Democrat Presidential Nominee Barack Obama in this acceptance speech in Denver promised that he would rid America of her dependence on foreign oil within 10 years. He has obviously recognized that access to resources over the next few decades is going to be the main source of international conflict. Even many who disagree with him that about the whether it was wrong to Invade Iraq, would not argue that the reason America found it had a National Interest in that country was its petroleum resources and America’s dependence on foreign oil was the imperative that drove the decision making. But how realistic is it to think that America could achieve energy independence within 10 years?

America currently consumes 20.7 million barrels a day and meets 6.9 million barrels of that consumption through domestic production.  The other 2 thirds come from foreign sources. America imports 2.4 million barrels from Canada and Mexico, with the rest coming from much more unstable sources such as West Africa, South America and the Persian Gulf. Regions where you either have to deal with endemic corruption, resource nationalization or Islamic fundamentalism as a by-product of your dependence. It is obvious that given a choice you would not want to depend on the stability of any of these regions for something as important as energy security.

So what are America’s alternatives?

T. Boone Pickens believes that Compressed Natural Gas may be a substitute for gasoline. It is relatively inexpensive to retrofit existing cars to run on natural gas. Natural gas has traditionally been used as a fuel source for heating as well as electricity generation, something that it is well suited too. If large numbers of vehicles were converted to burn Natural Gas it would push up prices and the cost of home heating and electricity generation would rise.

The US currently produces 546 Billion Cubic Meters and consumes 653 Billion Cubic Meters with the shortfall made up from imports from Canada, Mexico.  Proven Reserves in North America are 7.98 Trillion Cubic Meters, enough to meet current energy usage patterns for the next 10.3 years. If you converted half the cars in America to run on Natural Gas that reserve would be depleted in 6.7 years. So while this may be a short term solution that can buy some time, it does not solve the problem.

America is abundant in Coal Reserves, enough to last 234 years at current production. Unfortunately coal does not lend itself to easy use as a clean transportation fuel. It has to be converted into something else. It can be turned it motive power either by converting it to a liquid which is a fairly expensive process or used to generate electricity which could be stored either as Hydrogen by releasing the Hydrogen in water or by storing it in a battery.

Most Hydrogen that is currently produced is done by “cracking” it out of Natural Gas. Cracking it out of water is a much more expensive proposition. The main obstacle to the widespread use of hydrogen as a fuel source whether in fuel cells or in internal combustion engines is that with currently available commercial technology it is a very expensive fuel. There is however new technologies that are under development that promise to produce greater volumes of Hydrogen for a given amount of electrical input. If these technologies realize their promise this may provide one of the long term solutions.

The other technology that shows a lot of promise is new Battery Technologies. The main drawback to the widespread adoption of electric vehicles has been that Batteries are heavy in relation to their storage capacity and that they take a long time to recharge. Though most Americans have a daily commute of less than 60 miles they have been reluctant to buy vehicles that need to be recharged for 5 hours after only covering 250 miles. The two problems are being solved by using nanotechnologies to make better Lithium Ion Batteries. The latest technologies promise batteries that can give vehicles a range of over 250 miles on a single charge and can be recharged in as little as 5 minutes. They also can be recharged over 50,000 cycles meaning that they will probably outlast the car itself.

The technologies needed to meet Barack Obama’s goal of energy independence in 10 years are either commercially available or in the development stage. Technologies such as “clean coal” as well as renewable technologies such as wind, solar, geothermal and wave are all viable solutions at the right price. When confronted by the Arab Oil embargo in the 70’s, President Ford, proposed that the solution to end America’s dependence was to keep fuel prices high. The high prices would lead to increased conservation and provide an incentive for the market to create solutions. But as oil prices declined in to the 80’s all worries about energy security where pushed down the political agenda. It is awfully difficult to get people to see the problem when they can fill up their tank on the cheap.

If the Government put an import tax on oil imports from outside the NAFTA countries and gradually increased it in a predictable fashion it would have 2 very profound effects. It would make it more attractive for the major oil companies to explore for new oil and gas deposits in North America rather than spending money drilling in potential political hot spots. It would also provide clear guidance to the automotive and electricity generating industries that investing in new technologies, that will help America escape its transport fuels strait-jacket, will be rewarded. The key to making all this happen is maintaining the political will to stick to this goal even if oil prices should fall. That is the real question.

Callum Roxburgh is a Wealth Manger based in Jakarta, Indonesia, who publishes a blog on Financial, Economic, and Investment News.  You can see more of his articles and opinions at The Wealth Manager

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