I finally caught up with last Friday's broadcast of an ABC News special entitled, "Over a Barrel: The Truth About Oil." The subtitle gives a strong hint at the tone of the piece, though Charles Gibson and his crew did a reasonable job of lining up some talking heads who could offer a balanced perspective, along with the more predictable exponents of suspicion and conspiracy. My former employer, Chevron, also provided access to several facilities and got some good exposure in the process. Rather than dissecting the entire program and its arguments, I thought it might be more useful to take essentially the same starting point and create my own quick summary of the basic facts about oil that informed Americans ought to know, referring to the show when appropriate. That's a tall task, since the subject is clearly too complex to cover in much detail in a single posting. As it is, I'll break it up into two segments, with today's focused on oil and a subsequent posting looking at gasoline, other products, and the impact of climate change.

1. Oil is finite, but production matters more than reserves, at least when it comes to influencing prices. Nor are reserves an especially good predictor of future production, since they reflect a static view at a given level of price and technology, both of which constantly evolve. That explains the apparent paradox that since 1859 the US has produced just shy of 200 billion barrels from reserves that never exceeded 40 billion barrels. So when you hear, as Mr. Gibson reminded us, that the US consumes 23% of the world's oil but possesses under 3% of proved reserves, you should also consider that we produced 10% of global petroleum output in 2008. And that 23% of demand doesn't look quite so disproportionate, when you recall that the US makes up roughly 24% of the world economy.

2. Contrary to widely-held perceptions, overall net US energy independence, considering all the different forms of energy we produce and consume, import and export, currently stands at 74%. That's less than it once was, but not so bad compared to some of our economic competitors around the world. While China is about 90% independent (but falling,) the EU is at around 50%, and Japan is only 16% energy independent. When we talk about energy independence, though, we tend to focus on oil, because it is so important for the economy and accounts for 84% of US energy imports--a vulnerability that had been growing at an alarming rate in the last 15 years.

3. While we certainly cannot drill our way back to energy independence--a condition we have not enjoyed since the 1950s--the US still has substantial untapped oil and gas resources that are not counted in current reserves, along with many other forms of under-utilized energy that are beginning to reach a useful scale. Although I don't see us becoming truly energy independent again, or even needing to, the only potentially insurmountable obstacles to restoring a more comfortable and sustainable level of energy security are of our own making. That potential 2 million barrels per day (MBD) of additional production that T. Boone Pickens described in his interview, which awaits only unimpeded access and capital, would make a serious dent in our net petroleum imports of roughly 10 MBD, down from 12 MBD in 2007 as a result of the recession.

4. Oil still supplies vastly more energy than biofuels, wind, and solar power, and that comparison cannot change very quickly, no matter how fast these alternatives grow--and they are growing rapidly indeed. That's because of the enormous scale of our oil use and the sheer quantity of energy in each barrel. Last year the US consumed roughly 300 billion gallons of gasoline, diesel and other petroleum products. That figure includes 9.6 billion gallons of ethanol and 320 million gallons of biodiesel. After adjusting for ethanol's much lower energy content, biofuels thus met just 2% of our petroleum needs, equivalent to 400,000 barrels per day. That's not inconsequential, any more than the output of new US offshore oilfields would be. Biofuels won't close the oil import gap anytime soon, however, because the targeted 36 billion gallons of ethanol and biodiesel expected to be produced under the national Renewable Fuel Standard in 2022 works out to only about 1.5 MBD on an oil-equivalent basis. (For comparison purposes, the 29,440 MW of wind turbines currently in place in the US generate the equivalent of roughly 0.3 MBD of oil, assuming it displaces natural gas in gas turbine power plants.)

5. In the absence of any realistic means of becoming 100% energy independent, energy security should be the main focus of government oil policies. Happily, this outcome is not nearly as unattainable as self-sufficiency, though it can seem awfully elusive at times. The principal source of our energy security today, aside from our very large production of non-oil energy sources, derives from our diverse mix of suppliers. Crude oil imports are dominated by Canada and Mexico, which together contributed 32% last year, compared to 24% from the Persian Gulf. Meanwhile, over half of our substantial net imports of petroleum products came from Canada, the EU and the US Virgin Islands. The US Strategic Petroleum Reserve, which presently contains 724 million barrels of oil, constitutes an important emergency back-stop in case of a disruption in these supplies, though it is long overdue for a fundamental re-think.

6. The oil market is global, and prices are not set by oil companies or even mainly by traders on the New York Mercantile Exchange, though the latter play their part. The price level for oil is mostly determined by the interaction between global demand and the two key components of supply: OPEC and non-OPEC production. When non-OPEC output is growing faster than demand, prices tend to fall, while any increment of new demand or shortfalls in non-OPEC output that boosts OPEC's market share tends to raise prices. If you want to understand why oil has rebounded above $60 with the global economy still in recession, look no farther than the roughly 3 million barrels per day of oil that OPEC has managed to keep off the market, in an uncharacteristic display of cohesion and discipline.

Although I've omitted numerous other important aspects of the situation, we would have a more fruitful national dialogue on energy if our leaders and the electorate just understood these six points. Reasonable people differ as to how best to respond to these facts, as demonstrated by a long succession of US administrations that have pursued a variety of energy approaches, seeming consistent only in their lack of a coherent strategy with respect to oil, or at least in their inability to find one that could be sustained from one administration to the next. And before my readers inundate me with comments reminding me that any comprehensive discussion of oil must now incorporate climate change, I intend to cover that when I address the petroleum products side of this story, since most of oil's emissions result from consumption, not production.