Barack Obama has made clear his membership on the bandwagon of presidents calling for cuts in U.S. oil imports. The club becomes less and less elite every four to eight years, going all the way back to Jimmy Carter. So is the president's speech yet another shot at something that is just an illusion, or is it something solid this time?
An ambitious plan
Obama has long called for a one-third reduction in oil imports by 2025. President Nixon started the call for a reduction in imports back in the early '70s. Since then, almost every president has had issues with U.S. dependence on oil from foreign supplies.
Obama has a set of energy proposals already in place and reiterated them in his speech to university students Wednesday: boost domestic oil production, develop bio-fuels, and make vehicles more energy efficient. The proposal that caught my attention was the one to increase domestic oil production. Until the larger oil problem is solved, that is the only practical solution to reducing dependence on Middle East and other foreign supplies.
How are we placed in this aspect?
Oil imports have actually fallen in recent times. Since 2005, imports have fallen by almost 15%. Domestic production rose in the last two years after two decades of decline.
Domestic production has been spurred by new discoveries of shale deposits throughout the country, especially in the Bakken formation. ExxonMobil
While the presence of oil shale resources has been known for a century, extracting the oil was the problem. However, with significant progress being made in this area in the last five years, these sources and others definitely look appealing. According to the United States Geological Survey, the Bakken Formation in North Dakota and Montana holds up to 4.3 billion barrels of technically recoverable oil, or about 230 days of total U.S. oil consumption. That's huge. Increasing domestic production will hold the biggest key to import cuts.
The Gulf deal
Of course, it would be unfair to ignore the ban on production in the Gulf of Mexico. While shutting down all production due to BP's oil spill was a move in the right general direction, especially if the president is really keen on achieving the long-elusive goal, measures must be taken to restart production sooner or make up for the vast domestic shortfall of production.
With two-thirds of the offshore leases sitting idle -- neither production nor exploration being done -- according to an Interior Department release this week, the potential reserves the government is sitting on is estimated to be more than 11 billion barrels of oil and 50 trillion cubic feet of natural gas. The point is that it's pretty hard to have one's cake and eat it, too.
The talk on efficiency
It is interesting to note that Obama has put considerable emphasis on alternate fuel options and fuel-efficient vehicles. In fact, he had called for a million electric cars on U.S. roads by 2015. The question is: Will this prove sufficient in the long run? How much will energy-efficient cars reduce the need for oil?
The figures indicating demand for hybrid vehicles are not encouraging. Fool contributor Sarosh Nicholas has clearly shown the dismal sales figures of hybrid cars and reasons behind them. Hybrid car sales fell for the third consecutive year, dropping nearly 6% in a year when overall vehicle sales jumped by 11%.
If the president is banking on this technology, companies like Toyota and Honda must ensure that hybrids are as alluring as gas-powered vehicles.
A final takeaway
In all, a lot of hard work must go behind the scenes in order to make this long-standing presidential wish come true. Again, there is no guarantee that global oil prices will fall, as demand from emerging economies like China and India is surging and will continue to do so.
While the president's speech looks like a great way to begin a re-election bid, a lot needs to be put into perspective. After all, many presidents over past decades have tried to wean the U.S. off foreign oil, but it never seems to happen. Let us know what you think in the comments section below.