Gasoline Prices Are High, But U.S. Using Less Imported Oil

During his State of the Union speech last month, President Obama may have surprised both his critics and supporters with the bold assertion that the U.S. is gaining energy independence.

“We, it turns out, are the Saudi Arabia of natural gas,” Obama declared, pointing out the U.S. has enough of the fuel to last nearly a century.

Indeed natural gas producers have vastly expanded production in the last few years, but so have domestic oil producers. The same Bakken shale formation that is yielding plentiful supplies of natural gas is also producing oil. Nowhere is that more evident than North Dakota.

The state, which shares a border with Canada, is booming. Unemployment it low, houses sell quickly and the population is growing. It's all happening so quickly, in fact, that it is causing massive problems for state and local officials trying to cope with the new demands on infrastructure.

Oil shock

Going back to the first “oil shock” of the Arab oil embargo of 1973, the U.S. has been very aware of how dependent it is on its sources of energy. And while the U.S. remains a net importer of oil, the imports seem to be going down each year.

A report by Bloomberg News this week showed U.S. oil production is at the highest level in eight years. Because U.S. -- and other North American --supplies of oil are so plentiful, a wide gap has emerged in the price of oil, depending on its origin.

Because of the usual tensions in the Middle East, the price of “Brent” crude is about $20 a barrel more than “West Texas Intermediate” (WTI) on world markets. The difference can be dramatically seen in the state by state breakdown of gasoline prices.

States whose gasoline supplies generally come from domestic crude tend to have lower retail gasoline prices than states along the coasts, whose fuel now tends to come from imported oil.

Falling demand

A not-to-be-overlooked factor is the role of demand. With the economy barely growing and prices well over $3 a gallon, U.S. consumers are using less motor fuel. Newer vehicles, that get better gas mileage, also help to reduce demand.

Last year U.S. refineries were in the unusual position of actually increasing their exports of gasoline to other countries because of falling U.S. demand. Refineries are also operating at well below capacity. All of this, of course, props up the price at the pump, which would likely fall otherwise.

A move to compressed natural gas (CNG) as a mass-market motor fuel would drastically reduce the cost of driving in the U.S., given the domestic supplies of the fuel. While some hurdles remain to achieving that, there is a move in that direction.

Honda produces a version of the Civic that runs on natural gas. Oklahoma has taken the lead among states in the U.S. of the fuel, with CNG pumps showing up at some service stations within the state.

“For 40 years, only politicians and the occasional author in Popular Mechanics magazine talked about achieving energy independence,” Adam Sieminski, nominated to head the U.S. Energy Information Administration, told Bloomberg. “Now it doesn’t seem such an outlandish idea.”