, 1991. Steven E. Plotkin, Senior Associate, U.S. Congress, Office of Technology

Assessment, “Legislative Proposals to Increase Automotive Fuel Economy and Promote Alternative Transportation Fuels,” testimony before the

Subcommittee on Energy and Power of the Home Committee on Energy and Commerce, Apr. 17, 1991.

ldooak Ridge National Laboratory, SUpm note 94.

ldlsteven E. plotkin, supra nOte 139.

IQzSteven E. plotkin, ~nior Associate, U.S. congress, Office of Technology Assessment, “Increasing the Efficiency of Automobiles and Light

Trucks-A Component of a Strategy to Combat Global Warming and Growing U.S. Oil Dependence,’ ’presentation before the Consumer Subcommittee,

Committee on Commerce, Science, and Transportation, U.S. Senate, May 2, 1990.
84 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Table 3-23-Alternate Scenarios for Efficiency Gain

in the Light-Duty Vehicle Fleet, 1991-95

Efficiency gain

Low High Notes

Average new sales, million units/year ........10.0 12.0 a

Average fleet growth, percent per year ..,.,. 1.0 0.0 b

New vehicle fuel economy, EPA mpg c

1991 model year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.0 25.0

1995 model year ..,.............,......,.............30.4 33.4

a Assumes 30 and 10 percent declines respectively from the 1990 sales of

13 million units.

bThe 1984-88growth rate was about 2 percent per year basad on DOE’s data

on registration of passenger cars, U.S. Department of Energy, Energy

lnformation Administration, Annual Energy Review 1989, DOE/ElA-0384(89)

(Washington, DC: U.S. Government Printing Office, May 1990). The low

gain scenario assumes half of this rate. The high gain scenario assumes

no growth based on an intensified retirement of older cars by consumers.

cAssumes that the 1991 new LDV fleet fuel economy is same-that in 1991.

Assumes an annual increase of 5 and 7.5 percent, respectively. The

resulting 30.4 mpg in 1995 implies a reduced market share for light trucks

at a level of about 20 percent using OTA’s 1995 estimates. The 33.4 mpg

in 1995 implies a major shift towards smaller cars and much lower sales of

light trucks.

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement Analysis—Evaluation of

Technology -,” OTA contractor report, February 1991.

car sales from offering only gas-guzzling powercars

can also produce manufacturer headaches and, manufacturers obviously must maintain some flexibility to

modify product lines and options. During an oil

supply shortfall, the major option available to manufacturers would be to shift existing production capacity toward the most fuel-efficient configurations for

each model.

The actual oil savings from a shift in new-vehicle

fuel efficiency also depends on consumer behavior,

such as vehicle miles traveled per year, market share

of light trucks, total new vehicle sales, and growth in

the overall LDV fleet. Different assumptions about

these factors can yield considerable differences in

estimates of improved auto fuel efficiency and oil

savings. To reflect these uncertainties, we used two

alternate scenarios—low-efficiency gain and highefficiency gain—to assess the fuel savings from fleet

turnover for the 1991 to 1995 period. The key assumptions used in these scenarios are shown in table

3-23.

Both scenarios assume 1) an existing 1988 LDV

fleet of 160 million vehicles with an onroad fuel

economy of 17.5 mpg143 and (2) a fleet growth of 2

percent per year between 1988 and 1990. Based on

these two assumptions and new-model year sales data

for 1989 and 1990 (table 3-22), we estimate the 1990

LDV fleet size to be about 167 million vehicles, with

an on-road fuel economy of about 18 mpg.144 We

have also assumed the vehicle miles traveled to be

10,100 miles per vehicle per year, the average reported by DOE for passenger cars in 1988 (table 3-

21).

The low-efficiency gain scenario corresponds to a

slight improvement in the new fleet fuel economy

based on renewal of past efficiency gains, depressed

new car sales, a modest growth in the fleet size, and

a reduced market share for light trucks. The highefficiency gain scenario corresponds to a more substantial improvement in the new fleet fuel economy,

a modest decline in new car sales, zero growth in the

fleet size, reduced market share for light trucks and a

major shift towards lighter more fuel-efficient cars.

Our analysis, shown in table 3-24, indicates that in

5 years, under the low-efficiency gain scenario, the

LDV fleet could save about 67,000 B/D. In contrast,

under the high-efficiency gain scenario, shown in

table 3-25, which assumes a 34-percent improvement

in fuel economy, the LDV fleet could save about

545,000 B/D over 5 years. We have used a mid-range

value of 300,000 B/D as the potential fuel savings.

The potential mid-range savings of about 300,000

B/D from the turnover in the LDV fleet is significantly less than the 1984 OTA estimate of 700,000-

800,000 B/D.145 The 1984 study assumed that in a

crisis, the new-car fuel efficiency could be increased

from 27.5 to 36 mpg, or a gain of about 31 percent.

The primary reason for the difference is that under the

updated scenarios, the new 1991-95 cars are replacing old cars that are, on average, more fuel efficient

IQsThis reflwts a lower fiIeS per gallon value than DOE estimate. We have used the Motor Fuel Consumption (MFC) Model estimate of about 160

million LDVS in 1988 as the basis for our estimates. The data on the number of registered vehicles in the country are not consistent. For example, DOE

indicates that in 1986, about 181.5 million vehicles were registered, consisting of 135.4 million passenger cars, 5.3 million motorcycles, and 40.8 million

bwses and trucks, Annual Energy Review 1989, supra note 6, table 24. On the other hand, the MFC Model used by DOE for evaluating the impact of

conservation policies, indicates a total 1986 tleet of 162.1 million vehicles, consisting of 117.3 million passenger cars, 37.1 million light tmcks with Gross

Vehicle Weight (GVW) of less than 8,500 lb each, and 7.8 million heavy trucks (GVW >8,500 lb). Energy and Environmental Analysis, Inc., “The Motor

Fuel Consumption Model, 14th Periodical Report,” prepared for Martin Marietta Energy Systems, Inc., app. B, Dec. 15, 1988.

IQqThls ~tlmate is lower than that for passenger cars published by DOE in its Annual Energy Review 1989, supra note 6.

IQ@TA The Oil Rep[u~~ment Capubi/ily, supra note 1. >
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 85

Table 3-24--Low Efficiency Gain Scenario, 1991-95 Efficiency Improvement

for the Light-Duty Vehicle Fleet

Millions of Vehicle fuel

light-duty vehicles efficiency Fuel use Fuel savings

All LDVse

New LDVsd on-road Billionf Billion Thousand

Year Tota l

a N e wb Oldc EPA mpg mpg gal/year gal/year B/D

1988 ........160.0

1989 ........163.2

1990 ........166.5

1991 ...,,.,.168.1

1992 ........169.8

1993 ....,,..171.5

1994 ........173.2

1995 ........175.0

15.1 144.9

14.9 148.3

13.0 153.5

10.0 158.1

10.0 159.8

10.0 161.5

10.0 163.2

10.0 165.0

25.5

25.0

24.8

25.0

26.3

27.6

28.9

30.4

17.5

17.7

17.9

18.0

18.2

18.4

18.7

19.0

—

—

94.0

94.2

94.3

94.0

93.6

92.9

— —

— —

base year

(0.28) (18.24)

(:.:;) (1.56)

14,32

0.45 29.24

0.66 43.09

Total savings after 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................66 .85

LDVs = Light-duty vehicles

aAssumes 160 million LDVs in 1988 and a 2 percent per year increase in fleet size from 1988 to 1990 and 1 Percent

per year thereafter.

b

1988 and 1090 data from tables 3-22. Assumes 1990 new car sales at 13 million units and 10 million units/yr therea CCaculated by subtracting new vehicles from total.

d

l988, 1989 and 1990 data from table 3-22. Assumes that 1991 model year cars have the same EPA rating as that Of

the 1988 model year (table 3-22) and there is a 5 percent increase per year beyond 1991.

eBased on the 1988 on-road mpg for all cars at 17.5 mpg. For new vehicles, assumes that the on-road mpg iS 80 percent

fAssumes 10,000 miles/car per year.

SOURCE: Office of Technology Assessment ,1991, from Renova Engineering, P. C., “Oil Replacement Analysis—

Evaluation of Technologies,” OTA contractor report, February 1991.

than those replaced over the 1985-90 scenario in our

earlier report. Other factors also have contributed to

this difference. In 1984 we assumed continued progress

in fuel efficiency. The CAFE standards have not been

raised beyond 1985 and in fact were rolled back from

27.5 to 26 mpg for the 1986 to 1988 period. Perceived

consumer demands for power and luxury resulted in

production decisions favoring these options at the

expense of fuel economy. Also, the market share of

less fuel-efficient light trucks and vans increased

substantially.

Conversion to Natural Gas

Currently, about 30,000 vehicles in the United

States and 700,000 worldwide run on compressed

natural gas (CNG).146 Interest in natural gas vehicles

(NGVs) has increased significantly in recent years,

with major auto manufacturers announcing plans to 147 

market NGVs commercially. For example, General Motors plans to offer 1,000 new natural gaspowered light trucks in California, Texas, and Colorado by 1991.148 Most of the existing NGVs are

gasoline-powered vehicles that have been retrofitted

to burn natural gas, and most still retain a dual-fuel

capability. Expanded sales of new NGVs and the

conversion of more existing vehicles to natural gas

offers a promising opportunity for replacing 130,000

B/D of oil in the near term.

The fleet vehicle market offers perhaps the greatest

potential for natural gas conversions to cut oil use.

Fleet vehicles include buses, trucks, local delivery

vans, and police, government, and public utility vehicles. About 16 million vehicles are part of fleets of

10 or more vehicles.149 We estimate that about 12

146 U.S. Congress, Office of Techno]ogy Assesment, Rep/acing Gasoline: Alternative Fuels for Light-Duty Vehicles, OTA-E-354 (Washington, DC:

U.S. Government Printing Office, September 1990) (hereinafter Replacing Gasoline), p. 97. This includes Italy (300,000), Australia (>100,000), New

Zealand (150,000), and Canada (15,000).

l47American Gas Association, “Outlook for Gas Energy Demand: 1990-2010,” May 1990; and Robert Fani, Brooklyn Union Gas Co., personal

communication to Renova Engineering, P. C., OTA contractor Oct. 15, 1990.

148Wfald, "Proposals for a U.S. Energy Policy: Some possible, Most Not,” The New York Times, Monday, Sept. 24, 1990. “Bright Hopes for the Blue

Flame,” Time, Sept. 24, 1990, p. 68.

149American Gas Association, supra note 147.
86 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Table 3-25-High-Efficiency Gain Scenario, 1991-95 Efficiency Improvement

for the Light-Duty Vehicle Fleet

Millions of Vehicle fuel

light-duty vehicles efficiency Fuel use Fuel savings

All LDVse

New LDVsd on-road Billionf Billion Thousand

Year Tota l

a N e wb O l dc EPA mpg mpg gal/yr gal/yr B/D

1988 ........160.0 15.1 144.9

1989 ........163.2 14.9 148.3

1990,,,,....166.5 13.0 153,5

1991 ..,....,166,5 12.0 154.5

1992 . . . . . . . . 166.5 12.0 154.5

1993 ........166.5 12.0, 154.5

1994 ........166.5 12.0 154.5

1995 ..,,,...166.5 12.0 154.5

25.5

25.0

24.8

25.0

26.9

28.9

31.1

33.4

17.5

17.7

17,9

18.0

18.3

18.6

19.1

19.6

—

—

94.0

93.2

91.9

90.2

88.1

85.6

— —

— —

base year

0.79 51.6

1.27 82.7

1.71 111.7

2.11 137.9

2.46 160.7

Total savings after 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................544.6

LDVS = Light-duty vehicles

aAssumes 160 million LDVs in 1988 and a 2 percent per year increase in fleet size from 1988 to 1990 and O Percent

per year thereafter.

b1988 and 1989 data from table 3-22. Assumes 1990 new car sates at 13 million units (table 3-22) and 10 million units/

yr thereafter.

cBy difference.

d1988, 1989 and 1990 data from table 3-22. Assumes that 1991 model year cars have the same EPA rating as that Of

the 1988 model year (table 3-22) and there is a 7.5 percent increase per year beyond 1991.

eBased on the 1988 on-road mpg for all cars at 17.5 mpg. For new vehicles, assumes that the on-road mpg iS 80 precent

of EPA mpg.

fAssumes 10,100 miles/car per year.

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement Analysis— , Evaluation of Technologies,” OTA contractor report, February 1991.

million of these vehicles are cars, pickups, vans, and

minivans. 150 We further estimate that these fleet

LDVs used about 1.3 MMB/D of fuel in 1989.151 In

1983, fleet automobiles averaged about 30,000 mi/yr

compared with about 10,000 mi/yr for household

automobiles. 152

The attractiveness of fleet vehicles as conversion

targets rests on two characteristics: central refueling

capability and high annual mileage, which allows for

Many, but not all, fleet vehicles use a central refueling

location that could be equipped to refill their tanks

with natural gas. However, a considerable number of

fleet vehicles in fact refuel at commercial gasoline

stations. 153 Nevertheless, it is possible for a network

of central fleet refueling operations and commercial

gas stations to be deployed to support the introduction

of NGVs.154

Recent experience in British Columbia confirms

quicker payback on the investment than for most the technological feasibility and economic attractive155 In British Co- private cars. ness of fleet vehicle conversions.

lumbia, a small retail gasoline company began conSwitching fleet LDVs to run on natural gas entails verting fleet vehicles to natural gas to stimulate sales

two changes. First, the vehicle must be retrofitted to of batteries and tires. Taxis were the first to accept the

burn natural gas, and an onboard gas storage tank conversion. With an annual fuel consumption of over

must be installed. Second, and perhaps more critical 1,500 gal per vehicle, the fleet owners recovered the

for successful penetration of NGVs, the vehicles must conversion cost in less than 2 years. Sensing an

have a network to provide for refueling and servicing. opportunity, major oil companies also entered the

ls~ls estimte assumti that the breakdown of the fleet by the type of vehicles is similar to that reported for the 1985 fleet population, Oak Ridge

National Laboratory, Trunsporta[ion Energy Data Book: Edition 9, ORNL 6325 (Oak Ridge, TN: April 1987), figure 2.14.

lsl~ls is based on an ~ssumptlon that fltit vehicle fuel consumption is still retlects the 1983 ratio. In 1988, the 157.5 million private cars wed a total

of about 82.4 billion gallons of fuel, or about 5.4 million bblsklay. Annual Energy Review 1989, supra note 6, table 22.

ISzTransportalion Energy Data Book: Edition 9, supra note 150, tables 2.28 and 2.34.

lssReplucing Gasoliney SUpra note 146.

lsqIbid,, and Gas R~~rch Institute, SUpm note 61.

lsspatnck L. McGeer and Enoch J. Durbln, ‘tNatural Gas in Cars-And Step On It,” The New York Times, Friday, Sept. 14, 1990.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 87

market, and the refueling network grew from the

original 20 stations to about 50 refueling stations

serving fleet and private vehicles.156

We have assumed that in response to an oil supply

crisis, about 10 percent of the fleet LDVs could be

converted to natural gas by 1995. This would require

converting about 1.2 million vehicles at an average

conversion rate of 240,000 vehicles per year. The

converted vehicles would consume about 0.25 quads

of gas per year and displace about 130,000 B/D of

oil.157 This would involve a 40-fold increase in U.S.

CNG vehicles in just 5 years, no small task. The 10-

percent penetration in the fleet population is comparable to that achieved in New Zealand.158

In our 1984 report, we estimated that every 1

million vehicles converted would require about 50,000

compressors for refueling stations, each rated at 20

standard cubic feet per minute (SCFM).159 If, however, the average compressor size is increased to 50

SCFM to serve larger fleets, the required units would

decrease to about 20,000 per million vehicles. Thus,

a conversion of 10 percent of the fleet LDVs would

require 24,000 to 60,000 compressors over a 5-year

period.

Delivery constraints for storage cylinders and compressors could pose a potential limitation on this rate

of conversion. The Department of Transportation

(DOT) certifies the manufacture of storage cylinders.

Currently, there are some delays for cylinders because of the lack of vendors with proper DOT certification. 160

The peak production rate of 5,770 gas compressors

occurred in 1974.161 The currently estimated need is

for 5,000 to 12,000 units per year. This has led

potential customers to look at foreign sources. Italy,

for example, with over 300,000 NGVs on the road,

has a large base of cylinder manufacturers. Some gas

utilities are already planning to test compressors

offered by foreign vendors.

162 

U.S. compressor technology is somewhat outdated, and currently, the units

available from the United Kingdom are considered to

be superior.

163 It is assumed that in a crisis the

industry would intensify production efforts and the

required compressors would be made available. Given

a demand, U.S. companies that manufacture largediameter pressure piping could fabricate the required

cylinders. 164

Conversion to Other Fuels

An oil supply shortfall would also stimulate use of

alternative fuels that would replace or be mixed with

gasoline. Over the relatively short replacement horizon considered here, synthetic fuels-such as oil

from oil shale or coal liquefaction, even if commercially ready—would not make a significant contribution because of time needed to site, permit, and

construct such facilities. The primary short-term alternative fuels are various alcohol fuels, either neat

(alone) or blended with gasoline. Currently available

fuels include gasohol, a gasoline/alcohol blend (90

percent gasoline, 10 percent ethanol); a substantially

pure alcohol, such as neat methanol; and so-called

M-85 (85 percent methanol, 15 percent gasoline), an

alcohol/gasoline blend that is predominantly alcohol.

“Oxygenated fuels” comprise about 25 to 30 percent 165 They contain of the gasoline sold in the country.

gasoline blended with low amounts of alcohols or

other oxygen-containing compounds, such as methyl

tertiary butyl ether (MTBE), and tertiary amyl methyl

ether (TAME).

IScEnoch Durbin, pemonal communication to Renova Engineering, OTA cmtractor, NOV. 8, 1990.

~STThe published data on the near term potential for Wnverting U.S. fleet vehicles to natural gas is limited. For example, an analysis by the Amerimn

Gas Association (AGA) estimates that NGVS could corcsume 0.7 quads by the year 2000 under two alternate scenarios - “low energy use” corresponding

to significant energy conservation and high environmental standards, and “high environment/high demand use” corresponding to high environmental

standards and moderate energy conservation. In its forecast AGA assumed that the major market penetration would oaxr beyond 1995. American Gas

Association, “The Outlook for Gas Energy Demand: 19(90 -2010,” May, 1990. Assuming that 5 to 10 percent of AGA’s year 2000 projection could be

achieved by 1995, it would indicate a conversion rate of about 35,000 to 70,000 vehicle-s per year.

158Enoch Durbin, supra note 156.

15907’A, The @l Replacement Capability, supra note 1.

160Fani, supra note 147.

IGIOfflW of Technology A..sessment, The Oil Replacement Capubiliry, supra note 1.

lbzFanl, supra note 147.

l@Durbin, supra note 156.

l~Durbin, supra note 156.

lcs~enun Institute of Chemical Engineers, “Methanol and Ethanol as Alternate Fuels for Motor Vehicles,” April 1990.
88 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Gasohol now holds about 8 percent of the gasoline

market, and therefore the current consumption of

ethanol as a fuel is estimated to be about 54,000 B/D,

or about 825 million gals/yr. Most of this ethanol is

derived from corn.

166 Ethanol does not replace oil on

a gallon-for-gallon basis. Because ethanol has an

energy content of 75,700 Btu/gal, compared with

gasoline’s 125,000 Btu/gal,l67 the 50,000 B/D of

ethanol now used actually displaces about 30,000

B/D of gasoline.

At present there is excess domestic ethanol production capacity of about 475 million gal/yr, comprising

375 million gal/yr of corn-based and 100 million gal/

yr of synthetically produced ethanol.168 If, in a crisis,

available capacity could be expanded by constructing

five new corn-based ethanol plants, each rated at 50

million gal/yr, sufficient ethanol would be available

to displace an additional 700 million gal/yr, equivalent to 25,000 B/D of gasoline.

Natural gas feedstocks provide most of current

methanol needs, but technology exists to derive methanol from coal and biomass.

169Of the 1,380 million

gal/yr of methanol consumed in the country, about 85

percent is used as a feedstock in the production of

other chemicals, mainly formaldehyde, acetic acid,

and chloromethane. DOE estimates that about 280

million gal/yr of methanol, about 20,000 B/D, are

used as fuel additives.

170 At an energy content of

56,600 Btu/gal,171 compared with gasoline’s 125,000

Btu/gal, 172 the 20,000 B/D of methanol in current use

displaces about 9,000 B/D of gasoline.173

Because of the recently enacted Federal Clean Air

Act amendments and the changes proposed by the

California Air Resources Board, the demand for

MTBE is expected to rise dramatically.174 Methanol

is the feedstock for MTBE. Since no new methanol

plants are under construction, the supply of methanol

could be a limiting factor by the mid- 1990s.175 We do

not assume the construction of any new domestic gasbased methanol plants.

In an oil crisis, it could be possible to shift methanol

uses from other uses to MTBE. It might also be

possible to import gas-based methanol from countries with large gas reserves. We have, however, not

included the oil displacement potential of these options because of the uncertainty in supply. Moreover,

given the long lead-time required, we have also

excluded the feasibility of building any new domestic

coal-based methanol plants. In short, we have assumed a negligible oil displacement potential for

methanol during the crisis.

Improvements in Traffic Management

Motor vehicle fuel efficiency goes down at both

low and very high speeds. Therefore, efforts at improving traffic management to promote more efficient vehicle travel could make modest contributions

to saving oil. Various mechanisms have been suggested for improving the use of existing transportation capabilities. We have focused only on relatively

passive or voluntary methods and do not include

direct means to constrain driver behavior (other than

enforcing existing 55 mph, speed limits), such as

restrictions on vehicle use or gas purchases, parking

bans, and similar measures. Each of these measures

alone offers only limited fuel savings, but taken

together they could save 100,000 B/D-equal to

other options considered here.

In a crisis the Nation could adopt further measures

aimed at improving traffic efficiency and management. Examples of such measures are as follows:

Reduced Highway Speed Limits—The fuel

economy of an automobile changes with its speed.

Test results on 15 different vehicles of 1981-83 model

years that were equipped with 4-, 6- and 8-cylinder

~66S~rt.Term Petroleum Fuel Switching, supra note 16.

1G70RNL, Ener~ Technology, What Could Make a Difference?, supra note 17, table 1.1-1, p. 10.

168Short-Term Petroleum Fuel Switching, supra note 16.

~@Replacing Gasoline, supra note 146.

IToShort-Term Petroleum Fuel Switching, supra note 16.

1711bid.

1720~L Enera Techno/oO R&D: What Could Make a Difference?, supra note 17, table 1.1-1, p. 10.

~~BShort-term Petroleum Fuel Switching, supra note 16.

17qGerald parkinson, ‘Cshofiagw Slow, but Cannot Stop Gasoline Refo~ulating,” Chemical Engineering, October 1990, p. 56.

175’’Growth in Methanol Supply Lags Demand,” Chemical& Engineering News, Sept. 3, 1990, p. 17.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 89

gasoline and diesel powered engines indicate a wide

variation in fuel economy at speeds between 15 and

65 mph. The average data for the 15 cars showed an

increase in fuel economy from about 26 mpg at 65

mph to about 31 mpg at 55 mph.176 We estimate that

a reduction in the highway speed limit to 55 mi/h

would reduce fuel consumption by about 60,000 B/D,

provided that the speed limit is enforced strictly.177

Increased Use of Ride Sharing and High Occupancy Vehicle Lanes—A 1985 report on 13 highoccupancy vehicle (HOV) lane highways showed an

annual saving of 50,000 to 150,000 gal of fuel during

peak periods per HOV lane mile. In six projects, the

number of ridesharing vehicles increased by 25 percent to over 300 percent, while vehicle occupancy

showed an increase of 3 to 15 percent. Shirley Highway in Virginia showed an increase of over 1,000

percent in the number of ridesharing vehicles and

over 200 percent in vehicle occupancy. 178 HOV lanes

also reduce commuting time by 40 to 50 percent on

highly congested highways.179

In an oil crisis, additional HOV lanes could promote more ridesharing. For example, one vanpool

could replace up to 15 automobiles and save a significant amount of fuel even given the lower fuel economy

of vans compared with that of automobiles.180 The

American Council for an Energy-Efficient Economy

(ACEEE) estimates that using HOV lanes in cities

with populations in excess of 500,000 could reduce

fuel consumption by 11,000 to 40,000 B/D.181

Employers could further encourage ridesharing by

offering preferential parking, flexible schedules, and

guaranteed ride-back incentives for emergencies.182

Existence of free parking is a deterrent against

carpooling. A study in downtown Los Angeles indicates that in one case increased parking fees reduced

single occupancy vehicles by 25 percent.183 Such

steps combined with improvements in traffic patterns

would reduce traffic congestion.

A detailed study would be necessary to estimate the

potential fuel reduction from more HOV lanes. We

have assumed a savings of about 15,000 B/D based on

establishing 100 to 150 HOV lane highways of 10

miles each, for an average saving of 150,000 to

200,000 gallons per lane mile.

Reducing Traffic Congestion—It is estimated

that in 1987 traffic congestion increased consumption of gasoline by about 2.2 billion gallons, about

144,000 B/D.l84 the absence of a detailed study, we

have assumed that reduced traffic congestion could

lead to a savings of 15 to 20 percent, or about 25,000

B/D.

Limited Oil Replacement Potential in

Other Transport Sectors

While there have been significant gains in fuel

efficiency in aviation, motor freight, and railroads

over the past 2 decades, the gains have not been as

dramatic as those for LDVs. Moreover, increasing

fuel savings have been more than offset by growth in

use of these transport modes. We believe that the

short-term potential for reducing petroleum consumption in other modes of transportation is relatively

small and therefore exclude these modes from our

analysis for reasons briefly set out below. At the same

time, we believe that modest fuel efficiency improvements in these sectors will continue and that a crisis

may reduce fuel demand through a combination of

cost-induced conservation, mode shifts, and changing demand for services resulting from associated

economic impacts. These shifts, however, are not

quantified.

IThTransportation Ener~ Data Book: Edition 9, supra note 159, tabIe 2.21.

ITTIn 1985, there were about 376 million highway trips with an average trip distance of 730miles. These household trips involved the USe of automobile=,

trucks, and recreation vehicles. Moreover, vehicltx which were less than 5 years old accounted for almost 60 percent of the travel miles. Transportation

Energy Datu Book: Edition 9, supra note 150, tables 2.23 and 2.8.

IT~Transportati<)n Ener~ Data Book: Edition 9, supra note 150, tables 2.32 and 2.33.

ITgStacy c Davis et al Tran~Portation Ener9 Data Book: Edition 10, ORNL-6565 (Oak Ridge, TN: Oak Ridge National ~boratow, September

1989), table 3:44, p. 3-75:’

IsoOak Ridge National ~borato~, Transportation Ener~ Datu Book: Edition 9, supra note 150, tables 2.23 and 2.8.

lglMonlca C. Burke, “High-Occupancy Vehicle Facilities: General Characteristics and Fuel Savings, ” American Council for an Energy-Efficient

Economy, September 1989.

182sandra SpenW, A..s{)clatlon for Commuter TranspL)~ation, Pemonal Communlcatlon to Renova Englneerlng, p.c., OTA contractor, NOV. 13, 19W.

1831bid.

18dNati<)nu/ Ener~ strate~, Znterim Report, Supra note 39, P. 14.
90 Ž U.S. Oil Import Vulnerability: The Technical Replacement Capability

Table 3-2&Estimated Oil Replacement Potential in the Transportation Sector

Estimated oil replacement

Option potential-thousand B/D Remarks

Improved fuel efficiency . . . . . . . . . . . . . . . . . . . . 300 Based on turnover in light-duty vehicle fleet by

more efficient new cars. (range of about 67,000

B/D to 545,000 B/D)

Conversion to natural gas .................130 Based on conversion of 10 percent of fleet LDVs.

Conversion to other fuels . . . . . . . . . . . . . . . . . . 25 Increased use of ethanol.

Improved traffic efficiency .................100 Adoption of various measures for

and management promoting fuel saving.

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 555

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement Analysis—

Evaluation of Technologies,” OTA contractor report, February 1991.

Highway freight transportation has seen modest

gains in fuel efficiency. There is less potential for

improvements in fuel economy because the options

of reducing the weight or power are not readily

available. Engines of heavy trucks are already designed more for fuel economy than performance.185

Nevertheless, some incremental savings can still be

achieved through improved aerodynamics, improved

tire designs, and development of low-heat rejection

engines. Operational changes such as improved maintenance, less idling, and the limiting of empty

backhauls can also provide some fuel savings.

Aircraft consumed 1.5 MMB/D of jet fuel in 1989.

Commercial aviation accounted for 76 percent; general aviation, 4 percent; and Department of Defense

peacetime uses, 20 percent.

186 Significant reductions

in military fuel consumption, even during peacetime,

are probably unlikely during an imported oil supply

disruption. 187 Fuel savings in commercial and general aviation have been more than offset by increases

in passenger travel and air freight.

Airline travel has been the fastest growing mode of

passenger travel. 188 At the same time, more fuelefficient jet aircraft are replacing older, less fuelefficient planes as airlines seek to cut costs. This has

helped aviation fuel consumption grow at a slower

rate than passenger and freight miles traveled. 189 It is

possible that during a crisis airline passenger travel

could decline, cutting fuel consumption, but we have

assumed that such a decline would not appreciably

change the total consumption of about 1.2 MMB/D.

Waterborne shipping and railroads consumed an

estimated 550,000 B/D in 1989, or about 5 percent of

the consumption in the transportation sector. Domestic shipments accounted for over 50 percent of the

tonnage shipped by water. Of this amount, over 62

percent were coal and petroleum products. These

energy products also accounted for over 45 percent of

the tonnage shipped by freight railroads.

190 A n y

decrease in domestic petroleum shipments during an

oil crisis will be offset at least somewhat, perhaps

more, by increased coal shipments. Hence, we have

assumed that there will not be any appreciable change

in the total consumption of about 550,000 B/D. Table

3-26 summarizes the breakdown of the estimated

555,000 B/D of oil that could be replaced in the

transportation sector by the various options assessed

above.

ISSORNL, Ener~ Tec}lno[o~: What Could Make a Difference?, Supra Ilok 17, P. 3-4.

l~Annua/Ener#Review 1989, Supra not~6, table 10. perwntage distributions estimated from 1987 data in ORNLEnergy TrunspOrruriOn Duru Book:

Edition 10, supra note 179, table 2.8, p. 2-14.

lsTM1lltary fuel n=ds in the pemlan Gulf were largely met by local production and imports. Insignificant refinery capability in Saudi ~abia and other

Gulf states were damaged, imports of jet fuel, gasoline, and distillates might have been needed to supply coalition forces and local needs.

ISSORNL, Energy Techno/~~ R&D: What Could Make a Difference?, SUpra note 17, P. 5.

ls~lbid. Between 1982 and 1988, fuel ~nsumption grew 44 percent. Passenger miles traveled grew over 8 percent per year, and airfreight increm~

over 9.5 pereent per year. FAA projects air travel to grow at 5 percent per year to the year 2000. Between 1970 and 1988 passenger air traffic tripled,

while fuel consumption grew only 43 percent. At lemt part of the doubling in seat mpg of efficiency was due to more seats per aircraft and higher load

factors.

l~ORNL Enern TranSpora[ion Data Book 9, supra note 150, tables 3.5, ~.lo., and figure 3.4.. 9
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 91

Table 3-27—Deployment Schedule for Oil Replacement Technologies in the

Transportation Sector (oil replacement potential, thousand barrels per day)

Fuel improved

efficiency Natural Other traffic

Year improvement(a) gas(b) fuels(c) management(a) Total

1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 13 5 20 98

1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 26 11 40 197

1993 . . . . . . . . . ., .,,.,.,. . . . . . . . . . . .., , 180 39 16 60 295

1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 85 21 80 425

1995 .ti..m..mu..u..300.300 130 25 100 555

aAssumes a uniform deployment over 5 years.

bAssumes 30 percent deployment in the first 3 years with the remaining 70 percent deployed during the last 2 years.

CAssumes that the excess ethanol capacity replaces 65 percent of the total in the first 3 Years, with new plants

replacing the remaining 35 percent during the last 2 years.

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement Analysis—

Evaluation of Technologies,” OTA contractor report, February 1991.

Table 3-2&Estimated Investment Costs for Oil Replacement Technologies

in the Transportation Sector (approximate investment cost in thousand 1990 dollars per

barrel per day of oil replaced)

$1,000 per B/D replaced

Option Minimum Maximum Remarks

Improvement in fuel . . . . . . . . . . . . 0

efficiency

Conversion to .........,..........,21

natural gas

Conversion to .....................60

other fuels

Improved traffic . . . . . . . . . . . . . . . . . . . O

management

o Assumes that automobile manufacturers shift

production towards more efficient cars.a

26 1.2 million conversions at $1,500-$2,000 per

vehicle plus $988 million for refueling stations

to displace 130,000 B/D.b

90 Assumes $100-$150 million cost for 50 million

gallons/year ethanol plant operating at 85%

capacity factor.c

o Adoption of various measures to promote fuel

saving. a

aNegligible cost.

bVehicle conversion costs in British Columbia were about $l,500 each. Patrick L. McGeer and Enoch J. Durbin, ’’Natural

Gas in Cars—and Step on It,” The New York Times, Sept. 14, 1990. A conversion cost of $2,000/vehicle based on

American Gas Association, The Outlook for Gas Energy Demand: 1990-2010, May 1990. Refueling station cost from:

U.S. Congress, Office of Technology Assessment, Replacing Gasoline: Alternative Fuels for Light Duty Vehicles, OTAE-364 (Washington, DC: U.S. Government Printing Office, September 1990), p. 104.

cOne gallon of ethanol replaces 0.6 gallons of gasoline.

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement Analysis—

Evaluation of Technologies,” OTA contractor report, February 1991.

Deployment Considerations and Schedule

The estimated deployment schedule for each of the

oil replacement options is shown in table 3-27. The

schedule assumes that the gains in fuel savings are

evenly spread over the 5-year period.

Possible constraints on achieving these savings

have been noted in the text and we have reflected

these limitations in our estimates. Sufficient supplies

of natural gas for transport needs have been assumed

in these estimates. Some of the uncertainties about

natural gas availability are discussed later in this

chapter.

Estimated investment costs for the various oil replacement options in the transportation sector are

shown in table 3-28. The costs of more fuel efficient

replacement LDVs have been excluded, because this

is a continuing activity. The costs for improved traffic

management actions also have been assumed to be

minimal because they largely utilize existing mechanisms and infrastructure. This treatment of these costs

is consistent with the 1984 analysis. Estimated costs

for oil replacement range from about $21,000 to

$26,000 B/D for the assumed natural gas vehicle

conversions and refueling network network to $60,000

to $90,000 B/D for construction of additional ethanol

production capacity.
92 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

DOMESTIC PETROLEUM SUPPLY

In 1989 domestic sources supplied about 10.1

MMB/D of petroleum—7.6 MMB/D of crude oil, 1.6

MMB/D of natural gas plant liquids NGPL), and

about 0.9 MMB/D of processing gain. 191(See figure

3-lo.)

Since 1985, when domestic crude oil production

peaked at about 9 MMB/D,192 production has been

declining largely owing to the following factors: a

sharp drop in oil prices; reduced drilling activity;

abandonment of high-cost, low-volume wells; and

impediments to production in environmentally sensitive areas.193

In a 1987 study, OTA analyzed these factors and the

changes that had taken place in the oil industry. Based

on its analysis, we concluded the following:194

Figure 3-10--U.S. Petroleum Supply, 1970-89

Million barrels per day

20 I i

15

10

5

0

70 72 74 76 78 80 82 84 86 88

Years

= Crude oil = NGPL

m Other SUPPlY = Net imports

●

●

●

Even with optimistic assumptions about the productivity of future drilling, a continuation of

1986 drilling rates would lower production in

year 2000 to about 6 MMB/D--a third lower

than the 1985 production level—if oil prices

remained in the range of $12 to $18/bbl (in 1986

dollars).

Estimates of the magnitude of the production

decline should be viewed as “best guesses” because most forecasts had been based on historical trends and relationships, which might no

longer be valid.

It was not clear whether a break with past trends

would lead to higher or lower production levels.

Clearly, the difficulties identified by OTA are further compounded in the present study because there is

no historical precedent for the recent sharp drop in oil

prices of the last few years and the subsequent possibility of an imported oil cutoff. A continuing decline

in domestic production could aggravate any future

crisis or policy-driven oil replacement program by

SOURCE: Office of Technology Assessment, 1991, based on data in U.S.

Department of Energy, Energy Information Administration, Annual Energy Review 1989, DOE/ElA-0384(89) (Washington,

DC: U.S. Government Printing Office, May 1990), table 50.

offsetting gains from the deployment of oil-saving

technologies.

We estimate that with an extension of current

trends, domestic oil production could decline to a

level of 8.9 to 10 MMB/D by 1995, thus creating an

internal shortfall of 0.1 to 1.2 MMB/D on top of an

imported oil cutoff of 5 MMB/D under our oil disruption scenario.

Potential Oil Production

Compared to other oil-producing regions, the United

States has been extensively explored. Experts estimate that 80 percent of the oil and gas eventually to be

found in the United States lies in fields that have

already been discovered.

195 The remaining exploratory potential is also substantial. But much of this

191Annua/Enerfl Review 1989, supra note6, tables 50 and 51. Processing gain is the amount by which total refinery output vOh.Ime exweds the volume

of input fora period of time. The gain is created because the refinexy process converts crude oil and other hydrocarbons into products that are, on average,

less dense than the input.

1921bid.

lgsNat;onulEnera Strategy, Interim Report, supra note 39.

194u.s. ~ngress, Office of T~hnology Ass~sment, U.S. OifProduction: TheEffect ofLowOifPrices-Speciaf RePort, OTA-E-348 (Washington, DC:

U.S. Government Printing Office, September 1987), pp. 1-2.

19SW.L. Fisher, “Factors in R~lizing Future Supply Potential of Domestic Oil and Natural Gas,” paper presented tO the Aspen Institute Energy policy

Forum, July 10-14, 1991, Aspen Colorado.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 93

undiscovered oil and gas will come from smaller

fields than in the past.

This maturity does not mean that the future for the

U.S. oil industry is a rapid and inevitable decline in

production from increasingly high-cost deposits. Many

in the oil industry hold to a belief that domestic

production can be stabilized or slightly increased. In

support they note the continuing strength in U.S.

reserves additions and a more sophisticated understanding of the nature of U.S. oil and gas resources.

Even as drilling activity has slowed, reserve additions since 1986 have averaged 90 percent of those in

the high oil price-high activity years 1978 to 1985. An

estimated 86 percent of these reserve additions are

attributable to reserve growth in existing fields—that

is, increases in the estimates of conventionally recoverable oil resulting from extensive and intensive

drilling within existing fields, improved recovery,

and identification of new pools.l96

The past decade has brought recognition that sizable quantities of conventionally mobile oil remain to

be recovered in existing fields. The greatest potential

recovery is contained in complex reservoirs that will

require improved geologic models to make infill dril–

ling and enhanced oil recovery more effective in

tapping these deposits. Evolving enhanced oil recovery techniques eventually could allow production of

the immobile, residual oil in existing reservoirs.

Tapping these resources is contingent on the economic attractiveness of the prospects at present and

anticipated world oil prices, and continued technology development. The higher oil prices and sense of

urgency accompanying a severe oil import disruption

would likely provide some impetus for expanded

exploration and development.

In September 1990 a leading petroleum industry

trade magazine, Oil & Gas Journal (O&GJ), estimated that 1990 domestic crude oil production would

be about 7.2 MMB/D,197 or a decline of about 5.3

percent from the 1989 production of 7.6 MMB/D.

Preliminary estimates peg actual 1990 U.S. crude oil

output at 7.4 MMB/D, a decline of about 3.4 percent. 198 The higher than expected production levels

have been attributed to the higher world oil prices

after the Iraqi invasion of Kuwait, and expanded

production in Alaskan oil fields following completion of North Slope maintenance projects.

The higher oil prices in 1990 also brought about a

brief upswing in exploration indicators, but by late

spring 1991, these critical indicators were again trending downward as lower world oil prices returned and

domestic natural gas prices all but collapsed.l99 Even

so, for the first time since 1985 domestic crude oil

production increased in 1991—up 0.6 percent over

the first six months of 1990. The rise was attributed to

better economic conditions for producers, the expanded exploration and development activities in

1990, and improved technology.

200 This brief surge

in investment and drilling activity reaffirms the expectation that higher prices accompanying a severe

oil import disruption could boost the exploration and

production of domestic crude oil.

Potential opportunities for increased domestic production rest with the discovery of new fields in

frontier areas and with improving oil recovery in

existing fields. Over the 5-year horizon of our oil

replacement scenario, incremental production from

existing fields is the most promising option. However, available data are neither consistent nor reliable

for estimating potential production increases and,

most particularly, for predicting the natural decline in

production. Moreover, it is not clear that available

technologies and resources could slow the natural

decline over the next 5 years stemming from the low

levels of drilling activity over the past 5 years.

Production from new, large reservoirs is excluded

from our assessment because there are no near-term

prospects. Even if the coastal plain areas of Alaska’s

Arctic National Wildlife Refuge (ANWR) and the

most promising offshore frontier areas were to be

I%Ibid.

197’’Despite Output Push, U.S. Probably Cannot Avoid Oil Production Decline in 19!!1”, Oil& Gas Journal, vol. 88, Sept. 17,1990, page 21.

19SU.S. Department of Energy, Energy Information Administration, Monthly Energy Review: July 1991, DOIVEIA-00s5(91 /Oi’) (Washington, DC:

U.S. Government Printing Office, July 1991), table 3.2a.

l~u s Department of Energy, Energy Information Administration, Monthly Energy Review: June 1991, DoE/EL4-0035(91 /06) (Washington, DC:

U.S. Government Printing Office, June 1991) and Institute of Gas Technology, International Gas Technology Highlights, vol. 21, July 15, 1991.

~ see ~~011 Demand F~lls t. ~west ~Vel Since 1983,” The Energy Daily, Ju1. 18, 1991! P. 4.
94 Ž U.S. Oil Import Vulnerability: The Technical Replacement Capability

made available for exploration and development today, production could not start until after the year

2000. 201

The 1990 O&GJ review concluded that under an

optimistic price scenario, using the best efforts of

U.S. producers, existing fields could be expected to

provide an additional 374,000 B/I) within 1 year.

However, O&GJ then proceeds to subtract a hefty

natural decline of 5 percent, an amount comparable to

the 1989-90 decline, thus concluding that the actual

net increase by the end of 1991 would be negligible. 202 Since past natural decline rates reflect the

strong impact of low oil prices on production and new

drilling activities,

203 this rationale would not be valid

during a crisis scenario.

We have taken a different approach for estimating

potential production gains. Using the data below on

potential opportunities identified by O&GJ, we reviewed the prospects for achieving their production

capability over a 5-year period in light of known

constraints. We address the issue of natural decline

separately.

The major potential opportunities identified by

O&GJ are as follows:204

Bringing back some 75 percent or about 100,000

B/l) of the 150,000 B/I) of (mostly heavy) oil

production in California lost since 1985,

Bringing on line new production from offshore

fields in California to add 140,000 B/l) from the

Santa Barbara Channel, 75,000 B/I) from the

Point Arguello field, and 65,000 B/I) from the

Santa Ynez Unit.

Increasing production from existing Alaskan

fields by about 200,000 B/D, or almost 11 percent over its 1989 production.

Increasing the combined production in the Gulf

Coast, Mid-continent, Midwest, and Rocky

Mountain regions by about 70,000 B/D.

Constraints to Production

There are several constraints that could reduce this

potential. In 1988, enhanced oil recovery (EOR)

supplied about 640,000 B/D. Of this supply, thermal

EOR had an 80 percent market share, or about 510,000

B/D.205 The majority of the thermal EOR projects are

in California. Any increase in the deployment of

thermal EOR projects would have to overcome strict

environmental constraints. For example, currently in

California, if an existing steam generator is relocated,

the new permit reduces the allowable environmental

offsets by a factor of 2 to 5.206 These regulations

could limit the flexibility of a producer to shift production from one field to another. Moreover, any new

EOR projects would require an increased supply of

coal or natural gas. It is not clear whether increased

use of coal would be allowed in California, even if

coal technologies could meet environmental limitations.

With respect to increasing the natural gas supply,

there is a jurisdictional dispute between the California Public Utility Commission and the FERC.207 Any

delay in resolving this dispute in the courts could

result in a delay of new pipeline projects aimed at

bringing additional natural gas to California. As of

August 1991, most of the pending disagreements had

been resolved.

Even if environmental permits could be obtained in

1 or 2 years, typically an additional l-year period

would be necessary to achieve breakthrough in

California’s heavy crude oil fields.208 Thus, any

delays in the permitting process would further reduce

the prospects for incremental production in California. We have assumed a range of O to 100,000 B/l) for

California’s onshore incremental production over 5

years.

The $2 billion Point Arguello project in the Santa

Barbara Channel off California has been lying idle for

~l]bid. John H. Gibbons, Director, U.S. Congress, Office of Technology Assessment, “On Relieving U.S. Oil Dependence,” testimony before the

Senate Committee on Energy and Natural Resources, Oct. 2, 1990.

~@i/ & Gas Journal, supra note 197.

203Roheti wllllam~, Oi/ & ~a,YJourna/, Pemonal communication to Renova Engineering, P. C., OTA contractor, Oct. 26! 1990.

ma Oil& Gas J~urna[, supra note 197.

msRobe~ willia~~, personal I.X)mmUnlcatiOn, supra note 203.

~Raymond L, Schmidt, Chevron 011 Research Company, persOnal communication to Renova Engineering, P. C., OTA contractor, Oct. 25>1990.

20i’New plpellne Con\tructlon proJec[s-Statu~ Report, Amenan Gas Association, Issue Brief 19~90-5, Apr. 13, 19(90.

msRaymond L. s~hmidt, personal communication, supra note 206.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 95

the last 3 years because of debate over the initial mode

of transportation to market—tankers v. existing pipeline.209It is not clear when the dispute between Santa

Barbara County and the California Coastal Commission and the project sponsors, led by Chevron, will be

resolved to permit the projected flow of 75,000 B/D

from the mothballed project. In the meantime Chevron announced that it is planning to begin production

of about 20,000 B/D from Point Arguello.210

The proposed expansion by Exxon of its Santa

Ynez project, also in the Santa Barbara Channel, is

projected to supply an additional 65,000 B/D by

1994-95. 211 Any delays in its environmental permitting process would extend this production date.

Thus, only under an optimistic scenario could Cal–

ifornia’s offshore production be increased by the full

140,000 B/D over the next 5 years. A more likely projection would be a range of 70,000 to 140,000 B/D.

Production from Alaska’s Prudhoe Bay is already

declining. Some of Alaska’s other fields could go into

production over the short term because they were

idled for economic reasons. DOE estimates that a

resolution of permitting problems could result in a

production of up to 100,000 B/D from two developed

fields, Niakuk and Point McIntyre, in the Beaufort

Sea.212 On the other hand, given technical and environmental constraints, it is not clear that marginal

fields in Alaska could reach full commercial production in 5 years. We have assumed a range of 100,000-

200,000 B/D for incremental production from

Alaska. 213

Geologically targeted infill drilling (GTID), or

horizontal drilling, could be used to produce

unrecovered mobile oil that is not amenable to conventional primary and secondary techniques.214 A

combination of GTID, polymer-augmented water

flooding, and permeability profile modification could

be deployed to increase production in the 48 contiguous States. For example, based on an analysis of a

limited resource base in Texas, Oklahoma, and New

Mexico, it is estimated that a price of $20/barrel could

justify the recovery of over 1 billion barrels using a

combination of infill drilling and waterflood methods. Such a program would require drilling about

26,000 new wells at one-half of current spacing.215

The number of drilling rigs in operation has declined from a peak of 3,970 in 1981 to 869 in 1989.216

The 1990 count is expected to rise to about 1,000. In

some areas, this turnaround has already created a

shortage of competent people necessary for operating

the rigs. 217 With intensified training programs some

of the mothballed rigs could be redeployed in a crisis.

However, it is not clear whether the intensive drilling

entailed in a GTID program could add any significant

amount of production in 5 years. Moreover, although

independent producers drill the vast majority of wells,

and supply about 40 percent of the Nation’s needs,

many of them probably lack the resources for intensifying the geological studies that are essential for

GTID. 218

Increased carbon dioxide (C02) flooding projects,

while feasible, are probably limited by cost considerations to those companies that have a captive access

to C02

.

219 Research projects are under way to improve the economics of EOR using chemical flooding, as, for example, using lignin-based chemicals.

The new processes are not commercially proven.220

As a result, we estimate that Gulf Coast, Midcontinent, Midwest, and Rocky Mountain regions

would face serious constraints in achieving a com-

~Oil & Gus JOurnul, supra nOte 197.

zl~oma$ C. Hayes, “Breaking ~gjam on California Oil,” The New York Times, NOV. 29, 19(90.

Zlloil & @s JOurnul, Supra nOte 197.

212’’ DOE Plans to Help Boost U.S. Oil Production,” Oil & Gas Journal, vol. 88, Sept. 24, 19(90, page 52.

2134’U.S. Oil Flow Hike Unlikely Outside W. Coast,” Oil & Gas Journal, vol. 88, Oct. 15, 1990, page 32.

z140ak Ridge National Laboratory, Enern Technology R.-D: What CouldMakea Difference ?, VO1. 2, Pt 2 of3, SUPPly Technology, ORNL-6541W21

P2 (Oak Ridge, TN: Oak Ridge National Laboratory, December 1989) pp. 10-15.

215A.B. Becker, J-p. Brashear, K. Blglafiigl and R.M. Ray, “Evaluation of Unrecovered Mobile Oil in Texas, Oklahoma, and New Mexico,” paper

presented at the SPE/DOE Seventh Symposium on Enhanced Oil Recovery, Tulsa, Oklahoma, Apr. 22-25, 19~90.

zlhAnnua/ Energy Review 1989, supra note 6, table 41.

zlTGuntis Moritis, “Drilling Continues Upward Momentum,” Oil & Gas Journal, vol. 88, Sept. 24, 19~90, page 65.

zlsRaymond L. Schmidt, personal communication, Supra note 206.

zl~Bobby Hall, ~erlcan petroleum Institute, personal communication to Renova Engineering, P. C., OTA ~ntractor, Oct. 23, 1990.

22~Jan1ce R. ~ng, “More Energy R~s~arch ailed for to Stem 011, Climate Change Crisis, “ Chemical& Engineering News, Sept. 10, 1990, p. 16.
96 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

bined production increase of about 70,000 B/D. Rather,

we believe that 70,000 B/D would beat the high end

of a range that could be as low as zero.

Natural Decline

Characteristically, there is a natural decline in output from existing production fields as the reserve is

exhausted. There are technical means to slow the rate

of decline, but depletion is inevitable.221 At an assumed rate of about 1.0 percent per year, the 1995

domestic oil production would be in the range of 6.8

MMB/D, for a total natural decline of about 400,000

B/I) compared with the 1990 production. At a rate of

3 percent per year, the production would be about 6.2

MMB/D for a decline of about 1 MMB/D.

Incremental Production of NGPL

In 1989 the Nation produced about 17.3 TCF of

natural gas and 1.6 MMB/D of NGPL.222 A similar

production level was assumed for 1990. At a heat

content of 3.8 MM Btu/bbl for NGPL223 and 1,000

Btu/ft 3 for natural gas, the NGPL production was

about 13 percent of the natural gas production. Assuming that during a crisis, the natural gas production

could be increased by 1 to 2 TCF over a 5-year period,

an additional supply of 0.13 to 0.26 quads of NGPL,

or about 100,000 to 200,000 B/I) of NGPL could be

realized.

Estimated 1995 Domestic Petroleum Supply

We estimate, therefore, that by 1995, the Nation’s

domestic petroleum supply would more likely be in

the range of about 8.9 to 10.0 MMB/D, as shown in

table 3-29. At this level, the domestic supply would

create an additional shortfall of 0.1 to 1.2 MMB/D, as

compared with the 1989 supply of 10.1 MMB/D.

Investment Cost

In an earlier report, it was estimated that solid fuelfired steam flooding EOR projects would require an

investment of $10,000 to $20,000 per B/D.224 The

cost for C02 flooding was estimated to be $20,000 to

Table 3-29-Estimated 1995 Domestic Petroleum

Supply (million barrels per day)

Source 1990 1991-95

Crude oil production

Current Ievela. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.20

Incremental crude oil production

New fields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0,00-0.00

Existing fields

California (onshore) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.00-0.10

California (offshore) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.07-0.14

Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.10-0.20

Other Lower 48 States . . . . . . . . . . . . . . . . . . . . . . 0.00-0.07

Subtotal incremental production . . . . . . . . . . . . . . . 0.17-0.51

(Offset for projected production decline) . . . . (1 .00) -(0.40)

NGPL production

Current level b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.60

Incremental NGPL supply . . . . . . . . . . . . . . . . . . . . . . . . 0.10-0.20

Processing gain c,,, ,. !,..,.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.81-0.91

Total 1995 domestic supply . . . . . . . . . . . . . . . 8.88-10.02

“’Despite Output Push, U.S. Probably Cannot Avoid Oil Production Decline

in 1991,“ Oil & Gas Journal, vol. 88, Sept. 17, 1990, p. 21. Oak Ridge

National Laboratory, Energy Technology R&D: What Could Make a Difference, vol. 2, Part 1 of 3, End-Use Technology, ORNL-6541/V2/Pl (Oak

Ridge, TN: Oak Ridge National Laboratory, December 1989), p. 5.

bAssumed at the 1989 level based on data reported in U.S. Department of

Energy, Energy Information Administration, Annual Energy Review 1989,

DOE/EIA-0384(89) (Washington, DC: U.S. Government Printing Office,

May 1990), table 62.

clbid., prorated from 1989 data which indicates that the processing gain

amounts to about 10% of the crude oil and NGPL supplies.

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement Analysis—Evaluation of

Technologies,” OTA contractor report, February 1991.

$40,000 per B/D.225 A 50-percent escalation of these

1982 costs would indicate that the 1990 costs would

be in the range of $15,000 to $60,000 per B/D.

OTHER FACTORS AFFECTING

OIL REPLACEMENT POTENTIAL

By deploying various short-term oil replacement

technologies, OTA believes that it is technically

feasible to displace about 2.9 MMB/D of petroleum

products at the end of the 5-year period between 1991

and 1995. Table 3-30 and figure 3-11 summarize the

oil replacement potential that could be achieved in

221mom= C. Hay~, supra note 210.

222Annua/Enerm Review 1989, supra note 6, tables 50 and 51.

ZZSU.S. Department of Energy, Energy Information Administration, A40nthly Energy Review: April 1990, DOE/EIA-0035({90/04) (W=hington DC:

U.S. Government Printing Office, July 19~90.

~Gibbs & Hill, Inc., Supra note 5.

22SMonth/y Ener~ Review: April 1990, Supra nOte 223.
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 97

each sector. Natural gas, coal, and electricity could

displace about 1.8 MMB/D of the total. See figure

3-12. Renewable fuels, nuclear, and other options

such as fuel efficiency improvement, industrial process changes, and improved traffic management could

displace about 0.7 MMB/D. Finally, an additional

0.36 MMB/D could be saved by reduced refinery

throughput.

These potential oil savings must, however, be offset by the likely continuing decline in the domestic

petroleum supply, even with the advent of higher

prices stemming from a shortage of oil imports that

could spur additional drilling. The magnitude of this

decline cannot be projected with any certainty. We

estimate it to be in the range of 0.1 to 1.2 MMB/D

below 1989 production by 1995. The net result is that,

of the 5 MMB/D of imported oil lost in a crisis, only

about 1.7 to 2.8 MMB/D can be replaced by energy

technologies.

The total investment needs during a crisis will

depend on policy, regulatory, and economic decisions adopted by the Nation to spur the deployment of

technologies. For illustration purposes only, we have

summarized in table 3-31 a breakdown of the estimated capital requirements for deploying all of the

technologies identified in this analysis. Using the

average of the range of costs for each technology, the

investment needs would be about $140 billion. The

range is estimated to be $70 to $210 billion.

Uncertainties in Achieving Technical

Replacement Potential

For purposes of this analysis, we have assumed that

legislative and policy initiatives to promote the use of

oil replacement technologies are adopted promptly

after the onset of the crisis. We have also assumed that

adequate capital is made available to finance the

manufacture, purchase, and installation of the needed

equipment. Uncertainties remain about the availability of four critical resources: natural gas, electricity,

refinery capacity, and technical personnel.

Our review concluded that the supplies of natural

gas and electricity are not likely to raise substantial

impediments to full deployment of oil replacement

technologies at present. However, the availability of

Figure 3-11—U.S. Technical Capability To Replace

Lost Imports in an Oil Supply Disruption, 5-Year

Deployment Schedule by Sector

3 . / I

2.5

2.

1.5

1.

0.5

1991 1992 1993 1994 1995

m Industrial - Electric utilities

-W:~~nJi~, and - Transportation

SOURCE: Office of Technology Assessment, 1991.

Figure 3-12—U.S. Technical Capability To Replace

Lost Imports in an Oil Supply Disruption,

Replacement Potential by Source

Million barrels per day 3,000 I 1

2,500

2,000

1,500

1,000

500

0

1991 1992 1993 1994 1995

- Natural = Coal D Electric - Renewabl e

~ LDV fuel m ~t&r ~ Refinery savings

economy

SOURCE: Office of Technology Assessment, 1991.
98 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Table 340-Summary of Estimated Oil Replacement Potential

(thousand barrels per day)

Petroleum

products Natural Elec- Renewable

replaced gas Coal tricity fuels Nuclear Other Total

Electric utility

residual oila . . . . . . . . . . . . . . . . . . . . . . . . . . 85 360 NA 95 44 15 599

Residential/commercial

Distillate oil

and kerosene ................... 440 7 215 23 NA 22

Residual oil . . . . . . . . . . . . . . . . . . . . . . . . . . NA 39 NA b NA b

LAG...................................,.. 38 16 192 b NA b

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . 478 62 407 23 NA 22 992

Industrial

Crude oilc. . . . . . . . . . . . . . . . . . . . . . . . . . . . NA NA NA NA NA 360

Distillate and . . . . . . . . . . . . . . . . . . . . . . . . 232 17 16 17 NA 100

residual oil . . . . . . . . . . . . . . . . . . . . . . . . NA d d d NA NA

LPG & other products . . . . . . . . . . 65 NA NA NA NA e

Subtotal ........................ 297 17 16 17 460 807

Transportation

Gasoline and diesel ........... 130 NA NA 25 NA 4oof

555

Total replacement

potential end-use

sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 990 439 423 160 44 897 2,953

Offset for expected domestic petroleum productiong. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(100)-(1,200)

NA = not appiicable

aOther non.fuel option is demand management.

bRenewable fuels and efficiency improvement options replace a total of 45,000 B/D of petroleum producys in the

residential commercial sectors.

cSavings resulting from reduced refinery throughput.

d Coal, electricity and renewable fuels replace a total of 50,000 B/D of distillate and residual oil in the industrial sector.

e process changes replace a total of 100,000 B/D of products.

f Includes fuel efficiency improvemnt which saves 300,000 B/D, and improved traffic efficiency management which

saves 100,000 B/D.

g Difference between the 1989 supply and the potential supply in 1995. (See table 3-29.)

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement Analysis—

Evaluation of Technologies,” OTA contractor report, February 1991.

adequate refinery capacity and trained technical and

craft workers could be of concern. These subjects

warrant a more detailed study of their full impacts.

Natural Gas Supplies

Switching to natural gas could displace about 1

MMB/D of petroleum products. We estimate (based

on an average heat content of 5.5 million Btu/bbl for

the products displaced) that this switching could

increase the annual natural gas consumption in 1995

by about 2 quads—10 percent more than the 1989

consumption of about 19.4 quads. Domestic natural

gas production was about 17.7 TCF in 1989, and

imports were about 1.4 TCF.226 For much of the

1980s, there was a surplus of natural gas production

capacity that kept prices down. Various estimates

have placed the size of the gas “bubble” at 2 TCF or

more, and gas reserve additions have been growing.

Most industry analysts project that U.S. gas producers could match increased demand rather quickly.

The American Gas Association (AGA) has forecasted that under a high-price scenario, the industry

could supply about 19.9 TCF in 1995.227 AGA’s

~Annua/EnerH Review 1989, supra note 6 table 71

~7&erican G~ &soclatlon, “me Gas Energy Supply Outlook 1989 -2010,” September 1989..
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 99

Table 3-31-Summary of Estimated Investment Costs

for Oil Replacement Technologies

Natural Elec- Renewable

Sector gas Coal tricity fuels Nuclear Other Total

($1,000 per B/D of petroleum products replaceda)

Electric utility . . . . . . . . . . . . . . . . . . . . . . . . 17 4 3 — 166 7 99

Residential and . . . . . . . . . . . . . . . . . . . . 155 556 71 — — 163

commercial

Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 65b b b — 10’

Transportation . . . . . . . . . . . . . . . . . . . . . . 24 — — 75 — —

$ billion (1990)

Electric utility . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 15.6 — 15.8 0.3 1.5 34.6

Residential and . . . . . . . . . . . . . . . . . . . . . 26.4 34.5 28.7 — — 7.2 96.7

commercial

Industrial . . . . . . . . . . . . . . ..0 . 7 3.3 — — — 1.0 5.0

Transportation . . . . . . . . . . . . 3.1 — — — — 4.9

— ——

Total replacement ..,.,............31.7 53.4 28.7 17.7 0.3 9.6 141.3

Domestic oil productiond

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .0.. 5.0

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,,,.. 146.3

a An average of the amounts for individual replacement optionsforeach end-use sector.

b Coal, electricity and renewable fuels replace a total of 50,000 B/D of distillate and residual oil in the industrial sector.

Assumes that average cost is equivalent to that for coal.

c Excludes the reduced refinery throughput because of oil shortfall.

d Assumes 100,000 B/D from enhanced oil recovery at $50,000/B/D.

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement AnalysisEvaluation of Technologies,” OTA contractor report, February 1991.

high-price scenario assumed a 1995 oil price of $30/

bbl (1988 dollars). By contrast, the low-price scenario of oil at $ 18/bbl forecasted a supply of about 17

TCF. Natural gas prices were not driven up following

the invasion of Kuwait in August 1990, in large part

because of the ample supplies of natural gas available.

For some regions the pipeline capacity to deliver

natural gas and the storage capability are the critical

constraints on natural gas availability. At present, in

winter months, utility and industrial customers switch

from gas to oil because of deliverability constraints.

Switching these customers as well as new residential

customers to gas could be hindered if local gas

deliverability and storage capability are limited. Several pipeline projects, currently under various stages

of development across the country, would improve

gas availability, even in the absence of a crisis. 228 In

particular, several projects are aimed at bringing

domestic and Canadian gas to the Northeast and

California. The projects in the Northeast are driven by

industrial, utility, and independent power demand,

while those in California are driven by the demand in

EOR applications. Assuming that these pipelines

receive the necessary license and permit approvals,

the supply of natural gas should not be a constraint to

oil replacement on either a national or regional scale.

Electricity

Oil-based electric generation capacity is concentrated in the Northeast, Florida, and California. New

England and the Middle Atlantic States also depend

on oil for residential heating. The combined impacts

of backing out utility oil use and at the same time

converting a sizable number of residential heating

z~~erlcan Gas Associa tion, “New Pipeline Projeets--Status Repofl,” Issue Brief 1990-5, Apr. 13, 1990.
100 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Table 3-32-Summer Electricity Supply Data for Oil-Dependent NERC Regions (MW)

Projected capacity and additions

Total NUG

Installed Installed capacity capacity Demand

NERC Regionacapacity capacity additions additions management

1989b1995b 1990- 95C 1990- 95d 1990- 2000e

NPCC . . . . . . . . . . . . . . . . . . . . . . . . . 54,622 63,151 8,259 5,791 3,850

WSCC . . . . . . . . . . . . . . . . . . . . . . . . 129,533 131,472 5,834 3,409 NR

CNV.. . . . . . . . . . . . . . . . . . . . 53,921 58,317 4,191 2,484 300

SERC.u..u..143,32 5 162,418 17,215 4,181 NR

Florida .~..~ti.ti. 30,857 34,352 2,882 1,097 NR

MAAC.. . . . . . . . . . . . ..49,82 9 57,092 7,213 3,491 NR

aNorth American Electric Reliability Council (NERC) Regions and Subregions with Iarge oil-based generating

capacity—

● NPCC : Northeast Power Coordinating Council, includes New England States and New York.

● WSCC : Western Systems Coordinating Council, includes Northwest Pool (northern California) and CNV

(California-southern Nevada) among others.

● SERC : Southeastern Electric Reliability Council, includes Florida.

● MAAC : Mid-Atlantic Area Council, includes New Jersey, Delaware, Maryland, Washington DC, Virginia, and

eastern Pennsylvania.

b North American Electric Reliability Council, 1990 ,Electricity Supply & Demand for 1990-1999 (Princeton, NJ: North

American Electric Reliability Council, November 1990), table 11.

c Ibid., table 28.

d Ibid., table 30.

e North American Electric Reliability Council, 1990 Reliability Assessment (Princeton, NJ: North American Electric

Reliability Council, September 1990).

NR . Not reported.

SOURCE: Office of Technology Assessment, 1991, from Renova Engineering, P. C., “Oil Replacement Analysis—

Evaluation of Technologies,” OTA contractor report, February 1991.

systems from oil to electricity could possibly strain

available electricity-generating capability in these

regions. If the impact were significant, reduced elec- ●

tricity-generating capacity margins could be a limiting factor to achieving full oil displacement potential.

Table 3-32 shows the summer electricity supply ●

data for the relevant NERC regions, including projections for 1990 through 1995. Based on this assessment, the supply of electricity on a regional basis

should not be a limiting factor because utilities in

these regions have readily available capacity and

technological options to reduce their dependence on

oil. Recent developments that have aided utility flexibility in responding to potential oil disruptions include the following: ●

● Newly added utility and NUG capacity has increased capacity margins and enhanced the potential for contract purchases of non-oil based

capacity from other utilities and NUGs to meet

new demand.

Demand management programs have already

successfully deferred the need for new capacity

and could be accelerated to reduce the impacts of

an oil supply crisis.

New and planned transmission system upgrades

are improving capability for interregional transfers of non-oil based electricity. For example,

the Mid-Atlantic Area Council plans to strengthen

interconnections between utilities in the western

part of Pennsylvania and in the Baltimore-Washington area. Similarly, several projects are being

developed by the Northwest power pool to bring

electricity from the northwestern parts of the

United States and Canada to California.229

Planned imports of Canadian power are another

alternative that might be accelerated to meet a

crisis. For example, New York plans to import

an additional 500 MW from Hydro Quebec

beginning in the summer of 1995.

zz~Noflh ~enc.n Elec.rlc Rell;iblll[y C)uncll z990 Re/iub;/i@A~se,y .Ymen[ (Princeton, NJ: North herl~an Electric Reliability council, s@ember

19~90).
Chapter 3-U.S. Technical Potential for Replacing Imported Oil ● 101

Refinery Capability and the Availability of

Residual Fuel Oil

In 1989, about 610,000 B/D of residual oil were

imported, about 45 percent of total residual consumption. During the 1980s, production of residual fuel oil

by U.S. refineries decreased as demand declined and

refineries upgraded their capabilities to handle a

wider range of crudes and to produce more light products.

Our analysis found that backing out most oil use in

the electric utility sector could displace almost all of

the residual fuel oil imports in 1989. Although this

offers oil savings, it is not at all clear that cutting

residual fuel use in a crisis by over 600,000 B/D

would free up oil for other uses or allow the residual

oil to be processed into lighter products. First, uses of

residual fuel oil are already fairly limited. Second, an

import shortfall may not translate into a shortage of

residual fuel oil. Domestic refiners would continue to

produce residual fuel oil as a remnant of the refining

process, and only a portion of the residual fuel imports would likely be lost in a crisis. The output of

residual fuel by U.S. refineries is dependent on the

quality of the crude oil input and the capability of the

individual refineries. Simple refineries, which lack

cracking capacity, yield a higher portion of residual

fuel than do complex and very complex refineries,

which have thermal and catalytic crackers and other

downstream processing capabilities. In the 1980s, as

the portion of input by heavy oils to U.S. refineries

grew, many simple refineries shut down, and refinery

capacity came to be dominated by the larger, and

more flexible, complex and very complex refineries.230 Several industry observers have suggested that

an increase in domestic refining of heavy oils during

a crisis might actually result in a surplus of residual

fuel oil.

Between 1980 and 1989, the domestic production

of residual oil has declined from a level of about 4.4

percent to 2.2 percent of the refinery output.23l A

more detailed study is necessary to evaluate the actual

capability of U.S. refineries to produce products of

higher value from residual oil as well as the potential

for increased transfer of excess refinery products to

friendly countries during a crisis.

Technical Personnel

Many of the oil replacement technologies are high–

ly capital-intensive and require very specialized technical skills. Several oil replacement options involve

construction projects for implementing energy technologies. In addition to EOR, the major options

requiring construction are those related to the use of

coal and renewable fuels in electric utilities, commercial buildings, and industries.

We estimate that such construction projects would

require about $75 billion. Services typically account

for around 40 percent of the cost of such projects, the

balance being for material and equipment. Of the

amount allocated for services, engineering and construction management (E/CM) would use about 25

percent, with construction craft labor using the remaining 75 percent. Typically, most of the expenditure on services would be incurred over a 2-year

period. 232

On this basis, E/CM services would amount to

about $4 billion per year and field construction craft

labor to about $13 billion. Based on $125,000 and

$60,000 per person per year for E/CM and craft labor,

respectively, the incremental manpower needs would

be 32,000 E/CM personnel and 375,000 craft labor.

In 1983, the E/CM and heavy construction craft

labor pools were estimated to be about 0.1 and 1

million, respectively. Accordingly, we believe that

this demand could strain the existing pool of skilled

professional and craft workers and possibly create

delays in deploying the technologies. Our oil replacement estimates have assumed that labor shortages do

not constrain deployment of fuel-saving technologies. More study would be necessary to assess the

personnel availability limitations, taking into account

such issues as use of modular and standardized designs, intensified retraining programs, and the impact

of an economic slowdown brought on by an oil crisis.

nuts. DePafiment ~~Energy, Energy 1n~ormatjon A(lmjnjstratjon, The U.S. PetroleumRefiningI ndustry in the ~980’s, DOEEIA-0536 (W~hington~

DC: U.S. Government Printing Office, October 19[90).

~lAnnuul Ener~ Review 1989, supra note 6, tables 57 and 60.

~zGibbs & Hill, Inc., Supra nOte 5.
Chapter 4

Economic Aspects of Oil

Replacement Strategies
/

Contents

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

ECONOMIC IMPACTS OF OIL SUPPLY DISRUPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106

Why Estimates Vary . . . . . . . . . . . . . .,...+.., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..,,,,.., ., .....,..+ . .106

Two Measures of Economic Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106

OTA’s 1984 Analysis of Responses to a Severe Oil Import Curtailment . . . . . . . . . . . . . . . . . . . . . . 106

Differences Between the 1984 and the 1991 Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107

Analysis of the Economic Impacts of an Oil Replacement Strategy, 1991 . . . . . . . . . . . . . . . . . . . . 108

Further Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., ....,+,,+ . ..,+.++,+, , +.,+.++.+ 112

Table

4-1.

4-2.

Tables

Page

Disruption Size and Oil Price Impacts, MMB/D and Prices in 1990 $/barrel ........ 110

Comparison of U.S. Economic Impacts of a Sustained Oil Disruption and an Oil

Replacement Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Chapter 4

Economic Aspects of Oil Replacement Strategies

INTRODUCTION

Past oil shocks have had severe impacts on the

economy, contributing to inflationary pressures and

causing widespread unemployment.1 During the

1970s, the growth rates of the seven major Organization for Economic Cooperation and Development

(OECD) countries were cut in half by higher oil, raw

material, and food prices and the policy responses to

those shocks. In the mid-1980s, Stanford University’s

Energy Modeling Forum2 concluded that a sustained

oil price shock comparable in size to those experienced during the 1970s would cost $2,000 per U.S.

resident when the costs are cumulated over a 4-year

period. 3 More recently, some analysts have attributed

the recent slowdown in economic activity, at least

partly, to the price jump in August through October as

tensions mounted in the Persian Gulf over Iraq’s

invasion of Kuwait, even though these price increases

were only temporary.

This chapter discusses the likely economic impacts

of a major oil disruption in which all of the 16 million

barrels per day (MMB/D) of Persian Gulf oil is

removed for 5 years. These effects are compared with

a baseline scenario depicting stable oil market conditions. The analysis incorporates price-driven replacement of oil but without additional policy initiatives. A

second scenario considers the effect of such a disruption when the Nation simultaneously accelerates the

use of oil replacement technologies discussed in

chapter 3. The analysis addresses three central issues:

1) the effect of a major disruption on oil prices, 2) the

effects of these oil price changes on the U.S. economy,

and 3) the effect of an aggressive U.S. oil-replacement policy on mitigating the oil price shock during

a major disruption.

Impacts on the prices and on the economy are

derived for two time periods-2 years and 5 years

after the disruption. Economic impacts are measured

in terms of changes in real gross national product

(GNP), which is a measure of the Nation’s total

production of goods and services. In addition, the

chapter also reports separate estimates of changes in

real national income, which is a broader economic

indicator that measures the country’s ability to purchase goods and services on the international market.

Changes in real national income incorporate both

changes in physical production of goods and services

and changes in the purchasing power of income

received for producing those goods and services.

The analysis reveals four key conclusions:

1.

2.

3.

4.

The U.S. economy has achieved significant

improvements in oil efficiency over the years.

Coupled with today’s lower oil prices, this

situation has made the U.S. economy less vulnerable to sudden oil price shocks than during

much of the 1970s and 1980s.

The world economy has become more dependent on oil supplies from the Persian Gulf. This

trend increases the economic damage that can

result from losing oil supplies from this politically volatile region.

The merits of an accelerated oil replacement

strategy depend on how the policy is implemented. The strategy will be most effective

when it targets least costly options and when it

is matched by policies in other countries. It will

be least effective when it targets unproven

options that turn out to be expensive and when

it is adopted unilaterally by one country.

Future research in this area should focus on the

costs of different technology options as well as

the potential for replacing oil use. Two policies

replacing the same amount of oil can have very

different economic impacts if the incurred costs

are dissimilar.

l~e ~ ~ , those studies reviewed by R.S. Dohner, “Energy Prices, Economic Activity, and Inflation: A Survey of Issues and Rtiults,” in K.R. Mork,

. .

Energy ’Prices, Inflation, and Economic Activity (Cambridge, MA: Ballinger, 1981). For a contrarian view, see Douglas R. Bohi, Energy Price Shocks

and Macroeconomic Performance (Washington, DC: Resources for the Future, 1989).

z~e Energy Modeling Fomm ~nducts studi~ to improve the usefulness of energy models fOr understanding important energY Problems. ‘ach studY

is conducted by an ad hoc working group of about 40 individuals from government, business, and universities.

%“hese costs are the undiscounted sum of 4-year losses measured in 1983 dollarx. They represent about 12 percent of total GNP for the year, 1983. SW

also, Energy Modeling Four-m, WorldOil; EMF Report 6(Stanford, CA: Stanford University, 1982); and Energy Modeling Forum, MacroeconomicZmpact

ofEnergy Shocks; EMF Report 7 (Stanford, CA: Stanford University, 1985).

—lo5—
106 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

ECONOMIC IMPACTS OF OIL

SUPPLY DISRUPTIONS

Oil disruptions contribute to inflationary pressures

and create widespread unemployment. These hardships emerge in all economies that rely heavily on oil.

It makes little difference whether a country is an

exporter or importer of oil; both types of economies

have suffered about equally, accounting for other

factors.

Why Estimates Vary

While there is general agreement that oil disruptions create economic hardships, there is less agreement about the magnitude of these impacts because a

number of factors contribute to how high prices rise

and how much economic growth is affected.

The removal of oil supplies from an integrated

market will cause prices to rise in order to constrain

demand and encourage additional supplies from regions not curtailed by the interruption. One important

determinant of how high prices will move is the

relative importance of the disruption to total world oil

supplies. Another is the responsiveness of oil supplies and demands to price. In addition, the expectations of market participants can be extremely important. During past oil shocks, anticipatory behavior

and inventory policies have caused prices to rise

substantially, even when the physical volumes removed have been relatively small. It is extremely

difficult to evaluate how expectations affect oil prices

quantitatively.

Once the oil price increase is known, the size of the

economic impacts will depend on a number of factors: the baseline economic conditions before the

shock, the stickiness in wages and prices throughout

the economy, the policies used to offset either the

inflationary pressures or growing unemployment,

and the relative importance of oil in economic activity. Moreover, expectations about how the economy

adjusts and how policy makers will respond can have

an important effect on the ultimate economic impacts.

Two Measures of Economic Impacts

There are many possible measures of the economic

impacts of oil price shocks. This chapter reports

results for changes in real GNP and for changes in real

national income. The major effects causing each

impact are discussed briefly below.

Changes in Real GNP

Higher oil prices reduce aggregate economic output in both the short and long run. In the near term,

total spending falls, causing the economy to experience widespread unemployment. A key culprit in this

process is the stickiness in other prices and wages that

prevents price declines for most goods and services.

As a result, the oil price shock temporarily causes the

economy’s general price level to rise more. This

development will push interest rates higher, particularly if policymakers fear renewed inflation and hold

the money supply unchanged (or even reduce it).

Higher interest rates curtail first investments and then

additional spending associated with those direct investments through the multiplier effect. Domestic

spending may also be lessened as higher prices reduce

real wealth and purchasing power. Ultimately, as

prices and wages adjust to the higher oil prices, the

economy moves back closer to its full employment

level. Over the longer run, a sustained oil price

increase will cause the productivity of labor and

capital to decline because the substitution for oil

leaves existing labor and capital with less energy to

work with.

Changes in Real National Income

Higher oil prices also harm the economy in another

way. Even if total physical production is not changed,

the distribution of that output between foreigners and

domestic residents is altered. The economy must now

allocate more wheat and other exports for paying for

oil imports and retain less of these goods for domestic

consumption. The Nation’s purchasing power over

all goods purchased (including imported oil) is reduced by the higher cost of oil. Owing to the conventions of national income accounting, this reduction in

real national income is not incorporated by the change

in real GNP measured by macroeconomic models.

OTA 1984 Analysis of Responses to a

Severe Oil Import Curtailment

In the 1984 study, a world oil supply shortfall of 9

to 10 million barrels per day (MMB/D) over a 5-year

period was assumed to result in a 3 MMB/D reduction
Chapter 4-Economic Aspects of Oil Replacement Strategies ● 107

in oil available in the United States.4 Nevertheless,

U.S. technical oil replacement potential was deemed

great enough to replace 3.6 MMB/D of the expected

3 MMB/D decline within a 5-year period.

It was realized, however, that the technical potential might not result in actual reductions if price

conditions or policies did not motivate individual

decisionmakers to make the requisite capital investments and behavioral adjustments. Thus, two response cases were considered: in the high-response

case, the full 3 MMB/D shortfall was replaced by the

end of the 5 years; in the low-response case only half

of the initial shortfall was replaced within 5 years. In

both cases, however, net shortfalls persist throughout

the 5 years before the requisite adjustments in oil use

are made.

The net oil supply shortfalls were projected to

induce significant economic losses over the 5-year

period. In the high-response case, the permanent loss

of oil imports lowered GNP on the average by about

3.5 percent from its baseline level, with a maximum

yearly loss of 5 percent in the second year after the

start of the disruption. In the low-response case the

average GNP loss was about 6.2 percent, with a

maximum yearly loss of about 10 percent also occurring in the second year after the disruption begins. In

both cases, the GNP rebounds toward the end of the

5-year period because investments in oil replacement

have reduced the burden of high energy costs on the

economy.

Although GNP was projected to decline only in the

second year after the shortfall begins, the decline in

the high-response case was only 1.3 percent from the

previous year, while it was 5.2 percent in the lowresponse case. By comparison, in 1982 the worst

recession since the Great Depression resulted in a real

GNP decline of 1.7 percent relative to its level in

1981. In other words, the losses projected for the

high-response case are within recent historical experience, while those projected for the low-response

case were well outside of it.

Differences Between the 1984 and the 1991

Assessments

World Conditions

Although many aspects of the world oil market and

oil vulnerability remain qualitatively similar to conditions that existed in 1984, there are some important

quantitative differences. The world and the United

States still rely heavily on oil as an energy source and

a significant fraction of world oil supplies continues

to come from the Persian Gulf. On the other hand,

because of growth in the U.S. economy (about a 20-

percent increase after accounting for inflation), very

little increase in oil consumption, and lower oil prices

(about 50-percent decline in real terms), the share of

U.S. GNP devoted to oil purchases in 1991 has

declined to about 40-percent of its value in 1983. This

makes any dollar increase in the price of oil cost the

United States economy less now than in 1983.

Partially offsetting the moderating effect of a lower

share for oil in the economy, is the recent increase in

the share of the world’s oil coming from the Persian

Gulf. This is a result of the increase in the share of oil

that is imported by the United States (the U.S. net

import share of consumption has increased from

about 30 percent of total U.S. oil consumption in 1983

to about 42 percent today) and other oil importers.

The concentration of low-cost oil reserves in the

Persian Gulf will likely mean steady increases in the

Gulf share over the next decade. Since the region is

politically unstable, the more oil it produces, the

larger the oil supply interruption resulting from any

initiating event. And the larger the shortfall, the larger

the world oil price increase required to bring world oil

supply and demand back into balance.

A final difference in conditions since 1984 is that a

large 5-year interruption in oil supplies now seems

less likely, owing to the increase in the number of oil

exporters as well as the recently demonstrated propensity of the remaining producers to try to makeup

shortfalls.

4Us Congress, Office of Technology Assessment, U.S. vulnerubi[i~ to an Oil Import Curtailment: The oil Replacement Capabiliv, OTA-E-244

(Washington, D. C.: U.S. Government Printing Offim, September 1984).

292-892 - 91 - !5 : QL3
108 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Methodology

There were several key differences in the method

OTA used to calculate the economic impacts of the oil

shortfalls, with and without oil replacement initiatives. These differences were the result of more

limited resources and less time available for the 1991

study, changes in world oil and economic conditions,

the opportunity to study the impacts of oil shocks

since 1984, and the differences in the technical oil

replacement analyses used by OTA as inputs. The

two most significant differences are the way the

responses to the oil supply reductions are represented

and the way post-shortfall oil prices are computed.

These differences are described here briefly in order

to set the stage for the technical analysis that follows.

The 1984 analysis used a multisector input-output

model to trace the impact of the oil shortfall on

interindustry activity. Industrial and utility boiler oil

replacement measures were used to adjust inputoutput coefficients and sectoral demands directly,

while prices were increased until reductions in transport, residential, commercial, and nonboiler industrial uses achieved the remaining required overall

shortfall in demand. In the present analysis, all oil

demands are aggregated and the replacement policies

are assumed to reduce the level of oil demand at any

price, reducing the price increase required to rebalance

the oil market for a given reduction in U.S. oil supply

availability. In this regard the 1984 analysis was more

detailed than the present one.

In the 1984 analysis it was assumed that the U.S.

share of the world oil shortfall would be that derived

from the International Energy Agency’s (IEA) emergency sharing rules. Many analysts now believe that

since those rules allocate much of the reduction in

accordance with preinterruption import shares, those

reductions would not be consistent with a market

response, which would tend to allocate them more in

accordance with consumption shares. In addition, a

non-OPEC increase in production would be expected

if an OPEC shortfall were to persist over a 5-year

period. Thus, in the 1991 analysis, the price of oil is

adjusted on a worldwide basis rather than a U.S.-only

basis. This tends to make the U.S. oil import reductions smaller, but also makes the U.S. oil replacement

policies somewhat less effective in reducing the U.S.

economic impacts of the assumed world oil shortfall.

Analysis of the Economic Impacts of an Oil

Replacement Strategy, 1991

For this report, OTA did not conduct an extensive

analysis of the economic impacts of the 5 MMB/D

disruption scenario. Instead, we have based our analysis on a number of other studies of oil markets and the

economic impacts of disruptions, including several

by Stanford University’s Energy Modeling Forum.

These studies provide a useful perspective from which

to derive approximate estimates of the impacts that

might be obtained from more comprehensive modeling of the key energy and economic relationships.

The a preach used in this study is briefly described

here. 5

Disruption Size

Since oil is easily traded internationally, the impact

of a disruption on any economy (including that of the

United States) must be estimated from world oil

market conditions. All economies face the same increase in oil prices, which will be governed by the

share of world oil production lost during the disruption and how much price increases augment supply

and curtail demand after the disruption. The U.S.

dependence on oil imports will not directly determine

how high oil prices will move in a disruption or in

response to a U.S. oil replacement policy.

This situation means that the economic impact of a

disruption must be determined from world rather than

U.S. oil market conditions. It is assumed that all of the

16 MMB/D of Persian Gulf oil is lost to the world

market for an extended period of 5 years. The lost

production represents almost a 30-percent shortfall

for a world oil market using 53 MMB/D in the second

year, although the shortfall will be partly offset by the

increase in world oil supplies from non-OPEC regions induced by the higher prices of the sustained

disruption. Accordingly, the U.S. economy will share

proportionately in this world shortfall of 30 percent,

unless supply and demand responses to prices vary

significantly across countries. For purposes of this

analysis, we estimate that an initial 16 MMB/D disruption removes about 4 MMB/D of oil from the U.S.

economy, after accounting for the expected production offsets from supply regions outside OPEC. Ignoring this additional supply response will lead to an

sThe details of the analysis are contained in Hillard G. Huntington and John P. Weyant, “Economic Impacts of U.S. Oil Replacement Policies:

Methodology and Results for the OTA Anal ysis,” OTA contractor report, April 1991.
Chapter 4-Economic Aspects of Oil Replacement Strategies ● 109

overestimate of the economic losses resulting from

the disruption. Note that this total shortfall of

4 MMB/D is less than that assumed in the oil disruption scenario used in chapter 3, which assumes no

additional imports from alternative suppliers.

The responses of supply and demand to price and

income were chosen on the basis of a number of

studies of these parameters, with particular emphasis

given to a 1991 Energy Modeling Forum study on

international oil supplies and demands.6

Changes in Real GNP

The mechanisms through which oil prices can affect the economy are numerous and are best represented by a fully articulated model of the national

economy. In this chapter, we provide an estimate of

the impact through the use of a single parameter

linking oil price changes with declines in real GNP.

This parameter has been chosen on the basis of past

simulations of more than a dozen models in a previous Stanford Energy Modeling Forum (EMF) study.7

Oil expenditures as a share of GNP are currently

about 40 percent’ of their share in 1983 (when the

EMF study was conducted) at a price of about $17 per

barrel (bbl). As a result, the earlier EMF estimates of

these elasticities have been scaled down accordingly.

In the current analysis, a 10-percent sustained oil

price increase is assumed to reduce the level of real

output (GNP) by 0.4 percent after 2 years and by 0.2

percent after 5 years. The impact becomes smaller

over time, reflecting the economy’s increased capacity for adjusting to less oil.

Changes in Real National Income

Changes in real national income include changes in

physical output (GNP) as well as changes in the

purchasing power of the income received for producing those goods and services.8 The latter has been

estimated as the changes in the Nation’s oil import

bill due to higher oil prices. They are calculated from

changes in the oil price (see above) and from the

levels of U.S. production and consumption both before and after the disruption. Adjustments in oil

demand and supply levels as a result of the disruption

are derived from estimates of the response of supply

and demand to price changes, available from the

Energy Modeling Forum study on international oil

supplies and demands mentioned above.

Results

The lost oil production and its effect on oil prices for

the disruption scenario are summarized in the first

two columns of table 4-1. Although there exists

considerable uncertainty about how high oil prices

would rise during a disruption, these estimates are

representative of others made for similarly sized oil

disruptions.

The sustained disruption would push oil prices

from an assumed $22/bbl in the baseline, held constant over the next 5 years, to about $50/bbl after 2

years and to about $44/bbl after 5 years.9 Prices in the

very short run, of course, could be considerably

higher, particularly since these estimates ignore such

issues as oil trading and stockpiling dynamics.

A second scenario combines the sustained disruption with an aggressive U.S. policy toward replacing

oil use. Based on the deployment schedule provided

in the technical analysis of the oil-replacement technologies, the policy is assumed to reduce U.S. oil use

by 1.4 MMB/D at any oil price in the second year and

by 3.0 MMB/D in the fifth year. It is assumed that the

policy does not displace any oil consumption that

would ordinarily be curtailed as a result of the higher

prices of a disruption and that it successfully targets

the most cost-effective opportunities within this subset of technologies. These assumptions give the oil

replacement policy its most favorable impact on oil

prices. As shown in the last two columns of table

4-1, the oil replacement policy causes the world oil

price to rise less than in the initial scenario. As with

the disruption-only case, these effects must be calculated from world oil rather than U.S. market condicEnergy Mo~e]ing Fo~m, 1nternationu/ Oil Supp/ies and Demunds, EMF Repoti 11 (Stanford, CA, Stanford Unive~itY, 1991).

7Energy Modeling Forum, Macroeconom ic ]mpacf o~Energy Shocks, EMF Report 7 (StanfOrd, CA, Stanfoti University, 1985).

s~e ~al national inmme r~ults a]so include some txtimates of the cost of the oil replacement policy, which requires capital and other inputs to be

diverted from other sectom to reduce oil u,,e beyond the level that would be selected by market participants responding to price alone. The reduction in

nationai income caused by this shift is not incorporated in the earIier estimates of the real GNP loss, which were a function of oil price changes only. It

is estimated that the oil replacement policy would require that an additional $13.7 billion of national income be spent during the second year, and an

additional $19.7 billion in the fifth year. These costs could be substantially higher if the oil replacement program targeted investments that turned out to

be more expensive.

9N1 pnce~ are in ~nstant 1990 U.S. dolla~.
110 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Table 4-l—Disruption Size and Oil Price Impacts

MMB/D and Prices in 1990 $/barrel

Sustained Disruption with

oil disruption oil replacement

Second Fifth Second Fifth

year year year year

Supply disruption:

World oil supply* . . . . . . . . . . . . . . . . . . . . . . 16.0 MMB/D 16.0 MMB/D 16.0 MMB/D 16.0 MMB/D

U.S. replacement policy .............0.0 MMB/D 0,0 MM B/D 1.4 MMB/D 3.0 MM B/D

Net world shortfall . . . . . . . . . . . . . . . . . . . . 16.0 MM B/D 16.0 MMB/D 14.6 MMB/D 13.0 MMB/D

Percent of world* . . . . . . . . . . . . . . . . . . . . . 30.2% 29.3% 27.5% 23.8%

Oil price increase . . . . . . . . . . . . . . . . . . . 125.8% 97.5% 11 4.8% 79.2%

Disrupted price .................8 . . . . $49.7 $43.5 $47.3 $39.4

Baseline price . . . . . . . . . . . . . . . . . . . . . . . . $22.0 $22.0 $22.0 $22.0

● Excluding U. S. S. R., People’s Republic of China, and Eastern Europe.

NOTE: MMB/D = million barrels per day

SOURCE: Hillard G. Huntington and John P. Weyant, “Economic Impacts of Oil Replacement Policies: Methodology

and Results for the OTA Analysis,” OTA contractor report, April 1991.

tions because oil can be easily traded between regions. The policy of replacing 1.4 MMB/D of U.S. oil

use reduces the net world shortfall of the disruption to

14.6 MMB/D, or about 27.5 percent of world baseline

consumption of 53 MMB/D in the second year. Oil

prices after 2 years rise from $22/bbl to about $47/bbl

in this case. Relative to the disruption-only case, the

U.S. policy reduces the price shock by an additional

$2.40/bbl after 2 years and an additional $4/bbl or so

after 5 years. The incremental effects of the policy are

relatively modest because the U.S. policy is relatively

small in the context of world oil production and

consumption.

Table 4-2 contains the estimates of losses in real

GNP and real national income in both scenarios. Real

GNP would be sharply reduced by a sustained disruption of Persian Gulf oil, declining 5 percent below its

baseline after 2 years and 2 percent below after 5

years. The GNP loss after 2 years would be substantially larger than those experienced during past oil

price shocks. The National Petroleum Council estimated GNP losses to be 2.7 percent from the 1973

disruption and 3.6 percent from the 1979 shock.10An

accelerated U.S. oil replacement policy would mitigate the losses from a sustained disruption somewhat,

but the level of GNP would still fall by 4.6 percent and

1.6 percent, respectively, for these two years. The

incremental effect of the policy would be to restore

about 0.4 percent of real GNP in each year.

The broader measure of real national income shows

larger losses from a disruption than does real GNP,

because it incorporates the effect of higher oil prices

on domestic purchasing power. Conclusions about

the effectiveness of the oil-replacement policy, however, remain similar to those based on the real GNP

results. In the second year of the sustained disruption,

real national income would be 6.3 percent lower than

the baseline without the oil replacement policy and

5.6 percent lower with the oil replacement policy. By

the fifth year, real national income would be 3.0

percent lower without the policy and 2.1 percent

lower with the policy.

These results suggest that the policy could provide

some modest benefits in both real output and real

national income, depending on how it is implemented.

We have attributed to the policy its largest impact on

oil prices because it is assumed to displace only oil

use that would not already be displaced by higher

prices during a disruption. In addition, it is assumed

that the policy targets only the most cost-effective

opportunities for replacing oil that remain after the

disruption. While these assumptions have represented

the policy in its most favorable form, the analysis has

not incorporated any potential economic gains from

removing barriers that result in inefficient use of

energy, labor, and capital. It is unclear whether oil

replacement policies would lead to such gains, but if

they do, they would produce additional benefits that

locational petroleum Council, Factors Affecting U.S. Oil and Gas Outlook (Washington, DC: February 1987).
Chapter 4-Economic Aspects of Oil Replacement Strategies ● 111

Table 4-2--Comparison of U.S. Economic Impacts of a Sustained Oil Disruption and

an Oil Replacement Strategy

Sustained Disruption with

oil disruption oil replacement

Second Fifth Second Fifth

year year year year

Percent change in

the level of:

Real GNP $.... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... -5,070 –2.0% -4.6% –1 .6%

Real national income .., ,,, ,.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,, -6.3% -3.0% -5.6% –2.1%

NOTE: Changes in real GNP, as conventionally measured in the national income accounts, represent changes unphysical

output. Changes in real national income includes changes in the purchasing power of the income received from producing

that output

SOURCE: Hiliard G. Huntington and John P. Weyant, “Economic Impacts of Oil Replacement Policies: Methodology and

Results for the OTA Analysis,” OTA contractor report, April 1991.

have not been incorporated here because they are

difficult to quantify. A more refined evaluation of the

oil-replacement costs would require additional information on the cost effectiveness of different oil replacement strategies as well as an estimate of how

much of the oil replacement is induced by higher

prices during the disruption and how much remains to

be implemented even after the higher prices.

The estimates of the economic impact of a disruption are sensitive to several key assumptions. The

reported losses would be higher when: 1) oil demands

and supplies are less responsive to price, or 2) the

impact of oil prices on real GNP is larger. However,

the relative costs of implementing an accelerated U.S.

oil replacement policy during a sustained disruption

are quite insensitive to these assumptions. Instead,

the relative merits of the policy depend critically on

assumptions about how it is implemented. It will be

most effective: 1) when the policy is targeted toward

the least costly technologies, and 2) when the policy

is adopted simultaneously by all countries rather than

implemented unilaterally.

Further Research

A more comprehensive evaluation of the oil replacement policy would require three analytical components:

1.

2.

3.

a representation of world oil markets and their

responses to changed conditions,

a model of the U.S. economy that can incorporate some data on alternative technologies, and

a detailed assessment of oil replacement technologies that developed estimates of how much

oil could be replaced at successively higher

costs.

The world oil market conditions have been represented quite simply in the current analysis by extracting key parameters from more extensive studies of

these models. An alternative approach would be to

base the analysis of world oil conditions on a single

model, like the Energy Information Administration’s

Oil Market Simulator (OMS) system. Given that both

approaches are readily available, this aspect of the

analysis would not require extensive further development.

For estimating the economic impacts on the U.S.

economy, a macroeconomic model that represents

the relationship between inputs and outputs in individual industries could be used.11 Such a framework

allows the technical characteristics of the major oil

replacement options to be explicitly represented. Many

macroeconomic models focus on aggregate economic

conditions and do not include a detailed accounting of

industrial input needs.

1lTWO suitab]e approaches are the input-output framework, which is embedded in the INFORUM model used in OTA’s 1984 analysis, and the general

equilibrium approach, which has been pioneered by Professor Jorgenson in his Dynamic General Equilibrium Model (DGEM). See D. Jorgenson,

“Econometric and Process Analysis Models for Energy Policy Assessments,””m R. Amit and M. Avriel (eds.) Perspective ofResource Policy Modelling:

Energy und Minerals (Cambridge, MA: Ballinger, 1982).

292-892 - 91 - 6 : QL 3
112 Ž U.S. Oil Import Vulnerability: The Technical Replacement Capability

Finally, it is important that future estimates of the

oil replacement potential carefully consider not only

the amount of oil replaced but also the costs of

implementing these technologies, using consistent

economic assumptions across the various options.

When oil prices rise during a disruption, some options

will be chosen in response to the new market conditions and, therefore, no new policy initiatives will be

needed. Other options will not be chosen even at the

higher prices. A more comprehensive analysis of an

oil replacement policy must differentiate between

these two types of opportunities.

CONCLUSION

Future oil disruptions will continue to pose a serious threat to U.S. economic activity. Although the

U.S. reliance on oil to power its economy has declined

over the last two decades, the world has become

increasingly more dependent on oil supplies from the

Persian Gulf, and virtually all experts expect this

dependence to grow over time.

As estimated in this chapter, real GNP would be

sharply reduced by a sustained disruption of Persian

Gulf oil, declining 5 percent below its baseline after

2 years and 2 percent below after 5 years. An accelerated U.S. oil replacement policy would mitigate the

losses due to a sustained disruption somewhat, but the

level of GNP would still fall by 4.6 and 1.6 percent,

respectively, for these 2 years. The incremental effect

of the policy, therefore, is to restore about 0.4 percent

of real GNP in each year.

Implementation issues remain critical to the potential success of an accelerated oil replacement policy.

The policy would provide more economic benefits

than estimated here if the U.S. action were coord–

inated with similar policies in other countries. It

would be less effective than estimated here if the

policy failed to target the most cost-effective technologies.
U.S. Energy Policy and

Technologies for Replacing

Imported 011●
Contents

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Policy Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .,, ,. .,*,.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

POLICY OPTIONS FOR REPLACING OIL IN AN OIL SUPPLY DISRUPTION ........ 117

Residential and Commercial Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

Electric Utility Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . r+. 120

Industrial Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

Transportation Sector . . . . . . . . . . . . . . . . . . . . . . . . .0+,.,... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ● . .,,,.,... . . . . 123

Encouraging Domestic Oil and Gas Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..*126

Enhancing Natural Gas Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127

Reexamining Oil Import Disruption Planning and Emergency Response . . . . . . . . . . . . . . . . . . . . . . 127

POLICY OPTIONS FOR REDUCING OIL IMPORT VULNERABILITY AS

PART OF OTHER NATIONAL POLICY OBJECTIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128

Setting National Energy Policy Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Chapter 5

U.S. Energy Policy and Technologies for

Replacing Imported Oil

INTRODUCTION

The United States faces a future of growing dependence on imported oil and an ever-increasing vulnerability to oil supply and price disruptions on world

markets unless effective countervailing measures are

taken to reduce these risks. Technologies available

today can lessen our vulnerability: some are costcompetitive with oil now; others would be so at higher

oil prices. However, with demand for oil growing and

domestic production declining, it is no longer possible to rely on technical means alone to replace a

significant share of lost oil imports in a prolonged

supply disruption. Moreover, in addition to enhancing our energy security, acceptable oil replacement

technologies will have to be compatible with other

policy goals such as environmental protection and

international competitiveness.

This chapter examines policies and strategies for

countering increased oil import vulnerability. It begins with a discussion of key policy considerations in

crafting effective legislative options and follows with

a brief discussion of some policy options for promoting the adoption of oil replacement technologies:

1) in response to or in the event of a major oil supply

disruption and 2) as part of a more general national

energy strategy.

This report does not examine any of these policy

options in depth, or evaluate the best methods of

implementation, or quantify the potential costs and

benefits. If Congress decides to pursue these measures, it might use the legislative process to elicit this

information from the Department of Energy (DOE),

energy industries, States, and academic and other

experts; or, as part of a phased implementation strategy, Congress could require DOE to investigate and

report on optimum policies, and expected costs and

benefits.

Policy Considerations

In developing appropriate legislative responses to

the problems posed by growing oil imports, it is

important to distinguish between oil import dependence and oil import vulnerability. Import dependence is measured as the percent of domestic consumption that is met by foreign oil. In 1990 about 42

percent of our oil needs came from foreign sources.l

Arising level of imports contributes to import vulnerability, but import dependence alone does not translate into a serious threat to energy security.

Import vulnerability arises out of the degree and

nature of import dependence, the potential harm to

the economic and social welfare of a severe disruption in physical supplies or prices, its duration, and

the likelihood of such a disruption occurring. An

increase in oil import dependence does not by itself

generate an equal increase in oil import vulnerability.

Understanding the components of import vulnerability allows the targeting of effective countermeasures. For example, oil is now a fungible and freely

traded commodity on world markets. Crude oil prices

will continue to be set in world markets regardless of

the extent of U.S. oil import dependence. Unlike the

situation prevailing in the 1970s, oil prices in the

United States are virtually unregulated. They move

freely with changes in world market prices. With the

rapid growth of oil spot and futures markets, and the

changes in the terms of oil contracts to set delivered

prices based on these posted prices, oil prices can be

very volatile. Changes in supply (or rumors of changes

in supply) are reflected almost instantly in world

prices. The consequences of this structural change in

the oil industry were brought painfully home to consuming nations in the aftermath of Iraq’s invasion of

Kuwait.

Ius Depatiment ~fEncrgy, Energy Information Administration, Monthly Energy Review: February 1991, DOE/EIA-00S5(91 /02) (Washington> ‘c:

U.S. Government Printing Office, February 1991), tables 3.la & 3.lb.

—115—
116 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Growth in oil import dependence has its costs; for

example, higher import levels can make it more

difficult for the United States to adjust to price or

supply disruptions and require increased U.S. exports

or changes in the international value of the U.S. dollar

to pay for the imports.2 On the other hand, oil imports

have some positive aspects. First, they may provide a

ready supply of cheap oil, benefiting U.S. consumers

and oil-intensive industries. Second, U.S. oil companies are actively involved in oil exploration and

production in foreign countries and derive a significant share of their revenues and profits from foreign

operations, which in turn depend on exports to the

United States and other consuming nations. Third,

U.S. oil equipment manufacturers and oil service

companies are also active in foreign countries. Fourth,

U.S. imports offer a potential outlet for alternative

supply sources outside of the politically volatile Middle

East. Diversification of world oil production reduces

that region’s control of world supplies and, thus,

enhances U.S. energy security. Fifth, the growth of oil

and gas industries in many developing countries has

spurred economic development and provides an important source of foreign exchange that allows those

countries to import goods and services to improve the

lives of their citizens. The United States has supported their development efforts through foreign assistance programs and international organizations.

Sixth, many of the our major oil suppliers are nations

with whom we have developed important and strategic relationships that go well beyond reliance on oil

(Canada, Mexico, Venezuela, Saudi Arabia, the United

Kingdom, and Norway, for example). Efforts targeted at cutting oil imports could damage these relationships with usually stable suppliers.

One way of reducing oil import vulnerability would

be to cut the level of imports, but reducing imports

alone poses questions of practicality and effectiveness. No one has seriously suggested that in the near

term, by 2010, or later that the United States could or

is willing to pay the costs of fully replacing imports

with a combination of domestic production, fuel

switching, alternative fuels, demand reduction, and

efficiency improvements. President Bush’s National

Energy Strategy projects that the United States will

become even more dependent on Middle Eastern oil

imports in the future even if all of the strategy’s

proposals are implemented.3 Moreover, even if we

succeeded in replacing imports, we would still remain

vulnerable to oil price disruptions as long as oil prices

continue to be set in potentially volatile world markets (although the extent of vulnerability may be

reduced because oil might lose some of its importance

in the overall economy). Clearly, this is an area where

a delicate balancing act is called for.

The United States has already taken a number of

steps to offset import vulnerability. Chief among

these, and the first line of defense for supply disruptions, is the Strategic Petroleum Reserve (SPR), the

government-held stockpile of crude oil intended to

supply at least 90 days worth of U.S. oil imports in the

event of an oil emergency. The United States is also

party to International Energy Agency (IEA) agreements on international oil supply emergencies that

commit members to maintain strategic stockpiles,

develop standby demand reduction plans, and to

share oil supplies in a shortage. In early 1991, Operation Desert Storm triggered an IEA-coordinated release of government-held strategic stocks to counter

possible market impacts of allied action against Iraq.

Other government actions, such as corporate average fuel economy (CAFE) standards for automobiles

and light trucks, fuel use restrictions, purchase and

interconnection requirements for qualifying cogeneration and small power producers under the Public

Utilities Regulatory Policies Act (PURPA), and federally funded energy technology research, development, and demonstration (RD&D) programs, have

combined with price signals to help the United States

make great progress in reducing the oil intensity of the

economy and in using oil more efficiently. Independently of government programs, businesses, utilities,

and individuals have significantly reduced their own

vulnerability to the consequences of oil supply or

price disruptions through, for example, dual fuel

capability and efficiency improvements. One consequence of this success, however, is that the easy steps

have already been taken and replacing the remaining

uses of oil has become increasingly more difficult.

If Congress decides to reduce oil import vulnerability by displacing oil use or enhancing our technical

readiness for replacing imports, there are a number of

2Nat10nal petroleum ~uncll, FactOrs Affecting U.S. Oil and Gas Outlook, February 1987> P. 7“

JNationa/Enerfl Sfratefl: powerfu/I[]euYf orAmerica, First Edition 1991/1992 (Washington, DC: U.S. Government printing Office, February 1991).
Chapter 5--U.S. Energy Policy and Technologies for Replacing Imported Oil ● 117

potentially effective measures available. No single

technology will eliminate oil import dependence and

no quick fixes will eliminate oil import vulnerability.

An effective strategy will require a combination of oil

replacement initiatives, perhaps combined with other

energy and environmental policy measures.

To illustrate how oil replacement technologies

might contribute to the goal of reduced oil import

vulnerability, we present two strategies:

● promoting the adoption of oil replacement technologies in an oil supply disruption, and

● reducing oil import vulnerability as part of

long-term national energy policy objectives.

Both strategies rely on many of the same oil replacement technologies and policy initiatives. One

critical difference is that some policy options and

technologies have fewer implementation problems

and offer greater oil savings if adopted as part of a

long-term oil replacement strategy rather than as part

of a crisis-driven strategy.

POLICY OPTIONS FOR

REPLACING OIL IN AN OIL

SUPPLY DISRUPTION

A variety of policy measures could reduce oil use

either by improving energy efficiency or by encouraging conversions to other fuels. This section presents such policy options for each energy sector. In

addition, options for improving the domestic supply

of oil and for enhancing emergency response measures are explored.

Residential and Commercial Sectors

Replacement of most oil use in the residential and

commercial sectors is technically feasible; however,

the success of such a strategy will depend on individual decisions by millions of consumers. It is already abundantly apparent that price alone is insufficient to achieve reductions because many oil savings

technologies are already cost-effective. A number of

institutional and technical constraints have discouraged oil replacement and energy efficiency improvements in these sectors.4 There are, however, policy

initiatives than can be targeted to overcome these

financial, informational, cost, and institutional constraints.

Several financial disincentives are at work. First,

residential and commercial oil demand is highly

inelastic. (Price elasticity measures the change in

energy demand in response to the change in the price

of energy. Inelastic demand is insensitive to price

changes-i. e., it does not change much or quickly

when prices go up or down.)5 Thus, oil prices would

have to rise dramatically over the costs of competing

fuels to trigger enough replacements or retrofits to

have significant oil savings. Analyses vary about

what level of price increase would suffice.6

Second, residential and commercial customers are

generally highly sensitive to front-end costs. High

front-end costs and cash flow considerations can

deter them from making conversions and efficiency

improvements that offer lower life cycle costs. This is

true even for measures with relatively short payback

periods of 4 years or less.

Third, this preference for low front-end costs is

amplified for equipment and efficiency decisions for

new construction, rehabilitation, and rental properties where those making initial purchase decisions are

often not the ones who will be paying the fuel and

operating costs.

Finally, the structure of the residential-commercial

fuel supply network does not encourage fuel suppliers to promote efficiency, except out of fear of loss of

market share to competing fuels.7 Their revenues,

after all, depend on the volume of sales. This is in

marked contrast to the many regulated electric and

40TA has an Ongoing project investigating overall energy efficiency in the residential and commercial sectors which examines both institutional and

technological issues in more detail. The institutional aspects of promoting energy efficiency and reduced emissions of pollutants in the buildings seetor

and related policy options are also examined in another OTA report: U.S. Congress, Office of Technology Assessment, Changing by Degrees: Steps To

Reduce Greenhouse Gases, OTA-O-482 (Washington, DC: U.S. Government Printing Office, February 1991), ch. 4. Hereinafter referred to as Changing

by Degrees.

s~e ch. 4 of this repo~ for a discussion of the response of the U.S. economy to oil pri~ changes.

Cchanging by Degrees, supra note 4 at pp. 135-137, and cited referen~.

7For example during the fall and early winter of 1990-91, fuel oil distributors mounted an aggressive advetiising camPaign citing ‘he ‘igh ‘ss ‘f

eonvefiing to natural gas and the perceived relative safety of fuel oil, even at higher costs.
118 Ž U.S. Oil Import Vulnerability: The Technical Replacement Capability

gas utilities that have aggressive conservation programs as part of demand-side management strategies

or in response to State regulatory program directives

or financial incentives. Despite these disincentives, it

should be noted that the energy efficiency of new

homes and commercial buildings is much higher than

that of older stock.

Many building owners have already made some

improvements in energy efficiency. However, while

DOE survey data suggest that still more incremental

savings are possible,8 it is not clear how many of these

measures are attractive at today’s energy prices. Some

analysts have attributed the lag in savings in part to a

lack of information about the potential from building

efficiency improvements and better equipment.

A key uncertainty in converting existing oil furnaces, boilers, and water heaters to natural gas is the

limited availability of natural gas in some areas. This

constraint is due to: the extent of local gas distribution

companies’ service infrastructure, the seasonal availability of gas supplies, and insufficient interstate

natural gas pipeline capacity and gas storage facilities

to meet potential demand.

Under normal conditions, the pace of energy conservation and oil conversions in the residential and

commercial sectors is slow because so much is determined by the characteristics of the existing buildings

and equipment. To get residential and commercial

building owners to accelerate oil conversions and

efficiency improvements in an oil emergency will

require a mix of information, exhortation, direct financial incentives, and voluntary and mandatory efficiency standards. Legislative options to foster oil

savings in the residential and commercial sectors

include: options affecting fuel prices and availability,

measures to reduce front-end costs and cash flow

barriers, financing assistance, efficiency standards,

public information (labeling and certification programs), and technology RD&D programs. There is

not extensive experience with most of these measures

under normal conditions, and little conclusive analysis of their effectiveness. Some of these measures

may provide only marginal oil savings over the short

term, but may be more effective over a longer period

of time.

Making Oil Use More Expensive

Discouraging oil use by making it more expensive

through the imposition of oil surcharges, fees, or

taxes has frequently been advocated. The relatively

higher oil taxes paid by European and Japanese consumers and their, presumably more efficient, lower

per capita oil use are often cited as support for this

approach. Other purposes for imposing such surcharges include: conserving oil, reducing oil imports,

raising Federal revenues to pay for specific programs

or to cut the deficit, and correcting market failures

that keep oil prices low by excluding the full cost of

various externalities in oil use.

In addition to the financial disincentives previously

discussed, this approach has several drawbacks as an

effective option for encouraging near-term oil replacement in response to an import crisis. First, such

surcharges tend to be regressive, burdening lower

income families more than affluent households. Second, higher oil prices would frustrate other energy

assistance programs by reducing the impact of already limited Federal, State, and local resources for

helping the poor pay their energy bills. Third, and

perhaps most significantly, raising fuel costs even

higher than the levels already triggered by an oil

shortage could exacerbate the economic effects of

the crisis. These results could be politically unacceptable. While it is possible to include mechanisms to

offset the regressive features of a surcharge, such as

tax credits or rebates, the overall economic impacts of

higher oil prices would remain controversial.

Reducing Front-End Costs and Cash Barriers

Rebates, tax credits, tax deductions and other mechanisms for cutting up-front costs of oil conversions or

efficiency improvements would appear to be attractive ways of countering financial disincentives. However, experience with these as measures for displacing oil use is limited.

Rebates on the purchase and installation of oilsaving measures might be comparable to customer

rebates in utility demand-side management programs.

Some have suggested that the rebates be coupled with

8For ~ddltlonal imlght into the ~mp]icat~ nature of determining the cost-effectiveness of SOme available building efficiency retrofits> see ‘he

discussion in U.S. Congress, Office of Technology Assessment, Energy Eficiency ofBui/dings in Cities, OTA-E-168 (Springfield, VA: National Technical

Information Semice, March 1982).
Chapter 5--U.S. Energy Policy and Technologies for Replacing Imported Oil ● 119

and financed by an initial purchase tax on inefficient

equipment, or even on buildings.9 It is not clear

whether such a program would be adequately selffinancing if directed only at oil use, or if it would

actually be effective in shifting purchase decisions to

more efficient products or structures. Also uncertain

is who would administer an oil-savings rebate program-utilities, fuel oil suppliers, State agencies, or

the Federal Government.

Congress could consider allowing property owners

(and tenants, in some instances) to deduct or credit

against their income taxes some or all of the costs of

installing oil replacement equipment or qualified

efficiency improvements such as increased insulation, storm windows, and flame retention burners.

However, studies of the effectiveness of the residential energy and solar tax credits were inconclusive

about its success in spurring incremental investments

that would not otherwise have been made.l0 Some

analysts argue that the tax credits had little or no

incremental benefit and amounted to a windfall for

certain taxpayers; others suggest that the credit was

too low to be effective, or that the increase in energy

prices dwarfed the effects of the tax incentive. To be

effective, great care would have to be taken in creating appropriate tax incentives to trigger incremental

investments in oil savings.

Financing Energy Savings

Congress might also consider enacting or expanding mechanisms, such as grants, loans, loan guarantees, and shared energy savings programs, to aid the

financing of conversions and efficiency improvements. Federal law already provides a variety of

mechanisms that might be useful.11 OTA has not

investigated how much additional oil savings they

might provide and at what cost.

Setting Energy Efficiency Standards

Congress could encourage measures affecting the

availability of efficient equipment and the energy

efficiency of buildings, such as voluntary and mandatory equipment standards, energy rating systems,

product certifications, and building codes. Coupled

with other incentives to trigger oil conversions and

efficiency improvements, these measures could help

assure that investments in these technologies achieve

optimum oil savings by providing pertinent information to consumers and keeping inefficient products

out of the marketplace. The Federal Government has

cooperated in developing model building codes that

promote energy-efficient construction and is committed to encouraging States to adopt these requirements. Efficiency standards for furnaces and water

heaters are mandated under the National Appliance

Energy Conservation Act of 1987 (Public Law 100-

12). For example, the annual fuel utilization efficiency (AFUE) standard for oil boilers effective in

1992 is 78 percent, yet there are many models commercially available today approaching 90 percent

AFUE.12 Such minimum efficiency standards and

codes could be made more stringent or accelerated in

an oil emergency.

In response to a crisis, Congress could either restrict

oil use in or require replacement of oil-burning equipment in large residential and commercial buildings or

complexes after a specified transition period. Mandating equipment replacement in private homes and

small commercial buildings, however, would be more

difficult and controversial, and oil savings might

better be achieved through a combination of incentives and other measures. For example, Congress

might require that new or existing homes must either

replace oil-burning equipment or achieve a prescribed

building efficiency rating to qualify for federally

backed mortgages or as a condition of sale. Congress

could direct States to consider additional measures to

cut residential oil use.

Improving Public Information

Other measures that enhance the availability and

quality of consumer information on oil savings technologies, such as appliance labeling, energy rating

9For more on Such ~roposals, see Changing by Degrees, suPra note 4! Ch” 4

lOEnc Hirst, Richard Goeltz, Hyhhw Manning, “Household Retrofit Expenditures and the Federal Residential Energy Consemation Tax Credit,”

ORNL/CON-9S (Oak Ridge, TN: Oak Ridge National Laboratory, July 1982). Salvatore Lazzan, “Are the Residential Energy Tax Credits an Effective

Tool of Energy Consewation,” Congres,sic~nul Re.veurch Service Review, vol. 4, March 1983, pp. 11-13.

llchunging by Degrees, supra note 4, ch. 4.

~z~erlcan ~uncll for an Energy Efficient Economy, ’’Handbook on Energy Efficient Appliances,” at pp. 24-25.
120 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

systems for buildings, energy audits, and energy

conservation assistance programs, could help building owners and tenants learn about potential costeffective oil savings. Such promotional efforts could

improve the effectiveness of voluntary conservation.

Improving the Availability of Natural Gas

A critical uncertainty in achieving a high degree of

residential and commercial oil replacement is the

availability and deliverability y of natural gas for space

and water heating systems. While there appears to be

sufficient production capacity to meet increased residential and commercial demand, local gas systems in

some areas would not be able to accommodate the

flood of new customers without significant investments in additional infrastructure for distribution and

storage and commitments of expanded delivery capability from interstate pipelines. Without a more detailed examination of the natural gas supply system,

we cannot suggest specific legislative actions that

could remedy this situation. Congress may wish to

consider directing the Secretary of Energy, in consultation with State regulatory authorities, to study the

matter further and to report on the capability of gas

distribution companies to expand their services as a

means of replacing oil, and to delineate any needed

Federal actions to enhance this capability. Additional

measures to improve gas availability are discussed

later in this chapter.

Providing Federal Assistance for Technology

Development

The Federal Government could assist in RD&D

and commercialization of technologies that hold promise for rapid oil savings in the residential and commercial sectors either by redirecting or by adding to

existing Federal energy and housing research programs. For example, further investigation of technical and institutional matters associated with converting oil boilers to burn coal slurry fuel during an oil

emergency would seem fruitful. Improvement of

cost-effective and quickly installed devices for retrofitting oil burning hydronic heating systems to accommodate other fuels or to enhance efficiency would

also seem particularly attractive, given the large number of residential units that would benefit.

Electric Utility Sector

Although it is technically feasible to back out

virtually all use of residual oil in the electric utility

sector, it is not clear whether an aggressive backout

would be necessary or desirable, even in a major oil

import disruption. High oil prices, new capacity,

demand management programs, State regulatory policies, and Federal programs under PURPA and the

Powerplant and Industrial Fuel Use Act (PIFUA)

already have cut oil use by electric utilities.13 Most

oil-dependent utilities now appear well situated to

respond to an oil supply emergency. Nevertheless,

several legislative actions could further enhance oil

displacement capability and oversight in this sector if

Congress wanted to speed a shift away from oil-fired

generation and promote greater flexibility in responding to supply disruptions.

Electric Utility Regulation

State regulatory agencies have the primary responsibility for overseeing electric utility generation and

transmission capacity planning, operations, and retail

rate matters. Nevertheless, Congress has, under

PURPA for example, enacted legislation influencing

how States exercise their regulatory authority. Congress might consider further legislative actions now

to reduce vulnerability of electric utilities in a future

oil import crisis. Possible actions include the following:

● State public utility commissions (and unregulated utilities) could be required to consider oilsupply emergency responses in their contingency and capacity planning, if they do not

already do so, and to consider giving preferences

to oil displacement technologies (including demand and supply-side management) in the selection of new generating capacity or power supplies.

13Th~ ~] Wtrjc Utlllty industry is highly regulate~ with juris~iC(i~n over utilit y activities split between the Federal Energy Regulatory ~mmission and

State public utility commissions. States generally have exercised supervision over capacity planning, siting, and acquisition of new generating and

transmission facilities, and demand-side management programs. FERC has passed on wholesale electricity transactions, transmission agreements and

fees, and set general policy guidance for State implementation of PURPA.
Chapter 5--U.S. Energy Policy and Technologies for Replacing Imported Oil ● 121

The Federal Power Act could be amended to

direct the Federal Energy Regulatory Commission (FERC) to accept State approved preferences for oil replacement technologies in passing on the rates, terms, and conditions of bulk

power sales.

PURPA could be modified to direct FERC to

authorize States to approve a bonus payment

above avoided cost for power sales by qualifying

facilities (QFs) using certain State-approved oil

replacement technologies.

State public utility commissions could be required to consider amending their transmission

line certification or licensing approval criteria to

include improving the capability of the regional

transmission system to move power to displace

oil in a supply crisis, if they do not already do so.

Federal Programs and Policies

In matters of national energy policy, energy security, and Federal jurisdiction over interstate power

sales, the Federal Government has a continuing role

in the oversight of electric utilities. In this area, too,

there are several legislative actions that might be

considered to improve emergency preparedness in

advance of an oil import shortfall.

● Congress might require the Secretary of Energy,

in cooperation with State regulatory authorities

and other appropriate Federal agencies, to study

and report back on the capability of regional

electric transmission systems to increase power

transfers to displace oil in an import crisis and

suggested measures for necessary improvements.

Even though, over the past decade, there has

been a clear trend away from oil use in new

generating units, some analysts project that in

the late 1990s electric utilities will increasingly

turn to oil-fired generation if electricity demand

grows and natural-gas supplies tighten.14

●

●

●

Congress may wish to consider reimposing

Federal requirements that utilities, independent

power producers, and industrial facilities demonstrate that any new oil-burning units (over a

certain size) be capable of modification or replacement to burn an alternate fuel within 6 to 12

months.

Federal efforts to increase the seasonal availability of natural gas could allow greater use of gasfired generating capacity by utilities.

Congress could direct that federally sponsored

fossil energy and clean coal programs include

RD&D projects for cost-effective and shortleadtime technologies to convert oil-fired units

to burn coal slurry fuels or other fuels.

Congress could review the adequacy of Federal

emergency authority for responding to an oil import

crisis. Among possible amendments are:

●

●

●

●

Granting additional authority to the Secretary of

Energy or the President to restrict nonessential

utility oil use during oil supply emergencies.

Requiring utilities to prepare regional transmission sharing plans to facilitate voluntary bulk

power transfers to displace oil-fired generation

in an oil supply emergency.

Authorizing the FERC to order utilities to provide transmission access for oil-saving bulk

power transfers for other utilities in an oil supply

emergency if sufficient transmission capacity is

then available, including requiring any facility

upgrades or operational changes necessary to

carry out the transfers.15

Directing the Environmental Protection Agency

(EPA) to examine applicable permit review and

approval procedures for conversions of oil-burning facilities to natural gas or coal and to recommend any changes that might be needed to expedite the processing of such requests in an

emergency.

IQThls ~ouId be espWial]y true if peak load grows faster than base load. The low capital costs and short lead-times of new oil-fired units COUld make

them attractive if adequate supplies of natural gas are not available. It is not clear, given recent experience, that any utility would build such a single-fuel

plant now unless it were redundant capacity.

IsFor a discussion of the techni~l and policy issues involved, see U.S. Congress, Oftice of Technology Assessment, Electric ~o~er Wheeling and

Dealing: Technological Considerations jiir Improving C’ompe(ition, OTA-E-409 (Washington, DC: U.S. Government Printing Office, May 1989),

chs. 5 and 7.
122 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Industrial Sector

Much of industrial sector oil demand is for feedstocks and nonmanufacturing applications that currently have few replacements available. Consequently,

most of the near-term oil replacement potential in this

sector is in manufacturing. We believe that with

additional research, oil replacement options for other

industrial products and applications could be expanded.

Oil product use in manufacturing is diverse, and

detailed analysis of the full extent of oil replacement

potential is not possible based on the limited information available. OTA, like others, focused on opportunities in the most oil-intensive industries and found

the major technical opportunities for oil savings to be

fuel switching, converting industrial boilers to nonoil fuels, efficiency improvements and process

changes, alternative feedstocks, and industrial and

end-use consumer recycling and waste reduction.

The industrial sector is highly responsive to price.

Over the past two decades, higher oil prices plus

uncertainty about the availability of oil supplies led

U.S. manufacturers to cut oil use and to enhance their

capability for fuel switching. We believe additional

opportunities for oil savings and efficiency gains still

remain. 16 policy options that maybe most effective in

this sector include those that would speed the adoption of more energy-efficient technologies. These

include oil taxes or surcharges, tax incentives, and

technology transfer efforts. Policies that advance

other goals, such as waste reduction, can also create

a market pull for oil replacement technologies. Given

the extent of nonreplaceable oil use in this sector,

attention should also be given to emergency fuel use

authorities, the adequacy of government and private

stockpiles, and RD&D efforts.

Creating Financial Disincentives for Oil Use

Imposition of fees, surcharges, or taxes on oil

products to make them more expensive to use would

probably trigger some additional conservation efforts

in this sector. We have not investigated how much

incremental oil replacement would occur or at what

price. But a tax would also have negative effects. As

noted previously, if the tax were imposed during a

supply crisis, it could magnify the economic impacts

of any shortage. Price is not the sole determinant in

industrial oil use. Considerations of cost, fuel availability, process compatibility, equipment, and product quality may dictate continued use of oil. The

added costs would particularly burden manufacturers

who have limited replacement alternatives and would

erode their international competitiveness if similar

costs were not imposed on their foreign counterparts.

Creating Investment Incentives

OTA’s report, Industrial Energy Use, found that, in

general, policies that encouraged investment in new

plant and equipment also tended to improve energy

efficiency. 17 However, OTA also found that legislation directed specifically at improving energy efficiency in industry had little influence on investment

decisions. Thus, for example, the targeted 10-percent

energy investment tax credit in the Energy Tax Act of

1978 (Public Law 95-618, now expired) was found to

have had minimal effect on the industrial sector, as

did the accelerated cost recovery provisions of the

Economic Recovery Tax Act of 1981 (Public Law 97-

34) under then prevailing conditions of high interest

rates and low demand growth. The most significant

shifts in energy efficiency were found to have arisen

from the availability of low-cost capital that made

investment in capital-intensive technologies, such as

cogeneration and heat recovery devices, more attractive. It is conceivable that in an emergency, high

energy costs would make investments so attractive

for major industrial oil users, that additional financial

incentives would have only marginal impacts.

As in the utility sector, there are several oil replacement policies that if adopted in advance of an oil

supply crisis could enhance industry flexibility in

responding to an oil shortfall. In an actual oil shortage

there may be few effective policy options, other than

emergency oil use restrictions and allocations, that

could achieve significant near-term oil savings over

those triggered by higher oil prices.

ICOTA has a currently ongoing project on industrial energy efficiency which will include more detdd pOllCy options.

17u . . s ~ngress, Offlce of Technology Assessment, ]ndu~lria/EnerB Use, OTA-E-198, June 1983, available from the National Technical Information

Service, Springfield, VA 22161 (order #PB 83-240 606), chs. 1 and 3.
Chapter 5--U.S. Energy Policy and Technologies for Replacing Imported Oil ● 123

Promoting Technology Development

The major oil-intensive industries have a vested

interest in and a commitment to improving the availability of oil replacement options and their efficiency

of oil use. Smaller companies and specialized manufacturers may not have the same resources for technology development. DOE’s active Industrial Energy

Conservation Program supports R&D, technology

transfer, energy audits, and industrial energy education and outreach programs. Congress may wish to

use the oversight and appropriations process to assure

that DOE’s programs give sufficient attention to oilsaving technologies. Congress could also encourage

the inclusion of oil-saving and energy-efficient technologies in the RD&D and outreach activities of other

agencies that support energy-related research of particular importance to the industrial sector, including

the Department of the Interior (Bureau of Mines), the

Department of Transportation (Federal Highway

Administration), the Department of Commerce, and

the Department of Agriculture.

Reducing Waste

Potential savings from process changes and alternative feedstocks include the recycling of plastics,

used oil, and old tires. All of these have some potential oil and energy savings, although we have not

examined them in detail. Recycling efforts have largely

been driven by waste disposal concerns. Congress

could require manufacturers of these products to

establish programs to recycle a portion of their output

either as a replacement for virgin material or as wastederived products.

18 This might be coupled with restrictions on landfilling, incinerating such waste, or

waste-end taxes. Because of the myriad of technical

and implementation hurdles that must be overcome

for significant savings to occur, this may not be a

particularly effective near-term oil replacement option, and may be better suited to a long-term strategy;

however, the added urgency of an oil crisis might

provide the necessary impetus for government, industry, and consumer cooperation to overcome these

obstacles.

Transportation Sector

The U.S. transportation sector is virtually locked

into oil as its dominant fuel for all but the very very

long term and faces significant challenges in cutting

oil demand. Nevertheless, given the large amount of

oil used (60 percent of total demand), even small

improvements can make important contributions to

more efficient oil use. Improving motor vehicle fuel

economy and shifting from gasoline to other fuels

also offer the prospect of reduced emissions of harmful pollutants.19The transportation sector has already

made some efficiency improvements, spurred by

higher prices, voluntary conservation, and government programs, but progress has not been as great as

some, including, OTA, once hoped.

With aggressive conservation measures, and the

cooperation of government, industry, and consumers,

it is technically feasible to cut oil use in the transportation sector by over half a million barrels per day

(B/D) within 5 years in response to an import crisis.

An aggressive oil replacement strategy would include four goals:

1. improving light-duty vehicle (LDV) fuel efficiency,

2. accelerating the adoption of alternative non-oil

transportation fuels and vehicles,

3. cutting or limiting the increase in vehicle miles

traveled, and

4. improving the efficiency of traffic movement.

Achieving the full savings potential will require action by Federal, State, and local governments, cooperation by manufacturers, and a high degree of public

acceptance. Because no single policy will provide the

full savings, a combination of options seems warranted.

The possible policy options for implementing this

strategy are varied, and many are controversial. Some

of the most commonly suggested alternatives for each

goal are discussed briefly below. A detailed analysis

of each of these options is beyond the scope of this

report; however, as noted, several of them are examined in other OTA studies.20

Iasee ch. 3 of this repo~ and U.S. ~ngras, Office of Technology Assessment, FacingAmerica’s Trash: WhutNextforMunicipalSolid Waste? OTAE-424 (Washington, DC: U.S. Government Printing Office, October 1989).

19u.s. ~ngress, Offlce of T~hnology Assessment, Replacing Gasoline: Alternatives for Light-Duty Vehicles, OTA-E-354 (Washington, DC: U.S.

Government Printing Office, June 19{90).

20see Rep/acing ~jaso/ine, ibid., and Chunginghy Degree,~, supra note 4, ch. 5. The potential for additional improvements in auto fuel economy 

bein

g

examined ina separate OTAreport, ZmprovingAutomobile FuelEconomy:NewStandards, NewApproaches, scheduled for publication in October 1991.
124 ● U.S. Oil Import Vulnerability: The Technical Replacement Capbility

Improving Light-Duty Vehicle Fuel Efficiency

Among the competing options for increasing LDV

fuel efficiency are the following: relying on a combination of higher (shortage-induced) market prices,

taxes, and rebates to create price signals that influence consumer choice; strengthening Federal fuel

economy standards; and requiring fleet operators

(including Federal agencies) to purchase more fuelefficient vehicles. There is considerable debate about

the relative effectiveness, political viability, and appropriate balance of these approaches.

Influencing Consumer Choice Through Price

Signals—A market-oriented approach using various

mechanisms to affect the front-end and life-cycle

costs of cars and light trucks is based on the assumption that consumers will choose more efficient vehicles in response to such price signals. In addition to

allowing gasoline prices to rise freely in response to

a supply shortage, possible mechanisms include imposing significantly higher gasoline taxes, raising the

gas-guzzler tax on the purchase of inefficient new

vehicles, offering gas-sipper rebates for highly efficient new vehicles, and imposing fuel efficiencybased annual vehicle registration fees. (Congress

raised gas guzzler taxes at the end of the 101st

Congress.) Past studies on the effects of higher prices

on vehicle preferences and discretionary driving are

mixed, so that the effectiveness of these measures

alone is uncertain. At the very least, they appear to be

more effective as longer term, rather than rapidresponse, measures in affecting overall fleet efficiency. 21 Tax-based measures pose the problem of

setting a rate high enough to be effective while still

being acceptable and nonregressive. Rebates raise

questions of funding sources and potential windfalls

for consumers who would have purchased efficient

vehicles anyway.

Strengthening Federal Vehicle Fuel Economy

Standards--Amending Federal vehicle fuel efficiency

standards to require new cars and light trucks to attain

maximum fuel economy levels under available technology would offer some oil savings even without

substantial changes in fleet mix and consumer preference. These savings would begin to be apparent

within 5 years as manufacturers accelerated the application of fuel-efficient technologies. More aggressive standards could achieve greater savings, but

would entail greater uncertainties, changes in fleet

mix, and more disruption of manufacturers’ product

plans.

Some, including OTA, have suggested that the

form of the fuel economy standard can be technology

forcing. For example, changing the standard from an

industry-wide corporate average fuel economy standard to a volume-averaged fuel economy standard

would require manufacturers to increase the efficiency of all vehicles in their product lines.22 Requiring across-the-board increases in fuel economy has

been criticized as unfairly penalizing manufacturers

who have already made significant gains and who

face more difficult technical hurdles than those manufacturers who have lagged in adoption of fuel-efficient technology. Revised standards might favor fuelefficient imports over domestically made models

(although the addition of imported models by domestic manufacturers to their product lines and the location of foreign-owned manufacturing plants here have

considerably muddied this problem). Finally, Congress faees the choice of whether to allow fuel economy

credits to manufacturers for vehicles that incorporate

stringent emissions controls, dual-fuel capability, or

additional safety features. (Some of these issues have

been addressed in OTA testimony and are included in

a separate OTA report on automotive fuel economy.)

Requiring More Fuel Efficient Replacement Vehicles—Other methods of creating a market pull for

more efficient vehicles would be to require fleet

owners (including Federal agencies) to purchase replacement vehicles from the most efficient in the

applicable size class, with stiff penalties for failure to

comply and waivers for appropriate circumstances.

This would be similar to provisions for alternatively

fueled fleet vehicles in nonattainment areas included

in the Clean Air Act Amendments of 1990. This is one

area where Federal procurement policies could affect

oil use, since the Federal Government is perhaps the

largest purchaser of new vehicles.23

21see c~ang;ng by Degrees, Supra note 4, pp. 165-166, and references cited therein.

~steven E. plotkin, Senior Associate, U.S. Congrtiss, OffiW of Technology Assessment, “Legislative Proposals to Increase Automotive Fuel Economy

and Promote Alternative Transportation Fuels,” testimony before the Subcommittee on Energy and Power of the House Committee on Energy and

Commerce, Apr. 17, 1991.

~~e u s Congress, Office of Technology Assessment, Energy Eficiency in the Federal Government: Government by GoodExample? OTA-E-492

(Washington’, DC: U.S. Government Printing Office, May 1991).
Chapter 5--U.S. Energy Policy and Technologies for Replacing Imported Oil ● 125

Promoting Alternative Transportation Fuels

and Vehicles

The successful commercial penetration of alternatively fueled vehicles requires:

● the manufacture or retrofit of alternative fuel

vehicles in sufficient quantity,

● the development of an adequate refueling and

service support infrastructure, and

● consumer acceptance.24

Among policy measures suggested to create a market-pull for alternatively fueled vehicles are the following: giving rebates or tax incentives to reduce the

front-end costs of these vehicles compared to those of

gasoline models; requiring private and government

fleet operators to purchase or retrofit a minimum

number of alternative fueled vehicles; and promoting

industry and industry-government joint ventures to

accelerate vehicle technology RD&D and commercialization. Under existing programs, the Federal

Government could support continued RD&D unpromising alternative vehicle technologies, such as electric

vehicles and hydrogen vehicles, that would not be

commercially ready or cost-effective within 5 years,

but might be within an additional 5 to 10 years.

Development of an adequate refueling and servicing network could be aided by requiring refiners and

large gasoline retailers to offer a certain percentage of

alternative vehicle fuels through their existing networks; and increasing alternative vehicle fuel subsidies, such as those now offered for ethanol production, and revising, as appropriate, inadvertent regu–

latory impediments for commercial distribution of

natural-gas vehicle fuels.

Consumer acceptance could be enhanced by better

information and minimum product standards for alternatively fueled vehicles. Commercial fleet operators are highly sensitive to fuel costs and overall

vehicle life-cycle costs because their fleets tend to be

driven more than private vehicles. An informational

program for fleet operators that set out the reliability

and potential cost savings from alternatively fueled

vehicles could also encourage commercial interest.

Manufacturers and retrofitters could be required to

warrant the performance and reliability of their

vehicles and to back it up with effective customer

service.

Reducing Vehicle Miles Traveled

Measures that discourage discretionary driving

and encourage increased car pooling and use of available public transportation can save fuel by cutting

vehicle miles traveled. Higher fuel costs (either from

higher market prices or increased taxes) are believed

to have some immediate impact on discretionary

driving and mode choice, but the extent of such

savings is unknown. Ways to reduce vehicle miles

traveled include: car and van pool matching services,

parking restrictions, higher parking fees, employerbased transportation, flexible or staggered work weeks,

telecommuting, high occupancy vehicle (HOV) lanes,

and bikeways.

25 In general, these measures require

comprehensive, locally designed approaches and

public and employer acceptance to be successful.

Federal assistance or requirements that localities or

regions develop contingency plans to reduce vehicle

miles traveled might speed implementation in an oil

import crisis. Through the Departments of Energy or

Transportation, the Federal Government could fund

additional studies of the effectiveness of such measures at cutting vehicle miles traveled and share the

results with local governments.

Improving the Efficiency of Traffic Movement

Traffic management and control technologies can

promote efficiency by keeping traffic running

smoothly and at more fuel-efficient speeds. Measures

to improving the flow of traffic include highway and

street improvements to reduce congestion, such as the

installation of sophisticated traffic signals, ramp

meters, and redesigned intersections, as well as measures aimed at cutting the number of vehicles on the

road, such as HOV lanes and staggered work hours.

Strictly enforcing speed limits would also boost fuel

savings. Congress could require State and local governments to give consideration to the oil savings

potential of additional traffic efficiency measures in

preparing transportation plans and might provide

financial assistance for such planning or system improvements.

-.

‘For a more extensive discusion see, Replacing G’asoline, supra note 19.

fisee ch y of this repo~. See also, Changing by Degrees, supra note 4, ch. 5.

. .
126 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Encouraging Domestic Oil and Gas

Production

Oil replacement technologies can counter the effects of an oil import disruption, but will achieve their

maximum replacement potential only if domestic

production of oil is maintained at or near current

levels and if domestic natural gas production increases to meet new demand. Policy options that

maintain domestic production and encourage oil and

gas exploration and development are thus part of any

oil import replacement strategy.

Increases in the market price of crude oil, and

perhaps of natural gas, can be expected to accompany

an oil import shortfall. These, in turn, will generally

increase the level of domestic exploration and development activity. Under the expectation of a prolonged supply disruption (and presumably higher

prices) the response might be greater than that seen

under previous intermittent oil price disruptions.

Because of the lead times of 10 years or more

involved in developing frontier production, remote

areas such as the Alaska National Wildlife Refuge

(ANWR) and frontier offshore areas, even if they

were opened to exploration and commercial quantities of oil or gas were found, would be of little

relevance in responding to a significant oil import

disruption within the next decade. The best hopes for

maintaining and even slightly increasing domestic oil

production in the near term lie in unrecovered oil in

existing fields. In a previous OTA report, U.S. Oil

Production: The Effect of Low Oil Prices, we noted

that:

The great majority of oil reserves added to the U.S.

inventory during recent times has come from nonglamourous sources. Fully 70 percent of the total

U.S. reserves additions during 1979 to 1984 came

from drilling thousands and thousands of extension

and infield wells in the United States’ large inventory of discovered oilfields. The potential for continuing high rates of reserve growth in discovered oil

fields at relatively low cost is one key to the future of

U.S. domestic oil production in a low price environment.26

A wide range of legislative options has been proposed to encourage domestic exploration, development, and production. In general, they can be grouped

as follows:

1.

2.

3.

4.

5.

6.

All

targeted tax incentives for exploration or production such as tax deductions, credits, depletion allowances;

measures that raise the price of oil or natural gas

such as import fees or price floors;

technical assistance and technology transfer

programs;

changes in the SPR program to favor certain

classes of domestic producers or to include

preservation of domestic production potential;

opening more Federal onshore and offshore

lands to leasing, or adopting more favorable

lease terms or royalties; and

resolving specific regulatory or environmental

controversies that delay exploration, development, or production.27

of these measures are politically controversial

because they often conflict with other public policy

goals such as increasing Federal revenues, reducing

the deficit, restoring fairness in tax laws, eliminating

energy subsidies, protecting the environment, protecting the international competitiveness of U.S.

manufacturers, or promoting greater competition

among energy sources and among suppliers. All

approaches raise questions about whether they would

actually spur incremental production, whether they

would merely provide a general windfall, and whether

any increased oil profits would be plowed back into

exploration.

Our technical review found that the most attractive

opportunities for maintaining domestic production

over the near term were sustaining exploratory and

developmental drilling activity in known fields, accelerating enhanced oil recovery, bringing shut-in or

marginal oil fields back into production, and limiting

the premature abandonment of existing wells. All of

the policy options listed above, could in some way

affect these prospects. Further study of the relative

effectiveness, cost, and incremental oil yields from

these options would be needed to determine which

would offer the greatest benefits for reducing oil

import vulnerability in the near term.

xu.s. ~ngrtis, OfflW of Technology Assessment, U.S. Oil production: The Eflect of LOW oil Prices, OTA-E-348 (Washington, ‘c: ‘“SO

Government Printing Office, September 1987), p. 75.

27 For an extemlve treatment of the pros and cons of Po]lcy optio~s to aid the domestic oil industry, sw National petrOleLIm Council, ~actors Affecting

U.S. Oil and Gas Outlook, February 1987.
Chapter 5--U.S. Energy Policy and Technologies for Replacing Imported Oil ● 127

Enhancing Natural Gas Availability

Concerns over natural gas availability include not

only the adequacy of domestic production, but also

the ability to move gas from the wellhead to the

burner tip. Natural gas use in some regions has been

constrained because interstate pipeline capacity and

storage facilities are insufficient to meet incremental

demand. Planned capacity additions, new pipelines,

and Canadian gas imports are reported to have faced

delays in obtaining needed regulatory approvals.

Changes in the FERC’s procedures for approving

new interstate pipelines to expedite regulatory review, while assuring that environmental and competitive issues are satisfactorily resolved, might enhance natural gas availability.

As an alternative to increasing pipeline capacity,

some local distribution companies, electric utilities,

and large industrial users are considering expansion

of natural gas storage capacity, including natural gas

liquefaction and storage facilities. Congress could

require the DOE to review the technical, environmental, and regulatory issues associated with expanding

gas storage capacity and to identify any appropriate

legislative changes that may be needed.

Some areas also lack adequate local natural gas

delivery systems, effectively foreclosing the gas conversion option for many potential customers. Congress might consider measures to encourage local

natural gas distribution utilities and State regulatory

authorities to review the adequacy of natural gas

service and to seek ways to enhance the capability to

add new customers. This would increase the potential

for rapid gas-to-oil conversions in the event of a

crisis.

Natural gas transportation fuels raise the related,

but separate, issue of natural gas refueling stations for

alternatively fueled vehicles and natural gas purchases by industrial and large fleet owners and service station operators. Congress and local regulatory

authorities could create a special category for such

operations exempting them from regulation as public

utilities. In addition, Congress could ask DOE to

examine whether additional incentives or Federal

requirements are needed to encourage the rapid development of a natural gas transportation refueling

and service infrastructure to meet the needs of private

and government fleet owners.

Reexamining Oil Import Disruption Planning

and Emergency Response

Because technical means alone would not be sufficient to offset the loss of oil imports in a major and

prolonged supply disruption, the availability of strategic and private stocks and oil emergency contingency plans and authorities assume a greater importance. As imports rise, the amount of oil needed for

the SPR will also have to increase. Congress recently

approved a 1 billion barrel fill level for the SPR, but

this will not be reached until the late 1990s. Congress

also approved the creation of oil product reserves.

In light of the recent experience with the Iraqi

invasion of Kuwait, Congress may wish to consider

additional refinements of the SPR system. For example, provisions authorizing the release of oil from

the SPR might be clarified to allow SPR sales to

respond to sharp, panic-driven increases in the price

of oil, in the absence of any physical shortage. A

mechanism might be added to accelerate the SPR fill

rate and to raise the SPR maximum to maintain

adequate levels of reserves. Additional purchases

might be authorized to take advantage of low oil

prices, for example. Alternative SPR financing mechanisms might also be considered.

Under the Defense Production Act and energy

emergency legislation passed in the late 1970s, the

President and the Secretary of Energy were given

extensive authority to respond to an oil supply crisis

by instituting rationing, driving restrictions, and other

emergency conservation and allocation measures.

Some of these authorities have lapsed, and many

contingency plans were never developed fully. Congress may wish to reexamine the adequacy of existing

law for responding to prolonged oil import disruptions and to assure that oil emergency plans are kept

up-to-date.

OTA’s 1984 report noted that the Federal Government was ill-prepared to respond to an oil supply

crisis, or even to monitor our capability to deploy oil

replacement technologies and the rate of oil replacement. Among options that could be taken in advance

of a crisis to redress these shortcomings are collecting

and maintaining accurate information on investments

in oil replacement technologies, and establishing

standby oil replacement incentives and taxes. In the

event of an oil supply shortfall, the government could
128 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

rely on the investment monitoring system to determine whether the rate of oil replacement was proceeding effectively. If investments were occurring

too slowly, and market intervention seemed desirable, then standby taxes and financial incentives

could be activated and increased or modified, as

needed, to be sufficiently effective. The advantage

of such a strategy is that it allows a flexible and welldefined government response that. can be adjusted,

depending on the market behavior and the response to

various levels of incentives. Since our 1984 report,

government information collection and reporting have

improved only slightly, but are not specifically directed at providing the kinds of timely information

and analysis that would be needed in a crisis.

POLICY OPTIONS FOR

REDUCING OIL IMPORT

VULNERABILITY AS PART OF

OTHER NATIONAL POLICY

OBJECTIVES

The prospect of a prolonged and severe oil import

crisis, as assumed in our technical analysis, may be

remote, but not implausible—and the impacts on the

economy and our way of life could be devastating.

OTA has previously addressed the issue of reducing

oil import vulnerability in testimony on national

energy goals and in a related report on energy technologies for the future.

29 We stressed that energy

security can be viewed not only in terms of a shortterm contingency plan, but also from a long-term

perspective embracing broader and more fundamental national goals of economic health, environmental

quality, and national security. Developing a national

energy strategy requires a delicate balancing of energy security with these other objectives. Some energy options advance all three national goals. Others,

particularly those that improve efficiency of production and use, support one goal but run counter to the

others. For example, increased reliance on coal and

methanol transportation fuels from coal could cut oil

import dependence but exacerbate problems of air

pollution and global climate change.

There are no quick and easy technical solutions to

America’s oil import dependence. Major changes in

energy systems-and major changes are what would

be needed—require decades and unwavering commitment from citizens, political leaders, and industry.

A major turnover of the existing capital stock of

energy supply and consuming equipment will take a

longtime. In the absence of a supply crisis, short-term

strategies-either to spur production or to curb consumption-could prove inefficient and traumatic.

The same oil replacement technologies and policies

that could prove critical in an oil import crisis also can

contribute to achieving a long-term goal of reducing

import vulnerability. Indeed, many of these technologies offer more significant savings over the longer

term than they do as short-term replacement options.

For example, improving total automobile fleet fuel

efficiency and a transition to alternative vehicle fuels

both are more effective as long-term rather than shortterm options. The additional time for technology

development and institutional change under a longterm oil replacement strategy would also enhance the

effectiveness and reliability of other technologies.

Over the longer term, new technologies, such as

electric vehicles and fuel cells, could reach commercial viability. In short, a long-term oil replacement

strategy offers more technology options than a crisis

scenario.

Setting National Energy Policy Goals

We can ease oil import vulnerability if we establish

long-term energy goals. . . and stick to them through

periods of both crisis and calm and through high and

low oil prices. A sensible, comprehensive energy

policy must, of course, be responsive to sudden

changes of events, but it must be fundamentally

grounded in long-term strategies.

~u.s. ~ngress offlW of T~hnology Assc\sment, U.S. Vulnerabiliv to an Oil Import Curtailment: The Oil Replacement CapabiliW, OTA-E-243

(Washington, DC: U.S. Government Printing Office, September 1984) available from the National Technical Information Service, Springfield, VA22161,

(order #PB 85-127 785/AS), pp. 26-35, p. 29.

“’Energy Policy Context for the 1990’s: Considerations fora National Energy Strategy,” testimony of John H. Gibbons, Director, U.S. Congress, Office

of Technology Assessment, Before the House Committee on Energy and Commerce, Subcommittee on Energy and Power, Feb. 20, 1991. “On Energy

Perspectives,” testimony of John H. Gibbons, Director, U.S. Congress, Office of Technology Assessment, Before the House Committee on the Budget,

Oct. 24, 1990; and testimony of John H. Gibbons, Director, U.S. Chngress, Office of Technology Assessment, Before the Senate Committee on Energy

and Natural Resources, Oct. 2, 1990. U.S. Congrtx+s, Office of Technology Assessment, Energy Technology Choices: Shaping Our Future, OTA-E-493

(Washington, DC: U.S. Government Printing Office, July 1991), chs. 1 and 5.
Chapter 5--U.S. Energy Policy and Technologies for Replacing Imported Oil ● 129

The time may have come to make an explicit

commitment to a smooth, multidecade transition to

the post-fossil fuel age while constantly advancing

our energy efficiency. Doing so at minimum cost will

require several decades to stabilize our dependence

on imported oil, and possibly a century, to get beyond

fossil fuels. Our long-term economic, environmental,

and national security future could well depend on the

success of these transitions, and the specter of global

warming could greatly foreshorten the time in which

we once thought we could depend on fossil fuels. The

relationships among the long-term goals of economy,

environment, and security provide some important

guiding principles—principles from which a systematic, integrated, and comprehensive energy strategy

that is responsive to all three goals can logically

follow.

In many ways, Congress acts as a supreme board of

directors for our national enterprise, setting broad

policy goals, approving plans to reach these targets,

and periodically measuring progress and recharting

direction. To establish a comprehensive national energy strategy, Congress could set broad, long-term

energy policy goals and approve the implementation

plans and programs submitted by the President and

the Secretary of Energy (these implementation programs would likely include many of the oil replacement options previously discussed under the oil disruption response strategy). To aid in oversight,

Congress could direct the Secretary to develop quantitative indicators of our progress in attaining our

targets and to report on them periodically. The Secretary might also be required to include in any legislative requests a statement of how new energy programs or appropriations would advance the national

energy goals: Congress would review the goals every

5 years and make any necessary modifications or

additions.

Candidate goals for limiting oil import vulnerability, increasing energy efficiency, and beginning a

long-term transition to a post-fossil economy by the

year 2010 might include, for example:

1.

2.

limiting U.S. net oil imports to not more than

50 percent of annual oil consumption;

diversifying sources of world oil production in

regions outside the Middle East, when such

assistance can be aligned with other U.S. policy

interests;

3.

4.

5.

6.

increasing U.S. energy efficiency (energy per

unit of domestic output) by 20 percent per

decade or an average of 2 percent per year;

initiating along-term transition to a post-fossil

economy by reducing carbon intensity by 10

percent in each of the next two decades (equivalent to an average reduction of 1 percent per

year);

improving the efficiency of the U.S. transportation sector by increasing light-duty vehicle

fuel efficiency by an average of 2 percent per

year; and

reducing oil’s share of U.S. transportation energy use by 10 percent by 2010. -

Having adopted comprehensive national energy

policy goals and an implementation plan for achieving them, other policy initiatives and legislation could

then be evaluated based on how they contributed to

achieving those goals. For example, an underlying

objective for federally supported technology RD&D

and commercialization programs would be to identify and advance promising technologies to achieve

these national energy goals.

Capping Oil Imports

Dramatic and sustained efforts would be required

to hold down oil import dependence over the next

several decades-even to a level of 50 percent. There

are major opportunities to improve efficiency in all

sectors and to shift industrial, residential, and commercial oil use to other sources such as natural gas or

electricity. Capitalizing on these opportunities can

provide good jobs and boost domestic economic

activity. To the extent that we improve efficiency,

supplies will last longer, economic competitiveness

will improve, environmental problems will be eased,

and international tensions will be lessened. Supply-

-side mechanisms to limit import dependence include

sustained domestic oil and gas production and the

development and production of alternative transportation fuels.

Diversifying World Oil Production

The growth of oil production outside of the Organization of Petroleum Exporting Countries and the

Middle East has lessened the ability of single nations

to cut off world oil supplies and tempered the pros-
130 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

pects for prolonged price disruptions. Surge production in areas outside of the Persian Gulf helped offset

the loss of Iraqi and Kuwaiti oil, for example. Because

oil is a globally traded commodity, the United States

can encourage, to a certain extent, the oil development efforts of other nations, thus easing pressures on

world markets and prices. This can often coincide

with other policy objectives. For example, helping

the Soviet Union expand its oil production could have

several benefits. First, the Soviet Union contains

major sedimentary basins that offer great potential for

exploration and development Second, success in increasing Soviet oil exports would not only diversify

world production (and possibly U.S. imports) but also

would provide the Soviets with the hard currency so

badly needed to maintain peaceful progress toward a

viable market economy. The Soviets are already

significant oil exporters, but economic difficulties in

that nation have threatened continued production.

One prominent energy analyst has even suggested

that the next oil shock might originate not in the

Mideast, but in the loss of Soviet exports.30 There are

also opportunities to assist petroleum development in

sister nations in the Western Hemisphere through

technology transfer and joint ventures in research,

exploration, and production. Massive reserves, for

example, exist in Venezuela, some of which (e.g., the

heavy oils in the Orinoco Basin) can benefit from

further research.

Improving Energy Efficiency

OTA’s studies over the past decade have consistently shown that energy efficiency is an essential

cornerstone to a comprehensive energy policy framework. Overall energy intensity of the U.S. economy

fell 2.5 percent per year over the last decade, most of

which was due to improved efficiency. The growth in

electricity use, historically greater than that of the

economy, has fallen back to the same rate of change

as the GNP. Moreover, these efficiency gains have

generally come about with net cost savings. Considerable gains in future energy efficiency are still possible in all sectors of the economy using existing

technology. Even greater savings in cost and efficiency will be possible with technologies under current R&D. A goal of sustained energy-efficiency

improvement of 2 percent per year for the next two

decades is realistic for the United States. With more

vigorous research on energy efficiency, coupled with

leadership and investment, this goal can be met or

exceeded—and with options that are no more costly

than pursuing the supply-side path. Moreover, pursuing such a goal appeals to all three policy interests of

economic health, environmental quality, and national

security.

Long-Term Transition to a Post-Fossil Economy

For decades we assumed that fossil fuels could

supply our energy needs for several more centuries.

Thus our major commitment to a nonfossil future has

been our work on harnessing nuclear power-fission

and fusion. While nuclear fusion remains a frustrating

and elusive goal, nuclear fission now accounts for

20 percent of U.S. electricity generation, or about

8 percent of our total primary energy budget. Other

nonfossil sources (mostly hydroelectric power) add

another 4 percent, so our present nonfossil energy

production is about 12 percent. But the nuclear fission

enterprise, for several reasons, is in deep trouble—so

deep that rescuing it could well be more difficult than

the original task of creating it. And our long-term

efforts to harness solar energy-directly or indirectly

through wind, biomass, hydropower or other means

have been very limited.

The rising specters of air pollution and climate

change casts an ominous shadow over the fossil era,

accelerating its possible demise to within a century or

less. This means that unless we ignore, at our peril,

global climate change we must consider solar and

nuclear power (both fission and fusion) as new,

potentially globally dominant energy sources, perhaps within 50 years. Developing and preserving

nuclear and solar options will entail long-term commitments of research, development, and investment

that requires us to begin that odyssey now.

With this imperative, a candidate goal for U.S.

energy policy is to reduce the carbon intensity of our

energy use on average 1 percent per year for the next

two decades. The number we choose for this goal is

less important than the will to pick a number and

vigorously pursue it with a multipronged commitment to technology research, development, demonstration, and commercialization across all energy

sectors. Energy efficiency improvements would domimDanle] Yergln, “The Next Oil SuWrlse, “ TheNew York Times Maguzine, pafi 2, Dec. 2, 19(

90, pp. 8,26.
Chapter 5--U.S. Energy Policy and Technologies for Replacing Imported Oil ● 131

nate the first decade, securing time to allow alternative transportation fuels and alternative, nonfossil

sources for electric power generation to develop

systematically and efficiently.

Improving Energy Efficiency in Transportation

OTA believes that there is a substantial potential for

further fuel economy in transportation through purely

technological means (i.e., without major changes in

consumer choice), but the magnitude of this potential

within the next decade is less than we would like. Our

best estimate for this potential is for a new car fleet

fuel economy in the absence of a crisis of about 30

miles per gallon (mpg) by 1995 and 37 mpg by 2001,

both values measured according to the EPA’s test

procedure. 31 Longer term progress, beyond the year

2000, could be much greater if strong continual

incentives for fuel economy are brought to bear on the

industry. If Congress believes that even larger gains

in fuel economy are necessary beyond that which can

be achieved with strictly technical fixes, it could

mandate a basic shift in the size and performance of

the fleet either through regulatory or economic means.

Cutting Oil Dependence in Transportation

Non-oil-based liquid fuels are an important adjunct

to increased fuel economy and increased domestic oil

production in reducing U.S. dependence on imported

oil. A recent OTA analysis of several alternatives to

gasolines shows that alternative fuels present a key

opportunity to reduce U.S. oil dependence. Over the

next few decades, alternative fuels derived from

natural gas—methanol and compressed natural gas—

and from biomass should be capable of substituting

for a significant fraction of transportation petroleum

use. The worldwide resource base for natural gas is

very large, and considerable volumes of undeveloped

gas resources exist outside of the Middle East, including large volumes in the Soviet Union. Electric vehicles, perhaps employing not only batteries but fuel

cells or other hybrid engines, could also be important

possibilities in some regions of the United States.

This, of course, depends on the pace of R&D and the

constraints on other options. The pace of progress is

promising. For example, California has passed legislation requiring deployment of some “ultra-low polluting” vehicles, which should force commercialization of alternatively fueled vehicles.

In the long term, we must chart a course beyond

fossil fuel dependence in transportation-that means

electricity and hydrogen, both obtainable from nuclear

and solar sources. But both have serious cost, engineering, and political constraints and will require a

major development effort. Over the next several

decades, however, these options could greatly diminish greenhouse gas emissions by progressively replacing fossil-based transportation fuels. Developing

the technology, the support infrastructure, and consumer acceptance of nonfossil vehicles will be a

formidable challenge.

CONCLUSION

In confronting the prospects of continuing oil import vulnerability, the United States has three choices.

We can continue on the current path and wait until the

next disruption occurs before deciding on further

action. We can anticipate that such disruptions will

occur and set in place effective measures that enhance

our ability to replace oil in response to the disruption.

Or, we can begin now to craft a more comprehensive

national energy strategy that embraces a long-term

goal of reducing our reliance on oil and other fossil

fuels and beginning a transition to the eventual postfossil era, and that does so consistent with other

national policy goals. Whichever path we choose,

success in reducing our oil import vulnerability will

require a strong Federal example and the sustained

support and cooperation of citizens, business, and

government.

Slsteven E. plotkin, Senior Associate, U.S. Congress, Office of Technology Assessment, “Estimating Levels of Corporate Average Fuel Economy,”

testimony before the Senate Committee on Energy and Natural Resources, Mar. 20, 1991.

32 Re./acing GasOline, supra note 19.
Appendix
Appendix A

Reference Maps

Figure A-l—Map of U.S. Census Regions

Midwest

South

SOURCE: Office of Technology Assessment, 1991.

Figure A-2—Map of Petroleum Allocation for Defense (PAD) Districts

.n7*-

SOURCE: Office of Technology Assessment, 1991.

—135—
136 ● U.S. Oil Import Vulnerability: The Technical Replacement Capability

Figure A-3-Map of North American Electric Reliability Council (NERC) Regions

ECAR: East Central Area Reliability Coordination

ERCOT: Electric Reliability Council of Texas

MAAC: Mid-Atlantic Area Council

MAIN: Mid-American Interconnected Network

MAPP: Mid-Continent Area Power Pool

NPCC: Northeast Power Coordinating Council

SERC: Southeastern Electric Reliability Council

SPP: Southwest Power Pool

WSCC: Western Systems Coordinating Council

SOURCE: Office of Technology Assessment, 1989.

Figure A-4-Map of U.S. Federal Regions

dn 8 n.

Federal regions

? Agreement

SOURCE: Office of Technology Assessment, 1991.
Related OTA Reports

. Improving Automobile Fuel Economy: New

Standards, New Approaches

OTA-13504, October 1991; 128 p.

GPO stock #052403-01262-6; $5.50

● Energy Technology Choices:

Shaping Our Future

OTA-E-493, July 1991; 156p.

GPO stock #52-003-01251-l; $7.50

NTIS order #PB91-220004

● Energy Efficiency in the Federal Government:

Government by Good Example?

OTA-E-492, May 1991; 124P.

GPO stock W52-003-01242-l; $5.00

NTIS order #PB91-197905

. Changing by Degrees: Steps To Reduce

Greenhouse Gases

Summary available from OTA

OTA-0482, February 1991; 370 p.

GPO stock #052-O03-O1223-5; $16.00

NTIS order #PB91-163428

● Replacing Gasoline: Alternative Fuels

for Light-Duty Vehicles

Free summary available from OTA

OTA-B364, September 1990; 148p.

GPO stock #052-O03-O1206-5; $7.00

NTIS order #PB91-14901

. Energy Use and the U.S. Economy

OTA-BP-E-57, June 1990; 72p.

GPO stock W52-003-01195+; $3.50

NTIS order #PB90-254145

●

●

●

●

●

●

Electric Power Wheeling and Dealing:

Technological Considerations for

Increasing Competition

Free summary available from OTA

OTA-E-409, my 1989; 276p.

GPO stock #052-003-01153-l; $12.00

NTIS order #PB89-232748

Oil Production in the Arctic National Wildlife

Re@ge: The Technology and the

Alaskan Oil Context

Free Summary available iiom OTA

OTA-E-394, February 1989; 136 p.

NTIS order #PB89-169239

U.S. Oil Production:

The Eflect of Low Oil Prices

Free summary available from OTA

OTA-E348, September 1987; 144p.

NTIS order #PB88-142484

New Electric Power Technologies:

Problems and Prospects for the 1990s

OTA-E-246, July 1985; 340 p.

NTIS order #PB86-121746

U.S. Vulnerability to an Oil Import

Curtailment: The Oil Replacement Capability

OTA-E-243, September 1984

NTIS order #PB85-127785

Industrial Energy Use

OTA-E-198; June 1983

NTIS order #PB83-240606

NOTE: Reports are available from the U.S. Government Printing Office, Superintendent of Documents, Dept. 33, Washington

DC 20402-9325, (2(X2)783-3238; and/or the National Technical Information Service, 5285 Port Royal Road, Springfield,

VA 22161-0001, (703) 487-4650.