The United States relies heavily on the oil industry for both residential and commercial heating purposes. Home heating oil (HHO) is a petroleum-based substance, classified as Number 2 fuel oil and used primarily to heat residential and commercial buildings. HHO is similar to diesel fuel used in some vehicles, but is subject to a different tax. All oil types (classified as one through six) are derived from crude oil, whether through distillation or another process. HHO is classified as a distillate based on the method used to extract it from crude oil.
Increases in the price of crude oil have resulted in skyrocketing prices for home heating oil over the past several years, and as a result, HHO has gotten a bad rap. According to the Energy Communications Council, one 42-gallon barrel of crude oil produces about 11 gallons of distillate. Of these 11 gallons, only about two gallons end up as home heating oil.
The U.S. relies heavily on outside sources to import most crude oil used for various purposes in the country. The Middle East has historically been known as one of the richest oil-producing areas in the world, although recent data indicates that our dependence on imports from this region is much smaller than most Americans believe.
According to the U.S. Energy Information Association, Canada is the top source of U.S. crude oil imports as of June 2011, at about 2,085,000 barrels per day. Saudi Arabia is the second top source with 1,164,000 barrels per day as of June 2011. Iraq, Kuwait and Chad are also listed among the top 15 sources of U.S. crude oil imports.
Overall, the U.S. Census Bureau reports that U.S. crude oil imports totaled 1,933,398 (thousands of barrels), equaling 190,012,455 (thousands of dollars) between January 2011 and July 2011.
Crude oil obtained from U.S. soil
The United States also, of course, obtains crude oil from reserves on U.S. soil. However, the country has historically consumed far more crude oil than is produced from our own resources. The amount of recoverable crude oil in an area is defined as reserves, while the total amount of crude in a location is termed oil in place. There can be a great difference between the two figures based on geological factors that impact the amount of oil that can be brought to the surface through extraction techniques.
The perception that we rely so heavily on imports from the Middle East can be attributed to the fact that there are more proven reserves in this region than in the U.S. The Middle Eastern region contains approximately 56 percent of the world's total oil reserves. In contrast, North America contains just 16 percent of the world's total crude oil reserves, according to the U.S. Energy Information Administration. Further, since the early 1990′s, imports of crude oil have exceeded the amounts produced from U.S. soil:
Clearly, the United States is dependent on imports from other regions to meet our consumption needs, but attention is increasingly focused on obtaining more crude oil and other fuel sources through our own resources. This is driven by increasing prices and a desire to be less reliant on generosity of countries with which we have strained relations, knowing that sudden price increases or shortened supplies can have devastating impacts on the U.S. economy.
Investigating Alternative Fuel Sources
The political agenda naturally leans in the direction of maintaining the country's economic stability, and a decreasing reliance on foreign crude imports is widely regarded as a necessary element in economic recovery. The U.S. has a few options:
- Increase domestic production by increasing activity on our own reserves
- Investigate alternative fuel sources and develop effective utilization methods
- Continue importing crude oil from foreign sources
Investigating alternative fuel sources is not a simple task. Extracting renewable resources and alternative fuels, and making them into usable energy, is often a process that poses similar hazards to domestic oil production. In addition, usability is a great concern. Most industries have been historically built and designed around the use of a single source. Transportation, for example, makes use of petroleum obtained from crude oil; while cars running on electricity and biofuel are in development and a few have reached the market, most are too expensive for the average consumer today. Until the tipping point is reached at which we're able to make alternative energy accessible to consumers at affordable costs and practical, alternative fuels hold little promise as a short-term solution.
The primary problem with increasing domestic oil production is the impact it has on the environment. Many of the richest U.S. oil reserves are situated under protected areas, such as the Arctic National Wildlife Refuge. Offshore drilling, or drilling that takes place off the coast, also poses environmental hazards.
It's a political hot button and an area of concern for environmentalists. According to ThinkProgress.org, Republican Presidential Candidate Michele Bachmann is proposing increased drilling in the Everglades, citing a dire need to become less dependent on foreign energy sources. President Obama is criticized for limiting domestic oil production, yet reports show that domestic production is up 60 percent from last year and drilling is at its highest level since 1987.
Bachmann's stance is that we should have the ability to explore the Everglades responsibly - or we shouldn't do it at all - and claims that increasing production activity in areas known for vast oil reserves would enable gas prices to drop below $2 per gallon.
The Energy Information Administration, however, says that even opening all of the country's most sensitive geological areas to domestic oil exploration and production would result in a three-cent drop in gasoline prices at best, by the year 2030.
In the meantime, crude oil exploration and activity in regions like the Everglades can offset the delicate balance of already-sensitive ecosystems. The Everglades, a 4,000 square-foot area of wetlands on the Florida coast, serves as a primary watershed for the state.
We've been drilling in the western portion of the Everglades since 1943, and to date, there has not been a major oil spill there. This area, known as the Sunniland Trend, currently produces about 2,800 barrels of crude each day. According to TampaBay.com, estimates indicate there are about 40 million barrels of oil remaining in the area. In contrast, the Arctic National Wildlife Refuge is estimated to hold about 10.6 billion barrels of oil.
Currently in the United States, Texas and Alaska account for a large portion of crude oil production. Offshore areas in the Gulf of Mexico and California account for more than one-quarter of U.S. domestic crude production combined. In terms of crude oil distillation capacity, Texas, Louisiana and California account for more than 50 percent of current U.S. distillation operations. Texas, alone, contributes one-quarter of total U.S. crude distillation capacity.
The map below, obtained from the Energy Information Administration, demonstrates the distribution of energy reserves in the U.S., which also includes natural gas flows. Natural gas is quickly gaining popularity as a viable alternative to crude oil distillates.
Domestic production impacts the environment
Disruption of ecosystems
Oil production is a dangerous venture, both for workers involved, residents near oil fields and wildlife and ecosystems in these areas. Since 1981, there's been a ban on offshore drilling in California and Massachusetts, and a further ban initiated in 1991 was extended to 2012. Collectively, these rules prohibit oil exploration and drilling in the Arctic National Wildlife Refuge and elsewhere, according to LiveScience.com.
Since the economy plummeted and gasoline and home heating oil prices increased dramatically over the past few years, the debate on lifting these bans to alleviate our dependence on foreign imports has reignited. Some argue that this is the only answer to make the U.S. independent of foreign oil sources, while others counter that it will make little, if any, difference in consumers' pockets while causing vast damage to precious ecosystems throughout the United States.
The obvious issue is when things go awry and an oil spill occurs, polluting the world's oceans, streams and gulfs and killing both marine and land life. But oil spills aren't the only problem. In fact, the tactics used to explore for oil offshore can actually cause mass whale breaches. In order to uncover the location of offshore reserves, a seismic wave is sent through the water. This signal tends to disorient whales who use vibrations and sounds to navigate through the oceans.
The unfortunate reality is that many of the world's oil reserves lie in areas that are home to hundreds of species - some already in danger of extinction. This was a major concern when the Alaskan Pipeline was built in the 1970s. Environmentalists expressed concern that the activity in an otherwise undisturbed and completely natural ecosystem would throw the animals off-balance, force them to leave the area to find new homes and possibly disrupt their normal lifecycle by necessitating adaptation to a new area. Today, animals continue to reside in Alaskan Pipeline, even congregating near the pipeline itself and showing little awareness that it's even there.
Further exploration in the Arctic National Wildlife Refuge, one of the most-debated areas within the crude oil vertical, could have greater detrimental effects, environmentalists say. The ANWR is an area many animals, such as polar bears and caribou, use this area to birth their young. Exposure to hazardous waste could pose a threat to young wildlife, and activity in the area could prompt the animals to travel elsewhere.
Animal species aren't the only ones impacted by an ecosystem disruption. People residing in coastal areas often rely heavily on fishing and tourism, which can easily be disrupted by a sudden decrease in marine populations or area travel. On the other hand, oil exploration and production brings with it a host of job and revenue opportunities to coastal areas.
The amount of oil spilled is miniscule compared to the amount of oil transported each and every day, according to the Mineral Management Service. The figure is estimated at about 0.001 percent. Further, the National Research Council points out that much oil seeps naturally into the sea from offshore oil reserves, even without human interference. The NRC estimates that approximately half of all oil found in the world's oceans arises from natural processes. Oil spills account for about 12 percent.
Oil spills happen nearly every day; much of the time, the public is unaware, as many are small. About 300 to 500 oil spills occur every year. Once an oil spill occurs, it spreads through water at a rate of half a football field per second, and it's nearly impossible to control it.
The other issue is produced water resulting from oil drilling. This water, which rises from wells along with crude, contains a toxin known as polycyclic aromatic hydrocarbons (PAH), known to be toxic to marine life in high concentrations. Shockingly, offshore drilling rigs simply toss this water overboard into the ocean. Land animals exposed to PAH tend to excrete PAH quickly, and exposure to this toxin has been linked to cancer in many species. Even in low concentrations, PAH can cause birth defects, impaired growth rates and skewed sex ratios, according to LiveScience.
When oil spills occur, whether onshore or off, effects can be devastating and far-reaching. Birds, mammals and marine life become coated with oil and then poisoned when they attempt to clean themselves. Larger marine life, such as whales, can suffocate if their blowholes become clogged with oil or poisoned when they eat a fish or other creature that has been exposed.
Exxon Valdez Oil Spill
One of the most famous oil spills in history is the Exxon Valdez oil spill which occurred on March 23, 1989 in Prince William Sound off the Alaskan coast. Estimates indicate that this spill resulted in the death of 2,800 sea otters and 250,000 sea birds. The Exxon Valdez spill impacted 1,300 miles of land and sea and required four years to clean up.
Twenty-plus years after the spill, the area seems to be almost completely recovered, although LiveScience reports that animal populations further up on the food chain are just now beginning to recover their former numbers.
BP Oil spill
The BP Oil Spill, which occurred in 2010 and is also known as the Deepwater Horizon Oil Spill, is the most recently widely-known oil spill. This particular spill drew vast media attention because it flowed for three entire months while BP worked to develop a solution to stop the leak. The Clean Energy Blog reported that tar balls that washed ashore in Louisiana during Tropical Storm Lee have been linked to the BP oil spill, even though Lee didn't move through the area until over a year after the devastating spill. Official testing is being conducted to determine if the tar balls are, in fact, remnants of the infamous Deepwater Horizon failure.
This news is alarming, according to The Washington Post, because it indicates that the oil spilled from the Deepwater Horizon incident isn't degrading as quickly as originally estimated. This, of course, means that resulting effects on the marine ecosystem and marine life could be more detrimental than originally estimated, which can have far-reaching effects as the impacts travel up the food chain.
The map below demonstrates eleven of the world's largest oil spills, obtained from Geology.com:
The Future of Heating Oil, Gasoline and Crude Oil Production
What the future holds for the home heating oil industry and crude oil exploration and production in general is uncertain. It is clear, however, that our nation's dependence on crude oil as a source of home heating oil and fuel for transportation isn't likely to ease anytime soon, even as alternative fuels are investigated. Should we find a viable source of alternative fuel, the amount of effort it would take to totally convert an industry is overwhelming. We're not likely to see this type of drastic change for several decades, and it's likely to be a slow progression. In the meantime, our economic and ecological survival relies on our ability to investigate domestic sources of crude oil, reduce our foreign dependence and discover methods to explore and produce crude oil in the most responsible way possible.
This article is from Heating Oil Shopper Residential Heating Oil: What Impact Does it Have on the Environment?
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Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services. www.livetradingnews.com