Tags: oil | dependence

Time to Curb Oil Dependence

Wednesday, 07 Nov 2007 11:25 AM

By E. Ralph Hostetter

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For a number of years, America has slid farther down the slippery slope of dependence on foreign oil. In more than a few of those years, this column has carried story after story pointing out the dangers involved.

Year after year the percentage of imported oil kept rising until today, where it stands at 75 percent.

Worse yet, the price of crude touched $98-plus per barrel, a record high, on Wednesday, Nov. 7. The rise per barrel was attributed to storms in the North Sea, causing British Petroleum to abandon several drilling plantforms.

No longer a question of supply and demand, today the price of oil is controlled more by the vicissitudes of world political situations and severe weather conditions.

A movement of Turkish armed forces to the northern border of Iraq to quell attacks by Kurdish rebels, killing dozens of Turkish troops and civilians; threatened sanctions against Iran's announced nuclear developments; or an uprising in Nigeria are a few of the political flash-points in oil-producing areas that can spike oil prices by $10 per barrel. Even Hurricane Katrina caused a spike of that amount.

Last week, Nov. 1, a program, "ShockWave," was conducted to simulate a global oil supply crisis and explore economic and strategic options for limiting the damage that could be inflicted by a major interruption of the flow of oil.

At last it appeared as though someone really cared about the approaching catastrophe facing the U.S. economy if a solution is not found to reduce America's dependency on imported crude oil.

The ShockWave scenario was conducted by Securing America's Future Energy (SAFE), a private advocacy group out of Washington, D.C.

"In other words, we cannot afford to govern reactively . . . We hope that Oil ShockWave will help this critical policy issue to become a critical political priority," said Robbie Diamond, founder and president of SAFE.

The simulation was led by former U.S. Treasury Secretary Robert E. Rubin, who commented: "Oil ShockWave demonstrates the critical importance of preventive action in mitigating the risks of oil dependence. Once a major supply crisis occurs, the short-term options are extremely limited.

"The profound nature of the risks to our economy and security argue for concerted action to enact a national energy policy designed to reduce oil dependence."

In the simulation, unrest in Azerbaijan and Nigeria and souring relations with Iran were cited, eliminating . . . 1 percent of world oil production . . . causing prices to top $160 per barrel."

Designed by finance, energy and national security experts, the scenario illuminated the fragility of the global oil market. The simulation included references to gas prices in excess of $5 per gallon, two quarters of negative economic growth, double digit inflation and dramatically lower job growth. These economic outcomes would severely constrain U.S. foreign policy options.

The question of whether or not the United States could wage war would come into play.

Frederick W. Smith, co-chair of SAFE and Federal Express Corp. president, chairman and CEO, added: "America's dependence on oil makes vulnerable the country's economic and military security, and our nation must finally address this fundamental risk."

In the present search for energy independence, no one seems to understand that drilling oil wells, particularly in known areas with large reserves such as ANWR in Alaska and in offshore areas along the Atlantic and Gulf coasts, would provide additional millions of barrels of oil per day to offset the dangerous dependence on imported oil. This would seem to be the obvious solution.

Instead the United States backflips to avoid any activity in that direction.

Frederick W. Smith of FedEx, in earlier testimony before the U.S. Senate on behalf of the Energy Security Leadership Council, said: "Much of America's untapped resources are legally off limits to production. These production 'moratoria' are often justified on environmental grounds, even though the oil production industry has amassed an excellent environmental record.

"From 1985 to 2001, U.S. offshore operators produced 7 billion barrels of oil with a spill rate of only 0.001 percent. The Council believes it is sensible to increase access to exploration and production on the Outer Continental Shelf as long as government and the oil and gas industry are willing to reasonably strengthen the legal and financial penalties that can be imposed in the event of any damage to the environment.

"By boosting production domestically, the U.S. can improve the flexibility and resiliency of the global oil market, especially in an increasingly tight market where spare production capacity is concentrated in a handful of countries."

Ninety-seven percent of all transport in the United States is provided by a petroleum product, either gasoline or diesel. That cannot and will not change in the foreseeable future. Biofuels and hybrids are not in a position to take over.

The rhetoric of sidewalk pundits who talk in "palettes of options to replace petroleum” all of which work ”is nothing more than hype."

The day I can drive up to a windmill and fill my tank, I'll become a believer.

The rest of the world seems to have accepted the reality that oil comes from holes drilled in the ground.

America had followed this course ever since the world's first commercial oil well was drilled in Titusville, Pa., in 1859 by Edwin Drake.

It seems the United States has forgotten.

E. Ralph Hostetter, a prominent businessman and agricultural publisher, also is a national and local award-winning columnist. He welcomes comments by email sent to eralphhostetter@yahoo.com.

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