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Petroleum Remains No. 1 Fuel, But US Production Sags. OIL

WITH a 40 percent share of total energy demand, oil is vital to the United States. In the transportation sector, where a quarter of the nation's energy is consumed, reliance on oil is a critical 97 percent.But production is waning in the US, the world's most mature petroleum province. In 130 years the industry drilled 3 million wells that found 39,000 oil fields and produced oil equal to 950 quadrillion British thermal units (quads). Since 1986, exploration efforts have dragged at 40-year lows. As a result, the country discovered only four barrels for every five it produced over that period. All that remained of conventional reserves at the end of 1989 were 164 quads - a decade's worth of production at current levels. Of the 34 quads of oil consumed last year, 42 percent was imported at a cost of $55 billion. The Organization of Petroleum Exporting Countries supplies a quarter of US imports - double its share of five years ago. If nothing is done, the Bush administration says, oil imports will hit 65 percent of demand by 2010, at a cost of $200 billion in 1990 dollars. Foreign oil's share can be kept below 50 percent, the administration believes. Its national energy strategy (NES) recommends exploration in coastal waters that Congress keeps under its pillow, and in the Arctic National Wildlife Refuge, while keeping the environment tidy. All told, the US may have 290 quads of undiscovered conventional reserves. Also, the NES aims to encourage fuel-switching to cut demand for oil, and technology advances to unlock the two-thirds of US oil resources - 1,800 quads - that conventional production methods can't extract. A new technique of horizontal drilling illustrates the potential. But even if imports eventually predominate, that may not be as threatening as it sounds. The US requires 28 percent less energy to generate a dollar of gross national product than it did in 1973. And the cost of petroleum imports fell from 2.8 percent of GNP in 1980 to 1 percent in 1989. (Last year's crisis-driven price spike nudged the ratio up slightly.) Persian Gulf countries, which own two-thirds of world reserves, will sell increasing volumes of oil to the US and other importers. But world economic growth is expected to increase fast enough to keep dependence flat in terms of Middle East barrels consumed per dollar of GNP, the Department of Energy (DOE) forecasts. The NES calls for maintaining an appropriate level of oil in storage to help cushion against market disruptions. The 33 quads in world storage as the year began equaled a 100-day supply. To keep up with forecast growth in demand, 0.3 per year must be added to global oil stocks. The US already intends to boost its strategic petroleum reserve by up to 2.5 quads. The DOE is looking for cheap ways to get the oil, possibly by leasing it from a producing country. When oil market disruptions do occur, they affect the price of domestic and foreign barrels alike, regardless of degree of import dependence. From Aug. 1 to Dec. 1 last year, US consumers paid an extra $21 billion for petroleum because of the Kuwait crisis. Only $8 billion of that went to foreign producers.