Can We Drill Our Way To Lower Gasoline Prices?

On Earth Day, surely it’s more than just about prices, right? But prices are what gets people’s attention, and rising prices have the potential to focus and enable energy infrastructure changes like nothing else. A study by Deloitte and Touche pegged $5/gallon as a consumer tipping point toward seriously considering electric automobiles. And we’re almost there now. Not a total solution to our transportation problem, but a start. In these videos I examine what has led the United States to our predicament of near-unbreakable petroleum addiction.

The Energy Philosopher Episode 3: Part 1, What’s going on with high gas prices? History of US oil production and imports, charts, graphs, clips from President Obama. CAFE standards vs. energy independence.

Please also watch Jon Stewart’s funny and classic video on eight president’s attempts at energy independence.

The Energy Philosopher Episode 3: Part 2, War for oil. Donald Trump “We should just take the oil.” Hubbert curve. Personal responsibility. Obama misinformation about oil production. Need to shift not just oil consumption, but everything about how we produce energy–how we inhabit our cities. Change is not optional.

Video Script below:

Hello friends, I’m Sean Prophet, the Energy Philosopher. Today, I’m going to tackle one of the toughest, most politically sensitive subjects in the whole basket of energy issues–gas prices.

I just paid $4.27 a gallon today for regular, which is the most I’ve ever paid in my life. It didn’t bother me too much, though, because even though my Prius was nearly empty, it only cost me just over thirty bucks to fill up. Now I’m sorry if I’m gloating just a little bit. I’ve been paying the price since 2005, when gas was still cheap, to be an early adopter of hybrid technology . All kinds of people said, “why wouldn’t you just buy a Corolla or Matrix, the Prius just isn’t worth the extra money.” Well, now it is–at four dollars a gallon, and I’ve got a feeling that in a few years we’ll look back on four-dollar-a-gallon gasoline as the “good old days.”

But there are plenty of people who didn’t invest in new technology in 2005, or for that matter even in 2008 the last time we saw four dollar gas. They just thought to themselves, “the price will eventually drop” and flashed their credit score to bag a new Escalade, or Armada, or Navigator . Now, some of these people, especially the ones who live close to the Mexican border, are so upset about today’s prices, they’re willing to cross the border to buy a tank of gas at the government subsidized price of two dollars and eighty cents a gallon. All I can say is it must be a pretty big tank to make it worth a border crossing. Even with a 30 gallon tank it would only save a person about 40 bucks on a hundred twenty dollar fillup. Yeah, a hundred twenty dollars to fill up your SUV. When you’re in that much pain at the pump Is it really worth waiting in line for hours at the border to save 40 bucks?? Maybe if you’re one of these guys…

{clip of hot-rod flame thrower}

But seriously, is it that important to the American way of life to deliberately and frivolously waste energy in this manner? Are we really so resistant to changing our values that we’d rather spend hours at a border crossing every time we need gas–instead of rethinking our relationship to energy?

Now, the vast majority of Americans don’t have that option. Luckily, our government doesn’t subsidize petroleum as much as Mexico does. Or we’d clearly waste even more energy than we do.

President Obama talked about gas prices in his energy town meeting at the Gamesa wind turbine factory a couple of weeks ago on April 6, 2011. As the President said, prices of four dollars a gallon get everyone to sit up and pay attention:

[Clip 1: Obama on rising gas prices. Shock vs. Trance when prices go down.]

The President is absolutely right about this. For too long, we’ve taken the easy road to placate the howls of indignation from drivers whenever world events or geology or speculation have caused us to feel some pain at the pump. In past years, we’ve been very lucky. New oil discoveries, times of fragile peace in the Middle East, or even a disastrous economic collapse such as we’ve just experienced have brought world oil prices down and bought us some time.

But we’re only in this position in the first place because we have refused to rethink what it means to be oil-dependent. We’ve refused to accept how this disease has made our economy vulnerable. And as with any addiction, there’s something we’re getting out of the deal. Cheap energy makes our life seem better, and the dangers of addiction have remained some kind of distant abstraction. We haven’t quite yet decided to kick. As the song ‘Jane Says,’ “we’re gonna kick tomorrow.” But for America, it seems, tomorrow is never today.

[Clip 2: Obama on cut oil imports by a third]

OK, this is a great call to action by the President. He wants us to get ? of the way to being clean in 10 years. But who knows what will actually happen? James Howard Kunstler thinks oil supply will drop by a third on its own because of supply problems. But what if it doesn’t? To get a sense of how pitiful our previous attempts to get clean have been, you need only to watch Jon Stewart’s classic sketch from The Daily Show of June 16, 2010, during the height of the BP oil spill:

Go ahead, go over to Comedy Central and watch it right now. I’ll be here when you get back.

It’s a great history lesson. Stewart’s point is that no less than eight US presidents have tried and failed to tackle this issue. They’ve made ‘energy independence’ a centerpiece of State of the Union addresses and other high-profile national speeches. Yet little has changed. All of these presidents weren’t equal with regard to oil, and they have not all been complete failures about energy policy, of course. The story is much more complicated.

As this graph of US oil production and imports shows:

The trouble began for the US just after 1970 when our domestic production peaked and began to decline. Imports immediately spiked from 1 million to about 3 ½ million barrels per day. The 1973 Arab oil embargo gave the US its first taste of an oil shortage, which included gas lines and dramatic price increases. I’m old enough to remember waiting in those lines. Instead of taking the lesson from that energy crisis, however, we did the exact opposite: Even with the new corporate average fuel-efficiency standards (CAFE standards) that Congress passed in 1975, The United States doubled oil imports to nearly 7 million barrels a day by 1979. Ironically most of that increase came from OPEC, the very same nations which had just embargoed us.

Then when Iran had its revolution in 1979, President Carter slapped a reverse embargo on its oil. And then in 1980 Iraq invaded Iran, cutting oil production even further. The US was on the brink of rationing, having already printed rationing coupons. That year, Jimmy Carter also articulated the “Carter Doctrine” in which the United States declared that its “vital interests” included a stable Middle East, and that it would intervene militarily if necessary to ensure the flow of oil. But at least for the time being, the combination of high gas prices and energy efficiency did the trick. Americans in the early ‘80s were in no mood to waste oil. We also drilled, baby, drilled, and increased production slightly. Then gas-sipping cars became strangely popular, and between 1980 and 1985, US oil imports dropped by half, falling back to the 1973 level of 3 ½ million barrels per day. We actually made some good, if temporary progress toward energy independence in the eighties!

This was the direct result of the CAFE standards, which required automakers to produce a fleet average of 27.5 miles per gallon by 1987. And despite their vigorous protestations that it was an impossible goal, the automakers accomplished it easily. US oil imports that year remained below 5 million barrels per day. OPEC had more oil than it could sell, and it no longer controlled world prices. The US was finally making progress toward “energy independence.”

But automakers saw the oil prices falling. Their strategy relied on short consumer memories which led to an unprecedented surge in the demand and manufacture of oversized trucks and SUVs which were highly profitable. And luxury cars were also effectively exempt from CAFE since it was much cheaper for luxury automakers to pay the fines than lose their brand equity as producers of powerful high-class automobiles. Their unspoken motto became: if you have to ask about gas mileage, you can’t afford the car.

So it was that the 1990s became the decade the gas guzzler once again took over American highways. And as would be expected, by 1995 US oil imports exceeded production for the first time in the history of the automobile. Coincidence?

Even though the US was importing a lot of oil in the 1990s it’s less than it would have been without CAFE. Rising production meant OPEC still had not regained its pricing power, and the price of oil fell to nearly historic lows by the end of the 1990s. This led to gasoline being sold for less than $1.00 a gallon in the US for the first time since 1979. In inflation-adjusted terms, gas prices were lower in 2000 than they’d been since 1973.

But the rock bottom prices didn’t last. Congress had made two critical errors with CAFE that led directly to our current $4.00/gallon prices: They exempted light trucks from the regulations. And they made the fines too cheap to affect gas-guzzling luxury cars. Luxury carmakers had to pay just $55 per car per mile-per-gallon. Even if a car got 20 miles per gallon less than the standard, that’s only about a thousand bucks on, say, a 75 thousand dollar car. It’s a pittance. Once again, the rich were able to buy their way out of efficiency regulations.

END OF PART 1

PART 2

And let’s talk about war. It’s the elephant in the room with regard to energy policy. It’s not a coincidence at all that the decade of the 2000s began with a mass-casualty attack on the United States, and ended with thousands of American troops conducting not one but two wars in the Middle East. And it’s not a coincidence that the 2010s have started off with our fighting yet another oil-based war in Libya. Will we ever learn?

Now there are certainly other reasons for these wars, like the rise of Al Qaeda sponsored terrorism and Shia-Sunni turmoil in the Middle East. But oil is also a prime factor behind the success of Al Qaeda. The calculus for the US entering these conflicts would be very different if we needed no oil. As Thomas Friedman described in his book Hot, Flat, and Crowded, high oil prices paid in American dollars keep dictators in power long after their regimes would have collapsed under the weight of their own incompetence.

I’ve often marvelled how many people don’t see, or maybe just don’t want to see the connection to their own behavior. Like for example, a person driving a large SUV with an anti-war sticker. Sorry, all you SUV lovers, but this is infuriating. If you drive an SUV, you just don’t get to display the peace sign with a clear conscience, OK? All of our oil consumption is enabled by the sacrifice of the blood of our troops. Of course, drivers of efficient cars contribute to the problem, too, but at much lower rates.
The more oil you use, the more you contribute to the cause for that blood sacrifice. It’s simple math.

I actually have more respect for people who are honest about the connection between war and oil, like Donald Trump who claims we have the right to just go over with the US army and take whatever oil we need.

[Trump oil clip]

It’s twisted, I agree. It’s a terrible idea. But at least Trump is not delusional on this one issue. He understands we’re in conflict with the rest of the world over a finite resource. And if you want it, you have to basically be a thug and go take it. He also hasn’t explained why we can’t just buy the oil on the open market like we’ve been doing. As an avowed capitalist, does he think we’re immune from the laws of supply and demand? Does he really think any oil company, American or not, would sell oil more cheaply to the US than other customers, even in conquered lands? Does he want the US to form a national oil company so that we can seize oilfields in the Middle East and reserve their output only for Americans? This is sheer insanity.

Alright, so if we don’t want to continue the Carter-Trump doctrine of being the world’s oil-stealing thugs, what do we do about this? Well, we wouldn’t need to start a budget-busting third war for oil if we just stopped using so damn much of the stuff. Sadly, this is where the discussion usually becomes heated.

No one, and I mean no one, wants to hear that we need to cut back. Saying so is setting yourself up to be attacked. So I expect to hear the full piss and vinegar that comes in response to any calls for Americans to bring down their energy consumption. Americans always shoot the messenger if that messenger tells them they have to conserve energy. Remember Dick Cheney, “The American way of life is non-negotiable.” Yeah, right. Until it is.

Not even our President is willing to fully confront the reality of reducing American demand. Instead he’s pandering to the right wing, not only with calls for increased production, but with inaccurate statements about how much oil we are now producing!

[Obama clip #3: We have the highest production in our history….]

Wait, did he just say that? I think he did. Let’s hear that again…

[Obama clip #3: We have the highest production in our history….]

I just can’t explain why he would have said that, since you can clearly see by this graph, published by America’s own Energy Information Administration, that we have never produced more oil than we did in 1970. Nor is it even geologically possible for us to return to that level of production. Not even remotely close. And President Obama knows this.

This is because of the Hubbert curve, which I’ll talk about in detail another time. But briefly, M. King Hubbert was a geologist who discovered the phenomenon of a “peak” of oil extraction in any territory, after which new discoveries fail to keep up with depletion of old fields. In 1956, based on his model, he correctly predicted the peak of US production at 1970. We are now 41 years past that point. The little bump of increased production in the early 1980s was Alaska, which is now also post-peak and in rapid decline. Even if all the environmentally sensitive areas in the US that we’re not now drilling like the Arctic National Wildlife Refuge, and offshore of the coast of California, were to be opened up tomorrow for production, we might get another little bump in production like Alaska in 5 years time. That’s how long it can take to bring oil projects to production. And there are no guarantees.

Many of the oil leases now held by US oil companies are not being produced. With near-record prices, there has to be a financial reason for this. We can therefore conclude with a high degree of confidence that producing oil from these leases has proven to be uneconomical at current market prices. Which is exactly what we would expect in a country far past its peak of oil production.

But people don’t want to hear this. They really want to believe that there’s some grand government or environmentalist conspiracy keeping us from sucking all the oil we want out of the ground. I’ve even had people drag out the old discredited “abiotic oil” theory, that the earth somehow magically regenerates oil over time, and therefore we have nothing to worry about. Little problem is, it’s just not true, and the production graphs prove it. Old oil fields just stop giving up any more oil after awhile. You can inject water, CO2, drilling mud, or magic fairy dust and still eventually the fields sputter and run dry. No spent oilfield in the world has ever returned to previous levels of production without enhanced recovery methods. And even with enhanced recovery methods, the amount of ultimately recoverable oil is still finite.

[Obama clip #4: US only has 2-3% of reserves and uses 25% of the world’s oil.]

Wow, he really stepped in that one, but who knew? Perhaps a guy with ten kids really does need a big SUV! But no one else does. I’m here to tell you if you’re not hauling equipment or 10 kids, you don’t need one! There’s just no polite way to say this. You might want one, you might enjoy having one, but if you buy one, and you fail to make the connection between your personal behavior and the global oil crisis, then you’re part of the problem. If you are a veteran of one of the oil wars, and you have sacrificed for your country, you may think you deserve to enjoy the spoils as Trump said. But it’s self-defeating, because this oil addiction is actually weakening the very country our troops are fighting for, draining us financially, killing our soldiers, and blocking much-needed energy innovation. And for what? A little legroom? So you can beat the next guy off the line at a red light? Really, is that worth destroying Americas position in the world?

[Obama clip #5: Last year we increased fuel efficiency standards for the first time in 30 years…]

I’m glad President Obama sees the connection to prices. I’m glad he tightened the fuel economy standards. But he could be doing so much more. Coming up in future episodes, I’m going to be talking about what really needs to happen to break our oil addiction. While it’s important to look at the automobile industry, it’s not nearly enough to think about building more efficient cars. We have to rethink our entire concept of transportation and our relationship to it. We have to rethink the very design of our cities and how we inhabit them, how we develop them, and how we change our incentives to reform business as usual in America. If this sounds like a monumental and expensive project–it is.

And doing it in an era of expensive energy and unprecedented deficits makes it even more difficult. Whatever your politics, whether you fight this change or embrace it, in the coming decades, we’re all about to discover that this transition is not optional. Fossil fuel scarcity will force choices we never believed we’d have to make. The good news is, the sooner we start making those tough choices, the easier our ultimate transition will be.

Thank you for watching, until next time.