11-10-2001
ENERGY: Still Hooked on Oil
America has a short memory when it comes to oil and the dangers of its
addiction to oil's most alluring product, gasoline.
Only three decades ago, an Arab oil embargo triggered severe gasoline
shortages across the United States and forced car owners to wait in long
lines at gas pumps. Many Americans, seeking to lessen the impact of
skyrocketing gasoline prices on their wallets, traded in gas-guzzling
Thunderbirds and Cadillacs for smaller, more-fuel-efficient cars.
Then, in 1991, President George H.W. Bush fought the Persian Gulf War to
drive Iraq's Saddam Hussein out of oil-rich Kuwait and to keep him well
away from the oil fields of Saudi Arabia.
But over the past decade, Americans have largely forgotten that history.
Lulled by relatively low gasoline prices, drivers have flocked to buy the
newest generation of muscle car: the sport-utility vehicle. Twenty percent
of the passenger vehicles sold in the United States last year were SUVs,
which burn a gallon of gasoline every 17 miles. The nation uses more oil
today than ever before: 19 million barrels a day, 60 percent of it
imported. Just 36 percent of U.S. oil was imported when the first oil
crisis hit in 1973.
Now America's craving for oil is coming back to haunt the country once
again. The new U.S. war on terrorism threatens to further destabilize the
Middle East, the prime source of America's oil imports. Political analysts
warn that Saudi Arabia, which is the United States' second-largest
supplier of foreign oil, is ripe to be overthrown by anti-American Islamic
militants. If a radical new regime halted Saudi oil exports, the world
would face a serious oil shortage that would undoubtedly send crippling
spasms through the already troubled U.S. economy.
Senate Minority Leader Trent Lott, R-Miss., puts the problem this way:
"Particularly at this time, when we're calling on the world to join
us in fighting terrorism, you have to weigh what would happen if the OPEC
[Organization of the Petroleum Exporting Countries] oil was shut off-or if
a quarter of the world's oil supply, which comes from Saudi Arabia, would
not be available. We would be in serious trouble."
The potential of a perilous oil emergency comes as the White House and
Congress have been trying to develop an energy package that some say would
ease the nation's dependence on foreign oil. A House bill, passed in
August, includes much of President George W. Bush's national energy
strategy and is vigorously supported by domestic oil companies. Senate
Democrats are crafting their own bill, which will likely focus more on
conservation and on encouraging alternatives to oil.
Republicans say the House bill's supply-side proposals would dramatically
increase U.S. oil production by, for example, allowing drilling in
Alaska's Arctic National Wildlife Refuge. However, ANWR oil wouldn't be
available for at least five years-far too late to reduce the impact of an
oil crisis in the immediate future, according to John Lichtblau, chairman
of the PIRA Energy Group. "When you talk about ANWR, that's five to
seven years off, so that would be meaningless" in the search for
short-term solutions to an oil crisis, he said.
Even if the federal government lifted all environmental restrictions on
drilling in the United States, domestic oil supplies would be insufficient
to satisfy America's voracious appetite for oil. This country contains
only 3 percent of the world's oil reserves and produces only 12 percent of
the world's daily supplies. But Americans consume 25 percent of the oil
produced worldwide. Almost two-thirds of that oil goes to fuel the
nation's cars, trucks, and airplanes.
Some Democrats and environmentalists argue that rather than hogging an
increasing amount of the world's oil, the United States should concentrate
on controlling and eventually kicking its oil habit. They advocate
requiring automakers to produce vehicles that get dramatically better gas
mileage. Some conservationists assert that the government ought to fund a
Manhattan Project-style research program aimed at freeing the nation from
the grip of foreign oil producers by quickly developing a cheap
gasoline-free car.
But efforts to produce alternative-energy cars have been plagued by
serious problems, not the least of which is the expense of trying to make
new fuels as widely available to consumers as gasoline is today.
Meanwhile, the White House opposes placing new mandates on the auto
industry. It's far less supportive of the production of more-efficient
cars than it is of the powerful oil industry.
The stalemate between supply-side Republicans and demand-oriented
Democrats has not changed in response to the terrorist attacks on New York
City and Washington. "What we have not seen since September 11 is any
conservationist in Congress saying that it's time to drill in ANWR,"
noted David M. Nemtzow, the president of Alliance to Save Energy, which
represents companies making energy-efficient products. "And you
haven't seen the most prominent player-the President-dealing more
seriously with improving gas mileage in cars."
The United States remains unprepared for an oil crisis lasting more than a
few months. As a result, any move by Islamic militants to severely
restrict or stop Saudi oil exports could have significant geopolitical
consequences, Lichtblau warns. "You would probably find that the
consuming countries would take action, possibly to include military
action," he said.
Ready Reserves
While political analysts fret that the U.S.-Afghanistan conflict could
expand to the Middle East, oil industry experts are trying to calm
Americans' fears that Saudi Arabia or another major oil-producing country
in the region will fall into the hands of anti-American extremists.
"I'm not being paid by the Saudis. But, as a matter of fact, Saudi
Arabia is more stable now than it's been in a long time," said J.
Robinson West, the chairman of the Petroleum Finance Co., a
Washington-based oil consulting firm.
Even if Islamic militants took over Saudi Arabia, they would probably want
to keep the oil flowing, because oil exports are the nation's prime source
of income. "What would Saudi Arabia do if they didn't export oil?
They'd literally starve after a few months," Lichtblau said. The
militants would also want the oil revenues to fund their war against the
United States, or so this argument goes.
West acknowledged that a new, militant government might "try to use
the oil weapon to ramp up oil prices." But today's international glut
of oil would undercut that tactic. With the industrialized nations falling
into a recession, energy demand has decreased. That's why world oil prices
recently dipped below $20 a barrel for the first time since July 1999.
That's also why gasoline prices at the pump have plummeted in the United
States after reaching nearly $2 a gallon last summer.
To prop up oil prices, OPEC is expected to cut 2002 production quotas at
its November 14 meeting. But some oil experts say that OPEC is losing
control of the world oil market, noting that many member countries
regularly sell more oil than their quotas allow. In addition, as new oil
fields open in Russia, in the Caspian Sea, and in western Africa, more
non-OPEC oil is expected to be available within the next decade. (See this
issue, p. 3502.)
If a supply crisis does occur soon, the good news is that the United
States and several other industrialized nations have immediate, short-term
solutions: oil reserves. After the oil shocks of the 1970s, the U.S.
government created an emergency store of petroleum, which is kept in salt
caverns along the Gulf Coast of Louisiana. The Strategic Petroleum Reserve
now holds 543 million barrels of oil, which could be withdrawn at a rate
of 4 million barrels a day for four and a half months. (The United States
imports 1.3 millions barrels a day from Saudi Arabia and another 700,000
from Iraq.) The reserve can hold up to 700 million barrels of oil. The
Energy Department is urging the White House to take advantage of today's
cheap oil prices to fill the reserve. So far, however, the President has
not acted.
Even with a 543 million-barrel cushion in place, a significant reduction
in Middle East exports would cause oil prices to jump worldwide.
"Instantly, what would happen would be a sharp increase in prices, so
that everybody would have an incentive to increase production,"
Lichtblau said. Yet most countries' capacity to boost oil production is
limited.
Faced with higher oil prices, some U.S. companies that now use oil to
generate electricity or use oil as a raw material for making other
products would likely switch to alternative resources. And faced with
higher gasoline prices, some U.S. drivers would limit their travel,
carpool, or switch to other modes of transportation. But the fuel price
hikes that hit the nation in early 2001 did little to discourage driving.
"Gasoline is not a very elastic product," Lichtblau said.
"If you have spent $15,000 for a car, you're not going to keep it
idle because the price of gasoline is now $1.80."
The Supply Side
In the weeks since September 11, Bush Administration officials and
conservative Republicans have wrapped the House energy bill in the flag,
arguing that the legislation would bolster national security by increasing
domestic oil production. That measure includes many of Bush's oil drilling
proposals, as well as enormous tax breaks for the energy industry. Of the
measure's $34 billion in tax benefits, $27 billion would go to the coal,
oil, natural gas, and nuclear power industries. Just $7 billion is
earmarked for energy-efficiency and conservation programs.
The House Republicans' economic stimulus package would provide even more
aid to the oil and auto industries.
To sell the Administration's energy plan, Interior Secretary Gale A.
Norton has hit the road. Her standard stump speech argues that the United
States should open the Arctic National Wildlife Refuge to oil exploration
to replace what is now imported from Iraq. "It's time to start
producing that energy from the United States of America," she told
the Independent Petroleum Association of America. "It's time to start
investing that money in our own backyard and not in the back pocket of
Saddam Hussein."
Environmentalists counter that far less oil is available in ANWR than the
Administration claims and that oil development there would do irreparable
environmental damage. Green activists have also begun arguing that
drilling in the refuge would violate a polar bear protection treaty. The
Administration disagrees.
Senate Energy and Natural Resources Committee Chairman Jeff Bingaman,
D-N.M., says that the ANWR battle has distracted Congress from proposals
that might provide more-immediate energy solutions. ANWR "is not the
best place to get production," he recently told reporters. Drilling
in ANWR is fiercely opposed by the environmental community's Senate
champions, including John F. Kerry, D-Mass., and Joe Lieberman, D-Conn.,
who vow to filibuster if any ANWR drilling proposal reaches the Senate
floor.
ANWR isn't the only place the Bush Administration wants to increase
domestic oil exploration. In late October, Norton announced plans to sell
oil-drilling leases in an area of the Gulf of Mexico known as Sale 181,
which is south of Alabama and 100 miles from Florida. When first proposed
in April, the plan drew sharp criticism from Florida officials-including
the President's brother, Republican Gov. Jeb Bush-who charged that
drilling would harm marine life and tourism. As a result, the original 5.9
million-acre proposal was pared down to 1.5 million acres.
Environmental concerns are also stymieing Bush Administration efforts to
allow new oil exploration elsewhere. The nation's East Coast and West
Coast and the eastern shore of Florida are off-limits until 2012, thanks
to a drilling moratorium extended in 1998 by President Clinton. And
Congress blocked Bush's attempt to let regulators allow new oil, gas, and
coal development in the national monuments. The ban expires next
October.
The energy industry and conservative Republicans, meanwhile, are
pressuring the federal government to allow additional domestic oil
production. "What we need to do is maximize our domestic effort and
thus minimize our exposure to foreign imports," said Deimer True, an
independent oil company owner from Casper, Wyo. The industry, he said,
needs federal help in getting "access to the resources, access to
capital."
Conservative Republicans and oil industry executives are trying to lift
restrictions on drillers' access to federal lands. They support a
provision in the House energy package that would allow the Agriculture
Department's political appointees to overrule oil drilling restrictions
imposed on the national forests by local forest supervisors. And they're
pushing the Bush Administration to ease drilling restrictions on Bureau of
Land Management property in the Rocky Mountains.
"There are things that we can do to increase domestic production, and
there are great opportunities in the Rockies," True said. "We
have to stop land-use restrictions that virtually lock up some of these
federal lands."
True criticized some BLM land managers, who, he said, have imposed onerous
restrictions on oil drilling during times when, for example, sensitive
wildlife species are mating or are raising their young. True said that
some federal regulators "have erred on the side of favoring
recreation and conservation over the need to develop the resources. We
can't mobilize an industry for the 90 days or 120 days [when the
restrictions are not in effect] and have it lay dormant for the rest of
the year."
But David Alberswerth, director of the Wilderness Society's Bureau of Land
Management program, defends the limits now in place. "These land-use
stipulations are an attempt by federal regulators to balance oil drilling
with other values that they're supposed to protect, such as
wildlife," he said. "What the industry calls `impediments' are
really safeguards."
True said he understands the environmental community's arguments that the
federal government should provide more support for developing alternative
sources of energy and for energy conservation. But he said that the oil
industry's opponents are shortsighted when they fight new oil drilling on
federal lands. "I think those arguments lose sight of the fact that
today, and probably in the next decade, there is nothing on the horizon
that can replace crude oil quickly," he said.
The Demand Side
On October 25, Energy Secretary Spencer Abraham gave a rousing speech,
predicting the end of the "carbon-based economy." Speaking at an
Alliance to Save Energy conference, he said: "Energy sources like
coal and oil once overcame an economy based on horsepower. So, I suspect,
our carbon-based economy may itself pass from the scene to be replaced,
perhaps, by hydrogen."
Abraham described energy efficiency and conservation as the
"linchpins in our plan for long-term energy security." But
unlike environmental activists who are urging the federal government to
hasten that day along, Abraham said that the Bush Administration is
placing its faith in the free market. "We believe that a large part
of the solution to our challenges will be found not just in government
councils, but in the efforts of the private sector, where innovation
flourishes and risk takers push the envelope," he said.
Abraham's speech was a dramatic change from the address last spring in
which Vice President Dick Cheney argued, "Conservation may be a sign
of personal virtue, but it is not a sufficient basis for a sound,
comprehensive energy policy."
The Administration maintains its blanket support for a free-market
approach to improving energy efficiency, even though U.S. auto
manufacturers have been slow to adopt the most-advanced technologies
already on the road. Japanese-owned automakers Honda and Toyota, by
contrast, have been enjoying brisk U.S. sales of their new high-tech,
hybrid cars that get up to 68 miles per gallon. U.S. automakers are not
expected to unveil their own hybrids until at least 2003. Car companies on
both sides of the Pacific are also researching other fuel technologies,
including clean-burning diesel vehicles, fuel-cell cars, and
hydrogen-powered cars.
U.S. automakers maintain that they're just giving the American public what
it wants: SUVs. But Dan Becker, energy director of the Sierra Club, says
that Detroit spends millions of dollars a year promoting those
gas-guzzlers. "They're out there hustling demand for SUVs, because
they make more money on each SUV than they do on a car," he said.
"The American auto companies have the technologies they need. They
have the engines, transmissions, and aerodynamics. And they're building
more-efficient cars in other countries because they have to. But they
don't want to be told what to do in the United States."
Under laws adopted after the 1970s oil crunches, each car manufacturer is
required to meet a corporate average fuel economy (CAFE) standard of 27.5
mpg for its entire fleet of cars. This year, however, the American fleet
of passenger vehicles (cars plus light trucks) averages just 24 mpg-the
lowest rating since 1980. SUVs, which are classified as light trucks under
federal guidelines, are required to get only 20.7 mpg.
Environmentalists have long advocated that U.S. automakers be required to
make their vehicles far more efficient. This year, during consideration of
its omnibus energy package, the House rejected proposals to significantly
increase the CAFE standards. Senate Democrats are almost certain to seek
stricter CAFE standards in their version of the legislation. Chairman
Bingaman wants far tougher efficiency requirements for both SUVs and
cars.
The Senate energy bill is now in the hands of Senate Majority Leader
Thomas A. Daschle, D-S.D., who took charge of the measure after the
September 11 terrorist attacks because of Administration demands for quick
action. Daschle asked Bingaman to assemble energy proposals from
committees with jurisdiction over CAFE standards, air pollution, and
energy taxes.
Daschle is under pressure from Senate Republicans to introduce his bill
soon. However, debate on the most controversial parts of that
legislation-ANWR drilling and CAFE standards-is expected to slow the
measure's progress. And differences between the Senate and House versions
will have to be worked out in a House-Senate conference committee. These
hurdles are almost certain to delay completion of an energy package until
next year.
Nemtzow of the Alliance to Save Energy said that although the Bush
Administration publicly supports energy-efficient products, the White
House isn't putting its money where its mouth is. The Energy Department
budget, he pointed out, still leans heavily toward fossil fuels and
nuclear power. "The irony is, the White House could get more support
for drilling if they took a balanced approach-if, say, they'd give on
fuel-efficiency standards," he said.
Nemtzow argued that much of U.S. foreign policy is "being driven by
oil." Although the Bush Administration is taking a hands-off approach
to the U.S. auto industry, "America's unbridled thirst for oil
profoundly guides our national security and foreign-policy agenda,"
Nemtzow said. "It costs us billions of dollars annually in the
defense budget and costs much more regarding our role in the world."
He said that the current instability in the Middle East makes America more
vulnerable than ever to oil disruptions: "If the Saudi royal family
ever fell, [the U.S. impact] would make the oil crises of 1973 and 1979
seem like speed bumps."
Margaret Kriz
National Journal
