By Request: Oil!
It was brought to my attention that I have yet to address the energy debate at length, so that’s what we’re gonna do now.
Let’s start with the basics, and full disclosure. I oppose most any attempt to drill for oil. Partly for environmental concern, partly out of a concern for what it could do to the economies of coastal tourism hot-spots, but mostly just because it won’t actually do much for energy prices, and it’s conceptually flawed anyway. The idea that the cure for oil dependence is to drill for as much as we can possibly find is the equivalent of treating crack addiction by making sure we have a ready supply of smack. It doesn’t make any sense whatsoever, especially in the long run, even if it could help in the short-term (which it won’t).
The problem can basically be boiled down into one sentence; the United States uses about 21 million barrels of oil everyday. That’s just insane. What makes it even more insane is that the 2nd largest consumer in the world, China, uses about 6.5 million barrels a day. So when you establish that baseline, those somewhat innocuous sounding figures about global demand come into slightly starker focus. For example, that global demand has steadily increased by about 1% every year doesn’t sound so bad, until you realize that 1% of global consumption is about 850,000 more barrels every day. Putting that into perspective, the US Energy Information Administration estimates ANWR’s potential peak production to be about 775,000 barrels, meaning that even at it’s peak ANWR couldn’t even compensate for the expected annual growth in global demand. And considering that ANWR wouldn’t peak for about 20 years, that means you’re talking about an even wider gap when you factor in declining production elsewhere.
Much talk has also been made about speculators. Now speculating certainly has some effect on the price in the long run, but the idea that it’s chiefly responsible for short term spikes is rather silly. In fact, when you consider what speculating is (buying and selling futures contracts for the most part) it diminishes the evil caricature even more. All speculators are doing is betting that the price is going to continue to rise, and with good reason. Production is close to, or at, peak in most places (including Ghuwar where they’re filling the wells with gobs of saltwater and steam and much of what is being kicked back is just water) and demand is increasing steadily. If anyone actually thought the price was in danger of falling any time soon, you’d see a natural reduction in speculating. But there’s no real reason to expect a sharp decline in the price long term. I’m also more than a little bit skeptical to see the same people who denied there were bubbles in the dotcom or housing markets suddenly insisting that the problem is all because of a speculation bubble in the oil market.
You can, conceivably, come at the issue from a national interest perspective (we need less foreign oil) as well, but that’s got as many, and more obvious, problems associated with it. First of all, the United States does not have a nationalized oil industry, so there’s really no such thing as “American oil.” Oil pulled out of the ground in Alaska goes straight to the global spot market. There’s no way of keeping it here. So the immediate benefit is not to the consumer, it’s to the supplier who gets access to more supply with oil trading at $130 a barrel. You didn’t really think that the oilmen (literally) in the White House had a problem with high priced oil did you?
Secondly, and this is the real kicker, the United States is already the 3rd largest oil producing nation in the world. Only Saudi Arabia and China produce more. At about 8.5 million barrels produced everyday to about 20.8 million barrels consumed everyday, we’re left with a deficit of 12.3 million barrels everyday that have to be imported. Or, to put it more bluntly, the 3rd largest producer in the world has to import twice as much oil as the 2nd largest consumer uses in total every single day. That’s just not sustainable by any measure. There’s no way the United States, as an economy, can continue to so obscenely devour such a finite energy source. And that’s why efforts to treat the problem with more drugs, er, light sweet crude, is only putting the real problem, oil as the base of the economy, off indefinitely, and setting us up for a bigger problem in 10-15 years.
The political candidates don’t exactly have serious positions on this issue. McCain is a joke, even by his standards. On the one hand he’s a “maverick Republican” who actually acknowledges global warming and wants to cut oil consumption, but on the other hand he wants to drill like it’s 1949 so that everyone can have lots of cheap oil to consume. Obama’s is a generic position about developing alternatives and windfall profit taxes that doesn’t really address the details, but then again Presidential white papers rarely do. Obama at least gets credit for getting the crux of it right, but politics being what it is, he’s incapable of speaking truth to the issue; which is to say that we need to tax the hell out of gasoline.
On both ends, production and consumption, gasoline has to be wholly unprofitable. The problem with the market is that oil has a low level of elasticity to demand. That is to say, you can only cut back on your energy usage so much. If you have to drive to work, you have to drive to work. Ditto for a lot of other daily activities people have to do. Yes you can carpool and consolidate trips, but inevitably there’s a baseline you can’t get below. And that’s to say nothing of shipping businesses, farmers, and other energy intensive commercial activities. Energy suppliers know this, so as long as they can get oil, they have no incentive to want to push the price down. They’re going to sell a certain amount of product regardless, so the higher the price the better. On the other hand, when the price is low, consumers have no incentive to demand an alternative form of energy. So the external, macroeconomic, agent we call the government needs to step in and affect the market from the outside, making alternatives more affordable to consumers and more profitable to sellers than oil based products. They should also incentivize public transit (or at least stop subsidizing driving), but that’s another topic for another day.
Thanks for finally posting your views on this hot issue although I can’t believe that with all the media coverage you actually had to have it requested.
First of all when you say that your against drilling due to environmental factors let me say this I’m going to assume that you mean it’s affects on wildlife in the region. On that note let me say this…wildlife populations in Alaska have well over doubled since before drilling first started due to people not being able to hunt in those areas anymore so in fact drilling can HELP wildlife in the region. Most drilling that would occur on the outer continental shelf (OCS) would take place well away from tourism hot-spots. I can say this because there is a lot more coastal areas that are not in areas known as tourist sites and that drilling can happen up to 200 miles off the coast.
Your once sentence summary of the oil problem can be countered with another once sentence: the U.S. has the world’s largest economy and military. Now while China and India’s economies are certainly growing they are nowhere near being close to what America’s is anytime soon. Even Japan with the world’s second largest economy is only half the size of ours. So why does the U.S. use so much more oil than any other country? Easy! We have to! There is no way our economy could grow this large without petroleum! And now we are having and energy crisis because no one in any previous administration or Congress thought it important to think about what would happen when this nonrenewable resource finally wasn’t as easy to get as it was. Now we’re having to think of a way to lower oil prices a little until we finally wake up and find another energy source to power our economy (coal is not a good solution either due to its limited supply tooand that there is no such thing as clean coal).
When talking about production in ANWR not peaking for 20 years and saying “oh well if it takes that long then there’s no reason to even begin” thats like not starting a company because your not going to be as big as Wal-Mart right out of the gate. Of course it is going to take a bit of time before having peak production. But heres the thing…even if it hasn’t peaked that is still more barrels being produced than was before drilling even started!
I don’t know that much about speculating so I’m going to stay off that until I have more information but I want to say this. The price of oil is not being feared of declining anytime soon due to the ever increasing demand for the substance and the peak and soon decline of it’s production.
With all the uproar from consumers about current and possible oil prices either candidate that made an issue out of nationalizing the oil market would get huge coverage and possibly support. Now yes the oil companies would have a huge problem with that but if done right the cry from the consumers would either cause the oil companies to suck it up or new ways to power a car would emerge. And you want to refer to the “oilman in the White House” well he’s got 6 months left until he’s kicked out so lets begin to think about the future instead of driving every discussion on the issue to the last 8 years cause that does nothing but delay any possible solution.
True the United States has to import a lot of oil but heres the thing. If we produce more then wouldn’t we have to import less? Now this can be spun in a lot of ways but this seems to be about what it would come out to be. More being produced and less imported sending our money off to OPEC nations. Seems a winner to me. Drilling for more oil domestically would not in any way get us off of using it as our economic blood. But there has to be oil flowing into the economy until a solution can be found and currently I am hearing nothing on a practical solution only people focusing on the problem and how it affects politics! This is doing nothing but causing us to go in circles! A solution is not going to walk in to Congress or the White House one day and say “Hey I’m the solution to oil”! It cannot happen overnight! And it can’t happen at all if everyone just wants to talk about oil and not on ways of replacing it.
With the candidates I’m going to start with McCain. Calling him a joke because he a Republican who believes that global warming could possibly exist makes global warming a death blow to Republicans no matter what they say. Democrats and the media went nuts over Bush when it was rumored that he was bribing scientists to say that it didn’t exist and no there going nuts over McCain saying the exact OPPOSITE of what Bush had said. But that is not what the topic is today and mentioning it is only serving to do exactly what is always done when talking about this issue take valuable time from talking about the issue at hand. McCain seems to be saying exactly what needs to be said when he talks about cutting oil consumption and people are jumping on him for that as well. Now completely saying that this will be done by increasing our oil production just doesn’t make sense in anyone’s book and how anyone would come up with this conclusion is beyond me. There is nothing wrong with drilling for more oil so that consumers can have cheaper fuel as long as there is ressearch and DEVELOPMENT in alternative fuel sources as well.
Obama avoids direct attack on the issue by saying that we need to invest in alternative fuels (hmmm I believe I remember Bush saying this in a State of the Union speech with ethanol and getting a standing ovation by everyone in the room) but like always there will be nothing done after its been said (obviously ethanol is not the quick fix EVERYONE hoped it would be).
There is an old saying that “companies do not pay taxes but pass it off to consumers by raising prices”. So how exactly would taxing the hell out of gas do any more than put more stress on consumers wallets while having no effect on companies?
My last point is going to be this. Republicans are viewed as being in oil companies pockets. They will do nothing to find a solution because they are being paid to do all they can to ensure oil consumption here in America. The reality is that many Republicans in Congress are addressing the issue of energy independence as much as they can. Democrats on the other hand use oil as a bullet against the Republicans. This strategy works quite well politically for them because it paints Republicans as evil and against consumers while keeping any attention off of Democrats. But if you step back and look at the bigger picture the Democrats don’t do anymore than Republicans do to help consumers and are not inclined to create a viable solution do to losing this political bullet against Republicans. So can either party really be seen as better on this issue that the other as a whole? NO! Both parties are equally responsible for the current oil crisis and it will take both parties to fix it!
I’m gonna tackle this in bullet form:
1. It’s not that he believes in global warming that makes McCain a joke, it’s his proposals on the matter. The man doesn’t even understand his own policy ideas (I recommend hilzoy for a blow by blow on that). But more than that, he’s arguing against himself. McCain A wants a (kind of) cap-and-trade proposal and to curtail oil consumption. McCain B wants to make sure there’s lots of cheap oil for everyone to readily consume. It’s not even a matter of flip-flopping, it’s a matter of arguing against yourself in the same white paper.
2. I don’t disagree that both parties suck, but I think there’s a different reason. Republicans are in the pocket of big oil (and basically every other corporate outlet in the country) and Democrats don’t have the gumption to tell people how it is. No one really likes to hear that you’re an idiot for living in suburbia or, especially, an exurb, no one wants to be told that you’re going to have to pay a price for driving in general and consuming oil in particular, and Americans really don’t like the idea of not being ab;e to drive willy nilly. To say nothing of the fact that you’ve got to tackle an entire fiscal code that subsidizes driving to the max.
3. The axiom that businesses “pass on” taxes is complete bunk concocted by corporate publicists, but nonetheless we’re talking mostly about usage taxes, so the point is to make gasoline cost a whole lot, at least relative to other things. Now that’s obviously not going to work by itself since, as we stipulated, there’s a minimum level of driving that has to be done, but if it’s put in conjunction with, say, re-allocating a portion of highway funds to intra-metro transit systems, you could curtail driving relatively substantially.
4. The solution doesn’t have to walk in and bite politicians in the ass overnight, because we already know what the solution is. Constructing more transit systems that are more convenient and efficient, stopping, or at least slowing, the heavy subsidizing of driving, and making gasoline more expensive than the alternatives. Those are real short-to-medium turn fixes that can have a substantial impact both on the average person’s bottom line and overall demand for oil.
-Brien
Your response has emphasized once again how any real discussion on oil gets sidetracked by any other topic that gets brought up.
The idea that the solution is more transit systems and making gas more expensive than alternatives has a few major holes. First of all transit systems work alright if located in a big city such as New York, Los Angeles, or even Dayton but it is not a good solution for smaller towns which make up most of the urban areas of this country. So it sounds as if in order to have a solution for oil we all have to live in major cities? This leads to my next point…Farmers. Now transit systems obviously aren’t going to help farmers out in the fields so we’ll move to your second point, higher prices to make alternatives plausible. Now first off farmers have to be the most overlooked in the entire debate on oil. Everyone focuses on cars and how to switch them off gas but how are you going to get tractors to use another fuel and still get the power and performance that diesel provides? I know that I don’t have the answer but I know that higher prices on it right now with the rising costs of nitrogen and livestock feed farmers would be out of business if they have to keep paying for higher gas prices. Now don’t even bring up farm subsidies cause there’s only so much that the government can do to help and if they have to bail out farmers like they’ve had to do in the past then we’re going to be in another mess.
Now I want to say that I’m rather embarrased that in my original post I mentioned ANWR and the OCS I forgot to mention the oil shale. Now the United States has the worlds largest source of oil shale. There is enough oil in the shale that once we tap into it the U.S. could be very close to energy independence. Now is this a quick fix? No. But it is one more thing that can help consumers while the real solution is developed and put into effect.