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Raymond J. Learsy

Raymond J. Learsy

Posted: January 22, 2007 10:41 PM

Taking a Page From John D. Rockefeller: Foreclosing America's Energy Security (Agenda Part VIII)


Our energy neck is in a tightening noose. Between 75 percent and 90 percent of the world's oil and gas reserves are held by national oil companies that are partially or fully controlled by their governments. As such, the distribution and marketing of oil has become so highly politicized as to cripple the power of market forces to assure access and security of supply.

What must we do to guarantee that our nation's energy needs will continue to be met? Simply this: We have to become independent of foreign sources and the consequent political misadventures and fiscal extortion such dependence engenders -- no more ill-conceived Mideast entanglements and no more shakedowns by OPEC and its cronies. We must become fully self-reliant, looking to our own producers to supply the energy needed to fuel our economy and to support our social and environmental well-being through alternatives to fossil fuels, many of which are being proposed and discussed and acted upon and all of which hold out significant domestic possibilities. The literature on ethanol, biodiesel, wind, solar, hydro, nuclear, hydrogen, clean coal, and so on is extensive. This post has previously touched on some of these issues (see "Capping America's Gasoline Consumption Through a Manageable 'Eco-Fuels Program'. . . ," 1/8/07; and- ". . .The Importance of Nuclear Energy to the Nation's Future -- Lafayette, We Need You Again," 1/3/07).

Though alternatives to fossil fuels have great potential, we must nonetheless recognize that more then 60 percent of our current petroleum needs are derived through imports. Even with massive change, and more rational policies of consumption, we would still need to tap additional domestic sources of fossil fuel for decades to come. Fortuitously we have oil reserves measuring in the trillions of barrels locked in our oil shale deposits (see "Energy Independence, Our Oil Shale Deposits. . . ," 10/13/06) and additional significant potential reserves in deep-well reservoirs offshore, not to mention the oil remaining in currently capped marginal onshore wells. We have access to well over a hundred years of coal reserves, and the technology to convert it into "clean" energy. The trouble is that these sources are relatively high-cost compared to what the world's national oil companies pay to bring their oil out of the ground.

More to the point, the nationals are no fools. Keenly aware of their cost advantage, their deeds make clear that they wouldn't hesitate to follow the teachings of the master, John D. Rockefeller, to protect their advantage. Rockefeller brought competitors to heel by giving them what he called "a good sweating", meaning his Standard Oil cut prices until a cheeky rival couldn't withstand the operating losses.

Sadly, at this juncture, we have no way to fight back against such tactics. Our antitrust laws have been rendered ineffectual by the sovereign exemption, which prevents us from reaching across borders to deal with the collusive practices of the national oil companies. And even without the legal handcuffs, we have no Teddy Roosevelt to stand up against the oil cabal.

Neither do we have a Congress willing to enact another kind of remedy. On April 9, 2002, Senator Kay Bailey Hutchison (R., Texas) pleaded with her colleagues in Congress to establish a floor price of a then modest $15 a barrel for oil. She wanted to give small drillers, whom she called the "15 barrel-a-day people," the incentive to reopen their wells. "They are not going to reopen a well if they do not have a floor to help them stay in business . . . that is the reason so many of the wells that were closed when the price was $11 a barrel have not reopened." Hutchison continued, "If we could get all the marginal wells pumping in this country, we will equal the amount we import from Saudi Arabia every day."

Of course, nothing happened. Four years later, the Saudis and their handmaidens in OPEC had ratcheted up the price to $78 a barrel. And, predictably, once prices started to come back down, the cartel only recently moved to cut production in an attempt to stabilize the world-market price at $60 a barrel, nearly 50 times greater than their average production costs. But you can bet the minute we seriously invested to produce more on our own, that they would do their utmost to "sweat" those major capital investments out of existence. Once done they would work just as assiduously to ratchet up the price again, ever higher in the full knowledge that we had learned an expensive lesson.

Given the brazenness of the Saudis to maximize the price of oil while instructing our president on how to conduct his Middle East policies. Given last week's love-fest displayed by Venezuelan President Hugo Chavez and his Iranian counterpart, Mahmoud Ahmadinejad, who are bound by their declared enmity to the United States. Given the political instability in Nigeria. Given the broken rule of law in Libya, which cravenly railroaded any semblance of justice by sentencing Bulgarian nurses to death for allegedly infecting children with the HIV/AIDs virus. Given the blatant wielding of petro-power by Russia against its neighbors and European customers. Given Ecuador's confiscation of international oil assets. Given the lingering trauma of Iraq. And given that even our northern neighbor, Alberta, Canada, has threatened to review its oil export policies if we don't lift our mad-cow-related embargo on Canadian cattle and beef, it has become ever more evident that, for reasons of national security and even national independence, we need to develop our own energy resources and protect their economic viability over the long term.

Senator Hutchison had the right idea of guaranteeing our domestic oil and gas industry a floor price to assure the development of higher-cost fossil-fuel sources -- not so we can consume more but to maintain an adequate supply and wean ourselves from imports. Simultaneously, we must impose a tax on all fossil-fuel imports -- crude oil, diesel oil, heating oil, gasoline, and the like -- to reduce overall consumption and force us onto the path of self-reliance. In return, the oil industry would have to give up depletion allowances and tax credits, while also revisiting the structure of royalty payments to bring them more in line with less one sided national programs such as those governing Britain's North Sea production.

If these actions raise U.S. fuel costs, so be it. At the very least, we will be paying out our dollars to domestic producers to cover domestic costs, rather than shipping billions off to those who wish us ill. It's time to fight back against OPEC-inspired John D. wannabes who would slavishly drop the price of crude and related products to keep us from developing a competing domestic industry, thus holding us in their thrall and dancing to their tune. Lastly, should this program reduce the consumption of fossil fuels because of their cost or accessibility thereby significantly reducing carbon dioxide emissions, well so much the better for our polluted environment.