Last week, President Obama announced his “bold, new” goal to reduce America’s oil imports by one-third by 2025. While many critics have rightly objected that the administration offered no program of action to actually achieve that goal, there is a bigger problem. The goal itself is inadequate.
Obama wants to reduce oil imports by 33 percent in 14 years. But oil prices have risen by 44 percent in the past 14 fortnights, and 900 percent in the past twelve years. In 1999, Americans paid $90 billion for all their oil, less than 5 percent of what they paid in federal taxes. At current prices of $108 per barrel, Americans this year will pay over $800 billion for oil, an amount equal to 33 percent of all federal tax revenues, with two thirds of the take going to fill the coffers of foreign regimes. If current trends continue, there is every prospect that oil prices will more than triple by Obama’s 2025 target date, leaving us paying more for oil than we pay to the federal government.
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In other words, the Obama plan is a strategy whose stated goal entails the total defeat of the United States in the energy war.
The likely impact of the Obama administration’s surrender to continued petroleum extortion can be predicted by looking at the effects of the oil-price hikes we have suffered for the past four decades, including those in 1973, 1979, 1991, 2001, and 2008. Each oil-price rise has been followed by a sharp rise in American unemployment.
The distress to American workers caused by such events is manifest, but the economic damage goes far beyond the impact on the unemployed themselves. A sustained oil price of $100 per barrel will add $520 billion to the U.S. balance-of-trade deficit. Furthermore, there is a direct and well-established relationship between unemployment rates and rates of mortgage defaults. Thus the $130-per-barrel oil shock of 2008 didn’t just throw 5 million Americans out of work, it made many of them default on their home payments, and thus helped destroy the value of the mortgage-backed securities held by America’s banks. This, in turn, threatened a general collapse of the financial system, with a bailout bill for $800 billion sent to the taxpayers as a result. But that is not all. The destruction of spending power of the unemployed and the draining of funds from everyone else to meet the direct and indirect costs of high oil prices reduce consumer demand for products of every type, thereby wrecking retail sales and the industries that depend upon them. And as the economy goes down, so do federal tax revenues, thereby exploding the national deficit.
This wrecking operation on our economy is being perpetuated by the Organization of Petroleum Exporting Countries (OPEC), a cartel of tyrannies and kleptocracies largely hostile or indifferent to the prosperity of the industrialized West. This cartel, which controls 80 percent of the world’s commercially viable oil reserves, is currently limiting its production to 1973 levels — despite a doubling of the size of the world economy in the nearly four decades since. As a result, we and our allies are having our economies looted as oil prices go through the roof, with even worse consequences falling upon the world’s poorest. An oil impost that causes depression in the advanced world can cause starvation in the Third World.
Mr. Zubrin - I don't know why we have to tie ourselves in knots. We have plenty of oil around the coasts of the US and in Alaksa. If we would only drill we would free ourselves, at least for a while, of the tyranny of OPEC. But no, the environment is more important than the well-being of Americans, and so we don't drill. Push drilling, not methanol.
An interesting and possibly productive suggestion. I agree that the US needs to use less oil. Not sure about the scalability of methanol (ethanol has clearly had problems) but idea has merit. Can methanol be retrofitted?
US should also aggessively up fuel efficiency and look at alternatives to driving where possible (i.e. telecommuting, cycling, public transport, etc.) Electric cars may finally cross the technology feasibility.
To Jack in Silver Spring, please think more creatively than the "drill-baby-drill" rhetoric. That dog won't hunt. We don't need to destroy our environment to extract high cost oil for a few more profligate years.
Excellent article. Of course the environment needs to be considered. Our well-being is totally dependent on a world that we don't destroy so that we can buy useless material goods or drive giant cars, and then pretend that this makes us better people.
This is a good idea, because there is a boom underway in domestic natural gas production and prices have fallen. However, methanol is not always going to be $1.20 a gallon. Massive adoption of methanol as a motor fuel in the US would cause prices to rise, not fall. Also, if methanol began to displace gasoline the government would need to tax its use as a motor fuel to replace the gasoline tax revenues. Finally, you must remember that because methanol is less energy dense than gasoline, it is an effective reduction in range for gasoline powered vehicles. This is not necessarily an issue for commuters and short haul delivery, but it will impact market acceptance to some degree. Your larger point, which is that we should use the energy resources we have, is exactly on target.
I'm beginning to think that somebody at NR owns stock in one of the methanol companies.
This is the second article in two weeks in which they beg govt to add more regulations to favor a fuel that doesn't work in the first place.
If you want to free the US from OPEC, open up drilling and development here in the US.
While it is true that methanol can be made from coal, so can gasoline.
Why this fixation on a solution that doesn't work and is more expensive to boot?
Criticizing drilling on behalf of the environment misses the point. If we buy foreign oil, we are still destroying some environment somewhere, and likely more since we obsess over preserving the environment more than other countries tend to. Wouldn't it be a better, more responsible approach to drill here rather than there, to ensure minimum impact on the environment overall?
Methanol hasn't been discussed much, and if we can retrofit our present vehicles, it is more likely to gain acceptance. Most people do not want to buy a new car. Mass production of methanol might or might not make prices go down, but if it less energy dense and you get lower mpg, you would have to buy more of it. If it only goes half as far 9for example), then it becomes equivalent to $4.36 per gallon gas. A per-mile comparison using actual numbers would be useful.
If biomass can be used, does this mean it could be part of sewage treatment and garbage dump cleanup? Admittedly not all garbage is organic in nature, but that sounds like a genuine boon to civilization, if true.
@MarkW: "While it is true that methanol can be made from coal, so can gasoline. Why this fixation on a solution that doesn't work and is more expensive to boot?"
Zubrin is also an advocate of making gasoline from coal, but it's easier to make methanol. His attitude, if I read it correctly (and I've read a book by him on this subject) is to pursue all technically feasible alternatives to foreign oil: drilling here, methanol, etc., and let the market pick the victors.
Yes, requiring a small tweak on existing cars is a violation of free market principals, but in return, you get competition among fuel types.
If cars could already run on any flammable liquid, you wouldn't be in favor of government regulations that required them to run only on gasoline.
Speaking of dogs that don't hunt, neither is it necessary to "destroy our environment" to drill for oil here. Your rhetoric is no deeper than the "drill-baby-drill" you criticize. Please think more creatively in the future.
gpsjr - I am not oppoed to methanol, but I would not have the government push anything. I would rather have the government get out of the way and let the market determine the best product (or products) there might be to fuel transportation needs.
kaigun - Thank you for answering TheKris. Let me just add that I do not have much respect for environmentalists. They appear to think that grass and bugs are more important than people. They seemed to have traded in their Christianity or Judaism for the pagan worship of gaia to the detriment of humankind. Most of the drilling that needs to be done can be done in a safe and effective manner. Even the BP blow-out in the Gulf had only a minor impact on the environment. In Alaska, the oil companies are asking for a mere 1200 acres on which to drill. Alaska is a big place, and 1200 acres is a mere 2 square miles. I think they should be allowed to drill there if that could reduce our energy needs from the unstable places of the middle-east.
I agree that we should be drilling here for our own oil. However, I think that we should also be looking for ways to avoid burning that oil in our cars because there are so many other uses for it.
While a govt requirement that all engines be flex-fueled might be an idea to consider, it doesn't address what is probably the best alternative for a motor fuel that I can think of: compressed natural gas (CNG). As I understand it, we are something like the Saudi Arabia of natural gas. Natural gas burns cleaner than gasoline and is a very economical fuel. I have a few friends that drive CNG vehicles and they rave about how much they are saving on fuel costs. The only drawback they notice is the paltry number of CNG filling stations.
I guess the point is that we should be looking at a whole range of options for fueling our vehicles. Unfortunately, Obama and the leftists are exclusively fixated on stupid electric cars. Talk about at dog that won't hunt...
Mr Zubrin
It always makes me nervous when anybody lobbies the Feds for another mandate. I have great confidence in their ability to screw things up, even if the original idea is a good one.
Secondly, both you and Cliff May cite a $100 cost to tweak for flex-fuel. I presume that since you are so specific on this point, that there must exist at least a prototype for such a tweak. Does this have to be part of the original OEM package, or is an aftermarket retrofit possible? Where can we see this?
"At current prices of $108 per barrel, Americans this year will pay over $800 billion for oil, an amount equal to 33 percent of all federal tax revenues, with two thirds of the take going to fill the coffers of foreign regimes."
Some of those "foreign" regimes and their percentages:
Why not have Congress mandate that all power come from hydrogen then? You can electolisyze H from oil, natural gas, water, etc.? Methanol still produces CO2 when combusted, and, isn't that what we're supposed to fear the most?
Since there has never been a time in history that government mandates have solved an economic problem better than the free market would have, Zubrin's thesis is suspect from the get-go. Coercive cartels like OPEC only exist with governmental assistance. Unless we take global warming fantasies seriously - more seriously than we do our economic well-being - surely the better course is to junk all the rules and regulations that keep us from drilling and refining more oil.
The US DOE reports (for several years now) that if we open up the entire continental shelf to drilling, there would be no effect on prices or availability until at least 2030. If you factor in our growth in demand until then, the effect would be "negligible".
We hold less oil, and use more.
We can't win the long-term economic/energy problem by continuing to rely on oil.
Nor will conservation help. OPEC will drop prices to quash competition, then raise the prices again to suit themselves (they've done it before)
I also like to see government get out of the way, but there are times when it must serve its primary purpose of solving problems that effect the entire nation's safety, and which are too big for "bottom-up" solutions.
Jack in Silver Spring, you're WRONG. We have less than 3% of world oil reserves, less than 2% according to the CIA, -counting- Arctic and offshore. OPEC has more than 78%. OPEC can easily counter even all-out drilling on our part by a small reduction in their output to keep available supply the same and prices up.
