I never cease to be amazed by the frequency and vehemence of opinions expressed on energy and environmental matters by people who are spectacularly underinformed. So in this exposition about oil, let's first begin with a Top Ten List of clear-cut facts.
1. World oil production (which is essentially equal to consumption) is at approximately 85 million barrels per day, or 31 billion barrels per year -- and has essentially remained at these levels continuously since mid-2005, even though oil prices have doubled (from about $60/barrel) since then.
2. The U.S. consumes about 20% of the world's annual oil production, implying U.S. demand levels of about 21 million barrels/day (almost 8 billion barrels per year), but holds under its territory only about 2% of the world's proven oil reserves of 1.2 trillion barrels.
3. In contrast, the Oil Producing and Exporting Countries (OPEC) control almost 80% of the world's oil reserves, yet produce only about 40% of annual oil supplies.
4. OPEC production was 31 million barrels/day in 1973, and 32 million barrels/day in 2007, despite the world economy having doubled in the intervening years.
5. OPEC includes among its members the following countries that are unstable, corrupt and/or unfriendly to the U.S.: Saudi Arabia, Iraq, Iran, Venezuela, Nigeria.
6. The Middle Eastern members of OPEC represent over 75% of total OPEC capacity, of which the single largest player (without which the world oil markets would collapse) is Saudi Arabia, alone accounting for 22% of the world's remaining proven oil reserves.
7. This year, the U.S. will send an estimated $700 billion to the Middle East to purchase oil -- more than the U.S. defense budget (about $600 billion).
8. An unknown portion of these proceeds, but widely-agreed to be a significant amount, funds anti-American (and anti-women, and anti-Semitic, and anti-homosexual, and so on) sentiment -- including outright terrorist activities.
9. About 99% of the energy consumed by the U.S. transportation sector derives from petroleum.
10. The vast majority of American citizens live and work in a manner requires oil-fueled transportation to maintain their basic lifestyles (commuting, shopping, etc.)
So, here we are, the United States of America, utterly reliant on one strategic commodity supplied mainly by a powerful cartel that doesn't hold American long-term interests at heart. What is our response to this predicament?
We complain. We complain about high energy prices, and ask the government to do something about it. When, in fact, there's very little the government can do about energy prices. OPEC makes it abundantly clear that we are price-takers, not price-setters. Why else would President Bush travel to Riyadh, hat-in-hand, to effectively beg the Saudis to supply us more oil? And, how else could the Saudi's rebuff their best customer?
This, of course, is the same President Bush that declared famously in 2006 State of the Union speech that the U.S. is "addicted to oil." Factoring in all the negative connotations of the word "addiction", that's a strong statement, coming from a proud Texan.
You might ask what else we might do, beyond pandering to our pushers.
Cutting demand certainly helps. Unfortunately, we can't quickly/easily/cheaply reconfigure our infrastructure of buildings and roads, so we're stuck for a long time with the landscape we've created: we'll unavoidably need to move around lots of people and goods for quite a while. (See Fact #10.) So, our need for vehicle-based ransportation will not diminish rapidly.
The recent passage of Energy Independence and Security Act of 2007 tightens fuel economy standards to improve efficiencies of new vehicles - including, for the first time, SUVs. And, higher fuel prices are clearly beginning to discourage U.S. demand.
Unfortunately, U.S. demand-reduction measures won't help much in the grand scheme of things. First, over its 35 year history, OPEC has clearly learned an ability to withhold production to keep oil prices high: when others produce more, OPEC produces less. (See Facts #3 and #4.) Second, the incessant growth in energy demand from the developing world (most notably, China and India) will probably eat up any declines in oil demand the U.S. might be able to achieve on its own.
So, this leads us to what has become the hottest topic in the Presidential campaign: drilling for more oil in the U.S.
You've probably seen the bumper stickers: "Drill Here, Drill Now, Pay Less". I recently overheard someone in a bar claim with pride that the recent modest drop in oil prices can be attributed to OPEC's cowering in fear now that the U.S. is getting serious about drilling for more oil domestically.
Get real. As Executive Director of the Institute for the Analysis of Global Security Dr. Gal Luft, arguably one of the most knowledgeable observers of the world oil situation, said in a recent speech in the Cleveland area: "Go ahead, drill all you want, it won't make any difference."
This is because the U.S. only has about 3% of the world's reserves, but demands 20% of current world production. (See Fact #2.) Bluntly, we want way more than our share of the oil allotment, but there's no way around this inconvenient truth: we can't change our geography or our geology. (This reminds me of another bumper sticker: "What's Our Oil Doing Under Their Soil?")
It is true that there are significant reserves untapped offshore in the Gulf of Mexico, in Northern Alaska (Arctic National Wildlife Refuge, ANWR), and elsewhere in the U.S.: in ANWR alone, perhaps as much as 16 billion barrels. This sounds like a lot, and at $120/barrel, it is financially worth a lot. But, even with a bonanza of 50 billion new barrels heretofore inaccessible, this only supplies current U.S. requirements for not even 7 years. It supplies global requirements for less than 2 years.
Moreover, as noted previously, OPEC is capable of reducing its supply to compensate for whatever incremental production the U.S. is able to achieve, thereby nullifying the effect of the U.S. exertions to open up these assets to extraction.
With this as backdrop, let me ask a simple question: is it worth pinning the country's hopes on a multi-year project to drill some new holes, only to find that it doesn't solve our underlying problem? According to analysis by the U.S. Department of Energy, opening up new areas to drilling "would not have a significant impact on domestic crude oil and natural gas production or prices before 2030. Leasing would begin no sooner than 2012, and production would not be expected to start before 2017." This doesn't sound to me like any significant solution for our dilemmas.
It sounds like all I'm offering is problems, not solutions. Well, what do you expect? With a long-held conviction to pursue an energy policy of "cheap oil, at all costs", the U.S. has painted itself into a nasty corner. Everyone wants easy answers, but unfortunately there are none.
One ray of hope is offered by unconventional hydrocarbon production. The U.S. is the so-called "Saudi Arabia of coal", with hundreds of years of reserves at current demand levels (although this "runway" would be reduced dramatically by a concerted move to coal-based fuels for transportation). In addition, the U.S. holds huge amounts of oil-equivalents in the form of shale in the Rocky Mountains, estimated to be far larger in quantity than the oil in Saudi Arabia. Both of these sources can technically be extracted and converted into transportation fuels -- but possibly at significant financial and environmental costs. Hopefully, new technologies under development will eliminate (or at least significantly) reduce these costs -- but if not, are we willing to pay them?
More fundamentally, I believe that Dr. Luft is on to the central problem: unless and until we sever the link between transportation and petroleum, we are doomed to declining power and ultimate subjugation.
Right now, just about every car and truck sold in the U.S. is constructed to run only on a petroleum-based fuel. Since each vehicle has about a 16 year operating life, and since over 7 million new vehicles a year are sold in the U.S., each consuming hundreds of gallons per year, every additional year that virtually all cars sold in the U.S. are oil-dependent "locks in" tens of billion barrels of U.S. aggregate demand for oil.
Dr. Luft's solution: eliminate the strategic value of petroleum, by taking low-cost and rapid steps to make vehicles fuel-flexible. Only with competition among fuel types for the transportation market will OPEC lose its stranglehold on our economy.
As has been widely documented, it is possible to make gasoline powered vehicles able to run on a limitless variety of alcohol/petroleum blends with the addition of equipment that is about $100 per vehicle. Dr. Luft and other luminaries (e.g., James Woolsey, Robert "Bud" McFarlane) have formed the Set America Free Coalition to promote the Open Fuel Standard Act, which would require that 50% of all vehicles sold in the U.S. in 2010 must be fuel-flexible. According to Dr. Luft, the major automakers say this is doable.
(Interestingly, Dr. Luft claims that the big oil companies are discouraging their affiliated retailers from installing ethanol-capable pumps. This sounds like something worth investigating.)
In addition, Dr. Luft argues compellingly for the end of ludicrous U.S. agricultural policies that tax imported ethanol (but not, notably, imported petroleum or petroleum-based fuels) and that place quotas on sugar imports. The effect of these policies is to discourage or prevent the possibility of cost-effectively importing sugar-based ethanol from over 100 countries in the tropics around the globe where sugar (a highly efficient feedstock for ethanol production, much better than corn) can grow abundantly.
These countries tend to be poor, based on subsistence agriculture, and they are being killed by high oil prices. In Dr. Luft's view, this represents "the worst regressive tax in history", and he thinks we should send a few hundred billion dollars a year to those countries - "some of whom still like us" - instead of to OPEC countries. As an incidental benefit, this would increase economic aid to the developing world by about an order of magnitude.
(As an aside, Dr. Luft is convinced that the now-heated arguments against ethanol -- food vs. fuel, too-lucrative incentives -- are overhyped bunk, and has some interesting analyses to prove his point, but that is a subject for another day.)
So, it seems that some important answers to our energy crises may be found in skewed agricultural policies -- a non-intuitive target for critical attention. If you want to take this on, contact Dr. Luft: he is looking for fellow revolutionaries to help us claw our way out of the hole we've dug for ourselves with our oil addiction.