National Defense, Oil Imports, and Bio-Energy Technology
Robert M. Ames
Solazyme, Inc.; Yale Graduates Energy Study Group
Lafarge Corp.; Yale Graduates Energy Study Group
Paul W. MacAvoy
Yale School of Management; Yale Graduates Energy Study Group
Journal of Applied Corporate Finance, Vol. 16, No. 1, Winter 2004
Terrorist disruptions of crude oil supplies anywhere in the world now pose a serious threat to the U.S. economy. Price shocks from terrorist acts could have a pervasive negative effect on producer costs and consumer behavior, with the potential to derail the current economic recovery. The authors propose insulating U.S. energy prices from world price volatility by gradually eliminating imports of crude oil from non-Western Hemisphere sources.
The U.S. now operates with half of its crude supply from offshore sources. As much as half of these imports could be replaced by expanded production from projects that have been shelved for political reasons or because prices are currently too low. The remainder could come from an extensive and currently untapped supply of crude oil substitutes, particularly bio-energy sources such as ethanol from corn and switchgrass. These sources would be much less vulnerable to terrorist disruption.
The authors also estimate that the costs of pursuing a strategy of eliminating imports would not be nearly as large as conventional wisdom suggests. Even though crude prices would be somewhat higher than current levels, they would also be much more stable, and this price stability would help promote a stronger and more secure economy in the long run.
Number of Pages in PDF File: 20
Keywords: Oil, National Defense, Terrorism, Bio-EnergyAccepted Paper Series
Date posted: June 3, 2004
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