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The price of oil is near $120 per barrel on the world market. We are all feeling its impact in the price of gasoline and heating oil, plus the cost of goods delivered by truck is increasing. Therefore, inflationary pressures will grow. What to do?
Few Americas realize that the US is the third largest oil producer in the world, after Saudi Arabia and Russia. We could easily increase oil production, but Congress has placed large areas of potential oil supply off limits. Economist Robert Samuelson argues that “These include the Atlantic and Pacific coasts and parts of Alaska and the Gulf of Mexico. By government estimates, these areas contain 25 to 30 billion barrels of oil (against about 30 billion barrels of proven US reserves today) and 80 trillion cubic feet or more of natural gas (compared with about 200 tcf feet of proven reserves). What keep these areas closed are exaggerated environmental fears, strong prejudice against oil companies and sheer stupidity.”
The US imports about 60% of its oil needs, up from 42% in 1990. The world uses 86 million barrels per day, up from 67 mbd in 1990. Obviously, that figure will increase. The fundamental cause of increased prices for oil is increased demand, so that the world’s surplus production capacity is virtually exhausted. What is the solution? In one sense it is profoundly simple! Increase supply and reduce demand. As I mentioned on last week’s Issues, we must seek alternative energy sources—solar and wind come to mind. More fuel efficient vehicles are also sensible, but to stretch out the energy renewal plan to 2020 as Congress just did is too generous. But it is also obvious that the US simply must increase its oil production. As Samuelson reports, “Estimates indicate that production from the Arctic National Wildlife Refuge might equal almost 5% of present US oil use.” The US is hypocritical when it complains that other countries limit access to their oil reserves when we are doing just that! Listen to Samuelson again: “On environmental grounds, the alternatives to more drilling are usually worse. Subsidies for ethanol made from corn have increased food prices and used scarce water, with few benefits. If oil is imported, it’s vulnerable to tanker spills. By contrast, local production is probably safer. There were 4,000 platforms operating in The Gulf of Mexico when hurricanes Katrina and Rita hit. Despite extensive damage, there were no major oil spills. . .” To change the laws and begin production in the areas of US reserves is a decades-long project. If the US Congress is serious about dependence on foreign oil and if the current candidates for president are serious about dependence on foreign oil, oil drilling in the remarkable reserves within our own boundaries must be part of the solution. If we ignore this part of the solution, dependence on the nations who are actually our enemies will grow. And with that will go increased dangers that accompany this dependence. Our politicians and governmental leaders lack the vision and the temerity to do what needs to be done. As with many things, we are facing a disaster, much of which is of our own making.
See Robert Samuelson in the Washington Post (30 April 2008). |
