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The U.S. is rich in oil, but that doesn't make a gas guzzler a smart buy

Consumer Reports News
November 16, 2012

There is no question, the jump in pump prices these past few years have shaken the economy and challenged households. The upside is that higher fuel prices have fueled the so-called green revolution and high-tech transportation development.

The International Energy Agency, this week published a surprising report on U.S. oil supplies (pdf). According to widespread press coverage (Reuters, CNN), the United States now has enough oil reserves to surpass Saudi Arabia's production by 2017, and to become a net oil exporter by 2030.

So what does that mean to you as a consumer? Is oil about to become so cheap that you should start measuring the garage for a supersized SUV? Don't count on it.

Several things are clear from the report:

  • Forty-five percent of the report's projections of excess supply are based on the reduction in American demand for oil since 2008, which has come in part due to more efficient cars, the rising cost of gas, and the economic recession. Much of the future gasoline savings is a result of more aggressive standards that will roughly double fuel economy from current standards by 2025 and increased use of biofuels..
  • The rest of the improvement in oil supplies hinges on higher gas prices. The hydraulic fracturing technology needed to recover additional U.S. reserves isn't new. But it is newly cost effective at $4 a gallon. (It wasn't financially feasible when gas cost $2.50 in 2005.)
  • Oil prices will still be determined by the world market, regardless of where supplies come from, as associate editor Jordan Weissman points out in The Atlantic.

While the report fosters hope that an oil-based world political crisis isn't imminent, these promising oil reserves are also no panacea.

For starters, the petroleum in these reserves is far heavier than that we have pumped in the past, making it more pollution intensive and expensive to refine into gasoline than Saudi Arabian light, sweet crude.

According to Daniel Sperling, director of the Institute for Transportation Studies at the University of California, Davis, the carbon footprint of drilling for and refining these heavy shale oils is on the order of twice that of shipping and burning Saudi oil. And using up all our proven reserves could have disastrous consequences.

And to the degree oil reserves increase, demand is unlikely to go down long term. The economy will eventually pick up, population will grow, and our need for other products—such as plastics, chemicals and drugs—produced from oil will inevitably increase. Global demand is also increasing, so much of the new drilling in the United States may increase energy exports to satisfy foreign demand.

From a global consumer perspective, developing more oil reserves and being able to export it has the potential of adding stability to the price of a barrel and offsetting the influence of OPEC countries.

After oil supply disruptions in 1979 gave way to lower oil prices in the 1980s, America essentially gave up on developing real alternatives. Thirty years of development were lost until supplies tightened again in 2005 (in large part due to demand growth outstripping existing supplies).

For individuals, the lesson is the same as it has been: Take action to protect your wallet. Amid the elevated gasoline prices, American consumers have been making more fiscally prudent choices, such as buying cars that meet their needs with better gas mileage, rather than indulging in oversized models that exceed their needs. The individual decisions to choose more efficient vehicles, limit driving, and seek carpooling or public transportation options adds up to the nation conserving energy and creating a marketplace that encourages alternative fuel development.

Gas prices are unlikely to significantly drop, and our nation continues to adapt to the challenge this rather rapid change has created. The days of cheap gas and big SUVs in every driveway may have passed, but at least there is some silver lining.

To help save at the pump today, read our test-based tips for how to maximize fuel economy in your current car.

Also, visit our guides to fuel economy and alternative fuels. And explore our new hybrid/EV buying advice and Ratings.

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