Escaping the Oil Market is a Pipe Dream

December 1st, 2011 at 5:54 pm | 29 Comments |

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We’re not back to the energy glory days, when oceans of east Texas crude fueled the ships, aircraft, and tanks on which the Allies rode to victory in World War II.

U.S. imports of crude oil and petroleum products, however, have dropped a hair below 50 percent. And on Tuesday, the Wall Street Journal reported that the U.S. is exporting more refined petroleum products than it imports, the first time we’ve been in the black with refined fuels since the Truman administration.

America’s improving energy security position is rooted in greater fuel efficiency—which should draw applause from every conservative who loves to make a penny squeal—and new technology that has opened up previously inaccessible conventional oil reserves in deep shale formations.

Do these developments mean that the energy security problems associated with oil dependence are over? No.

Oil is still traded in a global market, where events over which we have little control—surging demand in China or supply cutoffs in this or that turbulent petro-state—can send prices scurrying upward. There isn’t a practical way to avoid an oil price surge. If beef prices get too high for your taste, you can quickly substitute chicken or fish. Not so with oil, which holds a monopolistic grip on the transportation energy market.

The International Energy Agency said in its 2011 World Energy Outlook that rising demand in the developing world will put strong upward pressure on prices in the years ahead, as more Chinese, Indians, and Middle Easterners take a fancy to having a car of their own. The global auto fleet is projected to double by 2035, to 1.7 billion cars.

Serving that demand and replacing played-out fields will force oil companies to head for high-rent districts, such as ultra deepwater. According to The Economist, Brazil’s state oil company, Petrobras, has budgeted $224 billion between now and 2015 to develop oilfields buried under deep salt layers thousands of feet below the ocean floor. Such technologically demanding production requires high enough prices to offset the costs and earn a return.

Despite the good news coming out of North Dakota’s Bakken field and other domestic shale oil fields, the U.S. achieving complete self-sufficiency in domestic crude oil production is not realistically foreseeable. Even an anything-goes policy to make oil production the dominant use on all public lands and offshore waters would not zero out crude oil imports, which would require a near tripling of domestic oil output.

And what if rising domestic output amps up political pressure to ease restrictions on crude oil exports? The shale gas boom has sparked interest in exporting U.S. gas to Asian and European markets. There is no reason to believe that market-chasing oil producers wouldn’t put the arm on Congress to ease up on crude oil export rules if economic opportunities beckoned. U.S. exports of refined oil products have more than doubled since 2005 as a result of changing market conditions. In 2010, the U.S. shipped out the equivalent of nearly 1 million barrels of gasoline and diesel per day. The upward trend of gasoline and diesel exports has continued this year.

More domestic oil production in suitable places such as the Bakken employs Americans, slows the flood of dollars going into the cashboxes of petro-states, and tops up supplies. That’s good. More domestic production, however, won’t cut the apron strings that tie us to the global oil market and the economic upheaval it’s capable of inflicting on the U.S.

Recent Posts by Jim DiPeso

29 Comments so far ↓

  • SFTor1

    The problem of energy supply is additive. I suggest that the solution is too.

    We need to invest in energy-efficient technology in all domestic sectors. Residential solar is approaching grid parity, for instance. That means that all suitable homes should have a solar PV system. All homes should begin installing smart windows. All office buildings should do the same.

    It is only a very small part of the equation, but as Gandhi said: “there is very little you can do, but it is very important that you do it.”

    Not only that: thinking incrementally in the States is a lot less expensive than fighting repetitively over Middle Eastern petroleum basins.

  • TerryF98

    If we had spent the 3.7 trillion on energy independence instead of George’s excellent middle east adventures the country would be in a far better place.

  • pnwguy

    There seems to be an odd psychology in what passes for conservative thought these days. Business leaders will invest in efficiencies in loads of other areas, trying to save miniscule amounts of product waste in things they make. But it seems like reducing energy use is something to almost be shunned, even when the ROI works in their favor.

    And on the personal level, it seems like an issue of social status to waste the most energy possible in lifestyle choices (autos, boats, home efficiency, commuting distance, etc.). The fact that our government wants to prod its citizens to use less energy creates a reverse reaction from people who have been whipped up to hate government. And many of the same think that any talk of resource limits of any kind is merely a liberal conspiracy.

    The vein of frugality that used to be considered a personal virtue in “conservative” is gone, it seems.

    • Bingham

      I rode my bicycle to work back when I was a US Government employee, does that count?

  • LauraNo

    pnwguy, I think that’s because there are very few conservatives around anymore. Those calling themselves such are highly politicized and radical and do not care one whit about conservatism. They hate liberals, they hate ‘others’, they hate educated people, they want to force their religion down everyone’s throat and electrocute brown people and execute as many people as they possibly can and new evidence of innocence need not be paid heed, on and on. Nothing conservative about them at all. If they had been around back in the day, we still wouldn’t have an interstate system and if they have their way now, we won’t have an education system either. And you right about frugality, too. Bush was quite the big spender, with their loud cheering in the background as he BORROWED the money to give the rich tax cuts and waged two wars and created the largest two government entities (I believe this is true but can’t swear it is strictly correct) since the New Deal, also on credit. Frugal and ‘conservatives’ is an oxymoron these days.

    • AnBr

      Borrow and spend “Conservatives”.

    • jakester

      Isn’t that demonizing and generalizing Conservatives a wee bit, Laura? Sort of a liberal version of a Limbo rant?

      • LFC

        I’ll back Laura on this one with the caveat that “there are very few conservatives in power anymore.”

        Mitch McConnell told us that his party’s job #1 was to defeat Obama in the next election, not ending the war in Afghanistan, ending the war in Iraq, not solving the health care crisis in this country, not getting our economy on the road to recovery, and not getting people back to work. Nope. It was defeating Obama.

        Every GOP Presidential candidate said they’d refuse a 10:1 deficit reduction deal. Herman freaking Cain was tops in the polls until it came out that he was a serial sexual predator.

        Bruce Bartlett is a financial genius compared to Paul Ryan, but who does the GOP line up behind now? A guy who produces “plans” that per the non-partisan CBO actually INCREASE the deficit.

        Who are the most popular right-wing media personalities? They’re the nuttiest of the nutty, people who are the polar opposite of thoughtfulness. Local case in point? David Frum was tossed from the AEI for speaking truth to stupid.

        So yes, there are conservatives still in our country. They just have very little voice. And many of those are still having a hard time accepting the fact that if you are a foreign policy and/or fiscal conservative, Obama is your man. Old allegiances die hard for some.

      • LauraNo

        Not really. I can count on my hands the number of conservatives out there today in the political/ puditocracy, and every one of them is called a RINO. Every ‘conservative’ I know in real life backed GWB is his every endeavor. I don’t know what else we are to think. They are not conservatives, they just like to call themselves such.

  • andydp

    The goal should be to develop alternate fuel and fuel saving technology along with the petroleum and natural gas that we currently have. (Keep in mind “immediate” opening/approval of offshore US oil fields will take about 10 years to get to the market.)

    While the GOP keeps yelling “drill baby drill” they also fail to mention that $100 bbl oil on the world maket is going to be $100 bbl oil on the US market. For an excellent overview of this see T. Boone Pickens’ letter to the WSJ on May 11,2011

    Then you have the Wall Street Journal calling any alternative energy programs or efforts as”unproved technology”.

    • cranky_engineer

      The editorial writers at the WSJ maybe should just do a google search on wind power in the world and actually know what they are talking about. The same thing with solar power. They are proven and viable technologies. They may not be the end answer but they can go a long way in ending our dependence hydrocarbons, domestic and imported.

      Our conservative pundits have so polarized the debate with reactionary rhetoric that rational policy and decision making is nearly impossible. Ford CEO Alan Mulally when he was the VP of Boeing Commercial Airplanes would tell his senior managers that the “facts and data” will set you free. Unfortunately, our leaders don’t seem to understand facts and data. Much less be willing to act based on them. The general public follows along like lemmings.

      Maybe someday the United States will actually have a useful energy policy. We can hope anyway.

  • SteveThompson

    Let us not forget oil’s poorer cousin, natural gas.

    Iran is sitting on a massive natural resource, the world’s second largest natural gas reserves. Here is an article outlining just how large Iran’s natural gas reserves are compared to the total volume of natural gas in the United States and how China is taking an increasingly large position in developing this resource:

    It will be interesting to see how long it takes before a coalition of nations decides to act in the name of regime change with the ultimate goal of accessing Iran’s resources.

    • jakester

      Regime change is a great idea for Iran, and if more oil and natural gas is a payoff, all the more reasons

      • LauraNo

        Oh dear god. More conservatism on display?

        • jakester

          I know, we must preserve the regime in Iran, founded by that great statesman, parliamentarian and humanist Ayatollah Khomeini, as a model for the rest of the world.

        • baw1064

          I believe our goal should be to find an energy source that will free us from having to give a f*** about Iran, or any place in the Middle East.

        • Velocity

          Khomeini was a direct result of our meddling in Iran in the first place.

  • Solo4114

    What’s the FrumForum policy on headline puns?

    • jakester

      The same as most other mags and blogs. Part of an editor’s job is to come up with puns or ironic headlines for every piece

  • jakester

    I heard Fig Newton go on about how in WW ll we beat the bad guys because we found all sorts of oil substitutes and alt energy stuff. What a total fathead. One of the reasons we won WW ll is that we had oil to burn while the Axis were starved for oil. That is why oil was the Japanese’s main strategic objective & should have been one for the Nazis, not just an afterthought of Barbarossa or the Afrika Corp

    • baw1064

      Perhaps for Japan, but not so much for Germany. Germany had plenty of coal, and were able to create an entire chemical infrastructure (used in both world wars) based on available materials (liquid hydrocarbons artificially synthesized from coal in place of petroleum, nitrogen fixation for producing explosives in place of imported nitrates). Japan, by contrast, didn’t have significant domestic oil or coal, so this approach wasn’t available to them.

      More recently, when South Africa was largely cut off from world oil supplies during the apartheid era, they also synthesized liquid fuels from coal.

  • LFC

    America’s improving energy security position is rooted in greater fuel efficiency—which should draw applause from every conservative who loves to make a penny squeal—and new technology that has opened up previously inaccessible conventional oil reserves in deep shale formations.

    And yet the right-wing scream to the heavens about the tyranny of efficient light bulbs and CAFE standards. To them, “conservation” and “conservatism” don’t have the same root.

  • nister

    Carbon nanotube technology is energy’s holy grail, according to Justin Hall-Tipping. His lecture can be accessed on Wimp – “The future of free energy is here”.

    • baw1064

      It’s not free energy, it’s just that in theory nanotubes will be able to transmit electricity with less transmission losses. You still have to produce the electricity–by photovoltaics or however. Nanotubes don’t change the production costs of photovoltaic electricity.

  • gmat

    The people that use it have to buy it, and the people that produce it have to sell it.

    If the US were completely absent from the ME and SW Asia, and stayed absent as part of a non-interventionist foreign policy, a whole new balance of power would compose itself in the region, but the oil would continue to flow out of the Gulf.

    You hear people say, “I wish we could do something about energy that would make it so we don’t even have to worry so much about what’s happening in Iran, or Syria, or the rest of them.”

    Well, we’re already there. We get 15% of our energy from the Gulf. China and India get 75-80% of theirs from the Gulf.

    Let them worry about it.

    • baw1064

      But if oil has a world market, then political instability in the Middle East does affect the price we pay, even if we don’t buy that much oil from the ME directly. By the same token, our demand for oil puts money in the pockets of the Iranians, even though we don’t buy from them directly.

      We do need, to echo the column’s analogy, to have chicken or fish (or soybeans) available if we don’t like the price of beef.

      • gmat

        But the presence of the US military in the ME and SW Asia does not prevent political instability in those regions, nor resulting the oil price fluctuations. So why be there?

        As to the Iranians making money off of their oil, so what? Where are you going with that one?

        Or are you buying into the current narrative about how Iran is the devil, so we should therefore worry if they make money off their oil?

        • baw1064

          Where I was going is that refusing to buy oil directly from Iran is pretty silly (i.e. ineffective) as an economic policy, even if you do believe they are the devil.

          I pretty much agree with you, in terms of our policies. If we use a completely different energy source that doesn’t even come from the middle east, then we should be able to react to pretty much anything that happens there (including a regional conflagration) with a big shrug.