Economy — 06 July 2006

Introduction

In his state-of-the-Union speech President George Bush admitted that the USA had an addiction to oil. As with any addiction, the first challenge in overcoming the dependency is for the addict to admit he has a problem. The admission came as Americans faced historically high petrol prices at the pumps (in excess of $3 per gallon) and US oil imports rose to two thirds of total demand. President Bush used the occasion to highlight the need for the US to reduce its dependence on oil imports, particularly from the unstable Middle East, and extolled the virtues of domestically produced biomass-based ethanol as a substitute to petrol.

The nature of the addiction

The nearly 300 million Americans account for 5% of the world’s population but with oil consumption in excess of 20 million barrels per day (bpd) they account for 25% of the global oil demand of 83 million (bpd). Due to this high fossil fuel consumption rate the US discharges disproportionately large amounts of pollutants in to the world’s atmosphere. Thus the US leads the league table in being the world’s largest consumer of oil and largely as a consequence the world’s largest polluter.

While western economies including the US are less reliant on oil in generating Gross Domestic Product (GDP) because of the shift in production from manufacturing to the service sector, the dependence on oil is no less important as the transportation sector is nearly wholly dependent on petrol. When one looks at the magnitude of the numbers, you can see the problem: Oil consumption in 2005 which averaged 20.7 million bpd, was generating 400 million gallons of petrol per day, given that one barrel of crude oil produces 19.5 gallons of petrol. Indeed, the great majority of this oil is burned for transportation purposes – up to as much as 90% or 375 million gallons per day (2004 data), according to the Energy Information Administration (EIA), the official energy statistics agency. Notwithstanding, oil is used for much more than fuel for transport. All industrial forms of plastics used in all-sorts of manufactured goods and packaging are oil based. Thus, oil consumption is integral to life primarily because the car and consumer goods are central to life styles in the United States.

The Car is king

The US as the world’s largest economy has a GDP totalling nearly $12,500 billion that’s a staggering $42,000 per head of population (the Economist Intelligence Unit 2005). Additionally being the fourth largest country in the world with two thirds of its landmass inhabitable, unlike Russia and Canada gives the US a unique set of demographic and financial indicators. A large, very rich country with low population density and which prides itself on individual liberty will inevitably have high car ownership hence creating the need for high oil consumption.

The names of vehicles, their size and look are associated with individual freedom and adventure – values and lifestyles that can apparently be acquired only through owning and driving a vehicle. Moreover these values typically extol power with size – so big is good, and bigger is better.

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