Addicted to oil, but what’s the right cure?
Posted April 15, 2010 at 8:32 am 
Filed in: Don’t miss Jim Woolsey’s piece in the WSJ today. (http://online.wsj.com/ – subscription required). For those who haven’t been following the energy security/oil addiction debate, Woolsey — former Director of the CIA under President Clinton — has been an ardent and articulate advocate of reducing our dependence on foreign oil for some time now. The fact that we don’t agree with each and every idea has proposes — or more accurately don’t value them all as highly as he does — doesn’t detract from our appreciation for his toiling in these vineyards.
Befitting his passion, excerpts from Woolsey’s writing below are italicized; our respectful — but not obsequious — comments are in this font.
At the end of March, oil posted its fifth consecutive quarterly price increase: It’s now solidly above $80 per barrel. If it reaches $125 a barrel again, as it did in 2008, then approximately half the wealth in the world—above and below ground—will be controlled by OPEC nations.
Oil dominates transportation: About 95% of transportation fuel in the U.S. is derived from petroleum. And over three-quarters of the world’s reserves of conventional oil are in OPEC nations. But OPEC is pumping less than it did in the 1970s, despite a doubling in global demand, because it’s a cartel maximizing its income. OPEC sets oil’s price at a level that exploits our addiction but is generally not high enough for long enough that we go cold turkey.
Well put, though analysts increasingly point out that OPEC’s power to set prices and dominate the market has diminished. The cartel remains a convenient target, however, and the point of dependency also remains valid.
Saudi Arabia’s oil wealth enables it to control around 90% of the world’s Islamic institutions even though it has less than 2% of the world’s Muslims. So the teaching in most Islamic schools . . . bears startling resemblance to the substantive teachings of the Taliban and al Qaeda (although of course they and the Wahhabis disagree passionately about who should have power). The effect is that we now are financing both sides in our war with radical Islam.
It is somewhat surprising that this argument – we are financing both sides of a war — hasn’t gained more traction. Ironically, the rhetoric was employed during the debate on the Waxman-Markey legislation during the summer of 2009 — even though that bill arguably doesn’t do much to reduce dependence on foreign oil. A strong Senate bill that dealt with fuel economy standards, domestic production, electrification, and advanced biofuels would go far in reducing our dependence, and one hopes that Senators promoting such a bill will use this line of argument. It is unconscionable that America is spending its blood and treasure protecting her ability to send her dollars to those engaged in spilling that blood.
Having set forth the problem (in more detail in the published column — do check it out) Woolsey then looks at the current state of political and policy play:
Supporters of cap-and-trade legislation have argued that putting a price on carbon would help us get off oil. But the effect of this would be negligible. Twenty dollars a ton of CO2 equates to about 20 cents a gallon at the gasoline pump.
Drill, baby, drill? Some suggest that if we replace foreign with domestic oil our problems will be solved. Domestic drilling does help reduce oil’s share—a billion dollars a day—of our huge balance of payments deficit, and it adds some domestic employment.
But that’s it. OPEC has very large reserves and cheap extraction costs, while domestic drilling costs for new oil will be many times that of the Saudis. We can’t drill our way out of the cartel’s control of the global oil market.
Too true. We can’t drill our way out, but boosting production and putting a price on carbon will contribute to the solution. Woolsey is right on in pointing out the next steps, even if he may be wrong about the relative effectiveness of some of them. He writes:
We urgently need to reduce oil dependence in the short term. This means lowering demand and utilizing substitutes as cheaply and quickly as possible. Here are four strategies we can implement beginning today:
First, we should take advantage of electronic modifications that are being developed for internal combustion engines in existing vehicles. Innovations in computer chips and valves hold an early promise of substantial improvements in mileage by regulating combustion much better than current engines can.
Good point, as far as it goes. Continuing to innovate on Henry Ford’s platform is a good idea — but not a game-changer.
Second, we should pay attention to T. Boone Pickens’s recommendations to switch to natural gas for fleet vehicles such as buses, and for interstate trucking. Buses and trucks are easily modified to run on natural gas and would only require new pumps at a few central locations and interstate truck stops.
OK, but keep in mind that we are going to need natural gas for our electricity generation — the only sources of electricity currently being built in the marketplace are natural gas and wind. Many people are betting that unconventional shale gas is a good solution for a carbon-constrained electricity generating system, but keep in mind that extreme volatility (on the order of 400% price increases) has recently characterized the natural gas market. And it wasn’t very long ago that many were worried about augmenting a dependence on oil with a new dependence on liquified natural gas. Switching large segments of long-haul transportation to natural gas may look appealing in the near term but have serious consequences in the longer term. Is it a bet worth making? Reasonable people can differ on that one.
We should also require all new gasoline-using vehicles to be “flexible fuel, open standard.” What this means is that these vehicles would use a type of plastic in their fuel lines that tolerates nongasoline fuels such as ethanol and methanol. This is a cheap and simple change: Brazil accomplished it easily several years ago. Methanol made from natural gas can be produced for around $1.20 a gallon (of gasoline equivalent) today.
Flex fuel vehicles due make a lot of sense, but better to fuel them on algae-based biofuels (a fuel Woosley also endorses) than natural gas-based methanol, for the reasons discussed above. Nonetheless, there’s little reason to argue against FFVs — though here too, not a game-changer.
What could change the game and cleanly end our dependence? Saving the best for last, Woolsey endorses what is truly the right long-term solution: electrification.
All-electric vehicles now exist and their range will improve as battery technology does. Time-of-day pricing will encourage most people to charge their cars at night, when only a fraction of the electric grid is now utilized. And three major studies show that we do not need to build new power stations until well over half of cars on the road are plug-in hybrids or all-electric.
That’s right, moving from dependence on mostly imported molecules to reliance on energy-diverse and domestic electrons is clearly the right answer. A near-term portfolio makes sense, as do niche roles for natural gas and biofuels. But long-term, electrification is clearly the way to go. Let’s let Woolsey close with another shot at OPEC:
We can move quickly to strike a major blow at oil and OPEC’s dominance if we’ll adopt a portfolio approach and stop allowing the perfect to be the enemy of the good. We can get a long way using existing vehicles, existing technology and affordable natural gas. As other improvements become practical—like charging your electric car from solar panels on your roof—they can be adopted. In the meantime, we need Theodore Roosevelt’s attitude. He decided to improve competition by taking on Standard Oil’s cartel and breaking it into 30 parts.
President Obama, meet your cartel. It’s called OPEC.
Previous Post
February 6, 2012
January 29, 2012
January 26, 2012
