The Tipping Point for Oil

Doug Wilson
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Posted: Jun 02, 2008 5:37 PM
The Tipping Point for Oil

“We must strip oil of its strategic significance.” These words were spoken by Anne Korin, co-director of the Institute for the Analysis of Global Security (IAGS) in her presentation before the House Committee of Foreign Affairs on May 22nd.. If oil stays at or above $125 per gallon, we will export 500 billion of revenue in 2008 – equal to our national defense budget – to many nations that are not friendly to the U.S. Saudi oil reserves at $100 a barrel are worth 60 trillion… more than the market cap of all the world’s largest companies combined.

If I were the King of OPEC so to speak, I would immediately increase oil supply to the world. Why? Because OPEC has not increased oil supply for thirty years which has resulted in an out of whack supply/demand curve. The bad news for us – oil prices in the past few years have skyrocketed because of world wide growth and a falling dollar. The good news, OPEC is about to see how creative the U.S. will become in responding to a crisis. Yes – a crisis. The average American is now saying for the first time, they are sick and tired of paying for high fuel costs, especially when they know much of it is financing Islamic radicalism. Ten years ago, Osama Bin Laden said he wanted oil to reach 140 dollars a barrel. He knew this would stunt economic growth and supposedly help repay the Muslim world what he claims we “owe” them for past abuses. His wish is coming true.

If OPEC does not increase supply, which will not be easy because they now have their own limitations, the world will finally start to move away from oil as the sole source of transportation fuel. Hurray! It’s about time. We have needed a shock to wake us up and OPEC provided it. Now it is up to us as the American people to take the needle out of our arm and break the habit.

Korin says we must act quickly. She reminds us of the rule of 17. Seventeen million cars are sold every year in the U.S. and the average lifespan of every car is seventeen years. Ninety seven percent of U.S. transportation runs on oil. Only 3% of our electric power runs on oil. We consume one of every four gallons of oil in the world but have barely 3% of the world’s proven reserves. We are vulnerable to the need for oil and we cannot replace it just by drilling more on our own soil. We must develop alternatives and do so quickly. Oil’s strategic value derives from it’s virtual monopoly on transportation fuel. As Korin said, “This monopoly, which gives intolerable power to OPEC and the nations that dominate oil ownership and production, must be broken.”

How? She recommends two ways to fix the problem and believes it can be accomplished in two decades. First, make it mandatory that every new vehicle be equipped, for $100, with the ability to burn any combination of gasoline or alcohols made from a variety of feedstocks as well as waste and coal. Alcohol does not mean just ethanol and ethanol does not mean just corn. Biologists are getting into the energy game big time. We will be able to turn multiple sources of organically grown products into alcohol fuels. Korin’s point is that you have to create a platform for alternative fuels to compete by having vehicles equipped to burn them. The best alternatives will rise or fall through competition. We must challenge the current petro-industrial complex that does not want change. They like it just the way it is and don’t want to disrupt their cycle of profits. As long as oil is required in cars, the petro-industrial complex is happy. U.S. based oil companies lobby hard to avoid any change in our addiction to oil.

The second big step is to produce plug in hybrid electric vehicles which can reach oil economy levels of 100 miles per gallon without compromising size, safety, or power. If the vehicles were also equipped with the ability to run on alcohol based fuels when a liquid fuel was required, these vehicles could reach 500 miles per gallon. Since the vehicles could be recharged at night, the department of energy estimates that 70% of the U.S vehicle market could shift to plug-in hybrids without requiring additional electricity generation. This statistic is truly amazing. It varies, of course, by region, but overall, we have the tools in hand today to make the changes necessary.

In other words, to strip oil of it’s strategic significance, we don’t need a Manhattan Project to develop a whole new source of energy. We do need to remove the 54 cent a gallon ethanol tariff. This will allow the U.S. to develop partnerships with biomass producing countries in Africa and Asia and provide us with an alternative other than oil. Merrill Lynch estimated that if alcohol based fuels had not been developed in the world, the price of oil would be 15% higher. This translates into a savings of 80 billion dollars to the U.S. economy.

So, I’m a contrarian and rather than hope for a steep fall in oil prices, I hope OPEC remains greed stricken, gets tied up with internal politics, and misses their opportunity to stabilize world oil prices. More oil from OPEC on the market is not the long term answer to our problems. More determination by every U.S. citizen to finally break free from our slavery to oil is the answer. We can change the world. It’s time for all of us to say “Enough! I’m not going to take this anymore.”