Could America Do Without Offshore Oil?

As oil continues to gush uncontrollably into the Gulf of Mexico from a damaged offshore well, many Americans are questioning whether the benefits of offshore drilling are worth the risks. Various petroleum industry sources and political leaders have commented that, despite the spill, stopping offshore drilling is not an option. But how much does offshore drilling contribute to our national energy supply? And how hard would it be to do without offshore drilling?

According to the Energy Information Administration , the United States currently consumes on average roughly 20 million barrels per day (mbd), up from about 16 mbd in 1990. U.S. oil production, meanwhile, peaked in 1970 at about10 mbd, and has been declining ever since—to about 5 mbd at present. Not surprisingly, as a result of these opposing trends, the United States has gone from producing most of the oil it consumes to importing nearly 70 percent.

Meanwhile, U.S. offshore production, mostly in the Gulf of Mexico, has been increasing—from 1 mbd in 1990 to about 2 mbd today. EIA projects further expansion of offshore drilling could increase production to more than 3 mbd by 2035, and help stem the long term decline in U.S. oil production. Still, potential offshore production, while significant, would contribute only 10-15 percent of current U.S. consumption and fall well below daily imports of 12-13 million barrels.

In addition, offshore drilling is a costly way to get oil, in both direct dollars and environmental costs. The direct cost of finding and extracting U.S. offshore oil averages about $60-65 per barrel whereas land-based drilling—foreign and domestic—ranges from $10 to $20 per barrel. These costs are only expected to rise as deepwater drilling increases, making offshore oil less competitive as costs of other alternatives such as efficiency, biofuels, and renewable electricity decline. Offshore drilling is also projected to have a minimal effect on gasoline prices. According to EIA, opening more areas to offshore drilling would have a slight dampening effect on oil prices, but as prices are set globally, the United States will still be subject to larger volatility and price spikes of the world market.

Given these limitations, what could the United States do to replace current and future offshore oil production (2-3 mbd)?

The most sensible option would be to use less. Cars and trucks account for about 11-12 mbd of U.S. oil consumption. A 2008 MIT study found that improvements in vehicle efficiency alone could reduce automotive fuel consumption by 30-50 percent, or 3-6 mbd, by 2035. That scenario is based on improvements to internal combustion and hybrid engines, and does not include switching to plug-in electric vehicles, biofuels, fuel cells, natural gas, or other alternative fuels. Estimated costs for these improvements ranged from $1500-4500 per vehicle, depending on model and base price of the car or truck.

Vehicle efficiency improvements would need to be combined with modest transportation and land use planning policies that would curb the growth in the number of miles traveled by cars and trucks each year. More aggressive policies, as described by a recent report by the U.S. Department of Transportation (DOT), could further reduce U.S. dependence on oil. An integrated suite of measures could reduce fuel consumption by passenger vehicles up to 25 percent or about 2 mbd by 2030, according to the DOT report. U.S. biofuels production, meanwhile, is approaching 1 mbd and is mandated to reach roughly 2 mbd by 2022.

The costs associated with the alternatives noted above are not insignificant, but there are also substantial benefits in terms of fuel savings, energy security, air quality, and public health benefits , let alone avoided risks of offshore drilling. If Americans could turn back the clock and make a choice among these options before the recent spill, how would they choose? Sadly, it is too late to reverse the past, but what would be the wisest choice for the future?