Prices for crude oil crossed the $50 per barrel threshold late last month, raising fears that America’s economy will sputter and that pricier oil could lead to inflation. For agriculture, higher energy prices mean higher costs of production.
According to the U.S. Department of Energy, America consumes 7.3 billion barrels of oil per year. That means with less than 5 percent of the world’s population, 25 percent of the world’s annual oil consumption occurs in the United States.
Energy, and especially oil energy, drives the world’s economy. Americans may use a lot of oil, but we also produce a lot with that oil. For instance, the World Bank and the U.S. Department of Energy say that America’s gross domestic product was $10.8 trillion in 2003. Given the 7.3 billion barrels of oil we used, that’s $1,488 in GDP for every barrel consumed. So, on a dollar for dollar basis, America is producing $1,488 in goods and services for every $50 of crude oil purchased.
Those numbers may sound good, but of the world’s 10 largest economies, six generate more GDP per barrel of oil than the United States. The United Kingdom is first on that list, producing $2,859 in GDP for every barrel of oil used.
Agriculture has often been criticized for the amount of oil it uses, but the criticism is often exaggerated. For instance, the June 2004 issue of National Geographic contains a staged photo of a girl holding a 4-H steer next to six barrels of oil. The caption charges, “Raising this steer has taken an agricultural investment equal to 283 gallons of oil.” National Geographic says that would be three-quarters of a gallon per pound of beef.
Rubbish! The National Cattlemen’s Beef Association responded to National Geographic, pointing out that Dr. Michael S. Graboski with the Colorado School of Mines estimated that all energy inputs amount to 46.6 equivalent gallons of crude oil to produce a 1,250-pound steer, or about four-hundredths of a gallon per pound.
Economists with the American Farm Bureau Federation note that Dr. Graboski’s estimate is for total energy (oil equivalent). AFB economists say actual petroleum used to produce a steer is just 13.8 gallons.
Despite our grumblings over the price of oil, the world’s largest economy will continue to ravenously consume energy. In fact, the price of oil has never reached a price that has deterred American consumption. Yes, industries such as agriculture have suffered from rising oil prices. But the majority of Americans seem unfazed by higher energy costs. Today, for instance, there are twice as many vehicles on the highways of America than there were in 1990. And the vehicle of choice, the SUV, guzzles gas just like its predecessors in the 1970s.
So, which is more energy efficient, the SUV or beef production? We now know that it takes 13.8 gallons of crude oil to produce a 1,250-pound steer. Yielding an average of 63 percent, that steer will produce 787 pounds of beef at a production rate of .0175 gallons of crude oil per pound. The Environmental Protection Agency says that today’s SUV averages about 18 miles per gallon. The petroleum industry says the refining process produces 19.6 gallons of gasoline per 42-gallon barrel of oil. (It also produces a variety of other products.) So, roughly 47 percent of a barrel of oil becomes gasoline. To determine how many gallons of gasoline are used per pound of beef, we multiply .0175 by 47 percent. The result is .0082 gallons of gasoline per pound of beef. When we multiply .0082 by 18 (mpg of the SUV) the result is .1480 miles. Or, in other words, an SUV can go about 781 feet on the amount of gasoline it takes to produce a pound of beef.
For perspective, a 10-mile commute to work consumes the same amount of oil that it takes to produce 67.6 pounds of beef, about the same as America’s annual per-capita consumption of beef.