THE FUTURE
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that ensure our energy independence. The United States Congress
is no longer believable when the members of the Congress lay the
blame on foreign governments or events for an impending crisis.
The Congress needs to look north and the positive role played by
the Government of Canada in the early 1960s when the decision
was made to encourage development of the Alberta tar sands.
Synthetic crude oil production in no in excess of 1,000,000 million
barrels per day — less than 6% of the daily liquid fuels requirement
in the United States but a much higher percentage of Canadian
daily liquid fuels requirement. In the United States, the issue to be
faced is not so much oil reserves but oil policies.
The economics of crude oil inventories provides the key to
unlocking this mystery. The net cost of carrying inventories is equal
to the interest rate, plus the cost of physical storage, minus the convenience yield. The convenience yield is driven by the precautionary demand for the storage. When the convenience yield is zero, a
market is in full carry, future prices exceed spot prices and inventories are abundant. Alternatively, when the precautionary demand
for oil is high, spot prices are strong and exceed future prices, and
inventories are unusually low.
The strategic reserve should be used to give the country a measure of energy independence and to thwart the efforts of the cartel
to control oil.
Various importing countries are dependent on petroleum (Alhajji
and Williams, 2003). In the United States, increasing petroleum
imports is considered a threat to national security, but there is also the
line of thinking that the level of imports has no significant impact on
energy security, or even national security. However, the issue becomes
a problem when import vulnerability increases as petroleum imports
rise, which occurs when oil-consuming countries increase the share of
petroleum imports from politically unstable areas of the world.
More generally, there are four measures of petroleum dependence (Alhajji and Williams, 2003):
1. Petroleum imports as a percentage of total petroleum
consumption
2. The number of days total petroleum stocks cover
petroleum imports
3. The number of days total stocks cover consumption
4. The percentage of petroleum in total energy
consumption.
267
that ensure our energy independence. The United States Congress
is no longer believable when the members of the Congress lay the
blame on foreign governments or events for an impending crisis.
The Congress needs to look north and the positive role played by
the Government of Canada in the early 1960s when the decision
was made to encourage development of the Alberta tar sands.
Synthetic crude oil production in no in excess of 1,000,000 million
barrels per day — less than 6% of the daily liquid fuels requirement
in the United States but a much higher percentage of Canadian
daily liquid fuels requirement. In the United States, the issue to be
faced is not so much oil reserves but oil policies.
The economics of crude oil inventories provides the key to
unlocking this mystery. The net cost of carrying inventories is equal
to the interest rate, plus the cost of physical storage, minus the convenience yield. The convenience yield is driven by the precautionary demand for the storage. When the convenience yield is zero, a
market is in full carry, future prices exceed spot prices and inventories are abundant. Alternatively, when the precautionary demand
for oil is high, spot prices are strong and exceed future prices, and
inventories are unusually low.
The strategic reserve should be used to give the country a measure of energy independence and to thwart the efforts of the cartel
to control oil.
Various importing countries are dependent on petroleum (Alhajji
and Williams, 2003). In the United States, increasing petroleum
imports is considered a threat to national security, but there is also the
line of thinking that the level of imports has no significant impact on
energy security, or even national security. However, the issue becomes
a problem when import vulnerability increases as petroleum imports
rise, which occurs when oil-consuming countries increase the share of
petroleum imports from politically unstable areas of the world.
More generally, there are four measures of petroleum dependence (Alhajji and Williams, 2003):
1. Petroleum imports as a percentage of total petroleum
consumption
2. The number of days total petroleum stocks cover
petroleum imports
3. The number of days total stocks cover consumption
4. The percentage of petroleum in total energy
consumption.