US Faces Severe Oil Shortage

07/17/2007 12:00 am EST

Focus:

John Dessauer

President, John Dessauer Investments, Inc.

John Dessauer, editor of John Dessauer's Investor's World, says US domestic oil reserves may run out in a decade, provoking a serious energy crunch-and finally spurring new long-range solutions.

At present rates of production, our nation's known, proven oil reserves will run out in a little over a decade. Washington politicians talk of passing laws and creating regulations to reduce our dependence on imported oil. But when domestic oil runs out, we will be 100% dependent on imported oil. Any alternatives-including wind power, ethanol, and increased vehicle mileage requirements-will not fill that gap.

It takes almost a decade from the time we start drilling offshore or in Alaska before the oil flows. With time running out, it looks like America will have to become more dependent on foreign oil.

Unfortunately for us, the five countries with the most proven reserves are all in the Middle East-namely, Saudi Arabia, Iran, Iraq, Kuwait, and the United Arab Emirates. They are followed by unstable Venezuela and Russia. Both Iran and Venezuela have leaders who are hostile to the United States.

Why are gasoline prices so high now? US refineries are running at 88% of capacity. That is well below levels in early 2005. In 2005, our refineries ran at more than 95% of capacity. Then, they suffered a double blow, from hurricane Katrina and a shortage of engineering expertise.

Hurricane Katrina damaged refineries and set back normal maintenance schedules. Refineries are complex operations that require constant care by expert engineers. Those engineers were diverted from maintenance to repair work after the 2005 hurricanes. Refiners are finally getting back to regular maintenance. We could be back to higher capacity by the end of the year. That will help moderate gasoline prices, at least for now.

An oil shortage would be a disaster for the US economy and financial markets. This is another reason that we should be drilling here at home. Fortunately, we have an oil ally. China's known, proven reserves will also run out in a little more than a decade. China's population is over four times ours, and China is not hampered by US-style political constraints.

The Chinese are drilling anywhere and everywhere they think they might find oil. That includes billions of dollars to fund overseas investments in finding more oil. In addition, China has the world's biggest alternative-energy operation. China may well find more oil or improve their technology for wind and solar.

Keep in mind that France generates 75% of its electricity from nuclear power. President Jimmy Carter led the charge to stop nuclear development in the United States. The French did not. They have developed and refined nuclear technology. We could change our mind and adopt the French technology.

The bottom line is that we are not alone. Each country has its political and energy challenges. As a planet, we are making collective progress on oil exploration and alternative sources, including nuclear. OPEC may soon come to regret its "keep the price as high as possible" policy. That will drive us to find a better solution.

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