U.S. Energy Policy: Get More Oil from OPEC

Our current energy policy: ask the Saudis for more oil. Unfortunately, the Saudis have other customers (China) who are willing to pay whatever they want to charge.

Chris Nelder at Energy & Capital describes how we became dependent on OPEC Arab countries, with almost no alternatives.

How can the U.S. get out of this precarious predicament?

Link: Peak Oil Consequences of Bush’s Failed Energy Policies.

When George W. Bush was first running for president in 1999, and oil had risen to the shocking price of $30 a barrel, he chastised President Clinton for it, arguing that he "must jawbone OPEC members to lower prices."

As his campaign went on, the "jawbone" solution became a regular part of his stump speech. In June 2000, the New York Times reported:

"I would work with our friends in OPEC to convince them to open up the spigot, to increase the supply," Mr. Bush, the presumptive Republican candidate for president, told reporters here today. "Use the capital that my administration will earn, with the Kuwaitis or the Saudis, and convince them to open up the spigot."

His pitch was essentially unchanged in the spring of 2005, with oil now trading in the $50s: "I’ll be talking to our friends about making sure they understand that if they pinch the world economy too much, it’ll affect their ability to sell crude oil in the long run," Bush said.

To be fair, Bush has sent his energy secretary, Samuel Bodman, several times to try to talk OPEC into producing more oil, but he too has been frustrated. "I certainly have made my views known. Whether they respond or choose to respond is up to them and not up to me. I’m doing the best I can within the limited sets of options that we have," Bodman recently remarked.

Neither Bodman’s efforts nor Bush’s have produced results. Not only has Bush earned no capital with Kuwait or Saudi Arabia, he’s been earning their disdain.

Last Sunday, on his second jawboning trip to Saudi Arabia this year, the president had the temerity to lecture the Saudis over their morality, social policies, and energy policy. He warned that "the supply of oil is limited, and nations like mine are aggressively developing alternatives to oil."

"Over time," he cautioned, "as the world becomes less dependent on oil, nations in the Middle East will have to build more diverse and more dynamic economies."

The Saudi leadership was swift to respond, chastising those "who are questioning our oil practices and policies." They were also quick to point out that their decision to increase oil production by 300,000 barrels a day by June was not influenced by Bush’s trip. That decision was made a week prior, and was simply calculated to meet anticipated demand.

The markets weren’t impressed, and responded to his trip by sending oil a few dollars higher, to over $126 a barrel.

"Bush’s credibility is zero anyway," remarked Walid Khadduri, a Beirut-based consultant, on the trip. "I really don’t know anyone who follows what he says, especially after what has happened in Iraq and then his Knesset speech the other day," he said, referring to Bush’s apparent swipe at Barack Obama at a recent speech to the Israeli legislature, wherein he said that "some seem to believe we should negotiate with terrorists and radicals."

OPEC knows the score on oil as well as anyone. They are basically correct in asserting that the markets are well-supplied, and that global refining capacity for the ample supplies of heavy sour crude from sources such as Iran, Saudi Arabia and Venezuela is limited.

They also know that, as I have written about previously, the skyrocketing price of oil in recent times has as much to do with the sinking dollar as anything else. But the Bush administration has done nothing about that, so why should OPEC make extraordinary efforts to increase oil production? They would rather simply limit their exposure to the Fed’s failed fiscal policy by trading more oil in euros and other non-dollar denominations.

Finally, OPEC knows that peak oil has arrived, and its members are becoming more focused on stewarding their black gold riches for their own countries’ benefit than they are on trying to prop up the U.S. economy. "I think it’s a mistake to have your biggest customer’s economy to slow down," Bush whined, but OPEC is looking at their biggest customers going forward: not the U.S., where petroleum consumption is slowly declining, but the emerging economies of the world, where demand is red-hot.

But President Bush has continued to pretend that we can drill our way to oil freedom, if only those damn Democrats and environmentalists would get out of the way…even though he knows that’s not true.

Bush’s Energy Plans from the State of the Union Speech

Martin Eberhard, CEO of Tesla Motors, provides a summary of Bush’s energy initiatives from the State of the Union speech on January 23, 2007. Also included are some of his thoughts on the issues.

Link: Tesla Motors – the Tesla blog

  • The need for a stable supply of energy that is not dependent on foreign oil from hostile regimes or terrorists
  • The need to diversify America’s energy supply, mentioning (in order) clean coal, wind and solar power, and “clean safe nucular energy”
  • The need for research to develop batteries for plug-in and hybrid vehicles
  • The desire to invest in new methods for creating ethanol, specifically wood chips, grass, and agricultural waste
  • A commitment to reduce gasoline usage in the United States by 20 percent in the next 10 years, allowing us to reduce our imports from the Middle East by three quarters
  • More specifically, reforming the CAFE (Corporate Average Fuel Economy) rules for cars, and reducing gas consumption by 8.5 billion gallons by 2017
  • Stepping up domestic oil production
  • Doubling the strategic petroleum reserve

Obviously, I agree that we need to diversify our energy supply. One of the foremost principles that led me to found Tesla Motors was that (as General Motors Chief Executive Rick Wagoner noted in his opening remarks at the LA Auto Show), electric cars move our choice of energy source upstream from the vehicle, making them the ultimate multi-fuel vehicles: You can power them with clean (or dirty) coal; wind or solar power; clean, safe (or otherwise) nuclear energy; or even good ol’ oil.

The bit about research into batteries for plug-in or hybrid vehicles was quite interesting to me. On the one hand, I was blown away that he actually acknowledged the existence of plug-in vehicles – the EV is not as dead as Chris Paine suggested :) . On the other hand, this sounds a lot like a response to Rick Wagoner’s request for $500 million for battery research, especially when you remember his opening comments about more enterprise rather than more government.

We can bicker all day about whether Big Government can ever do anything efficiently, but the track record for Big American Auto’s battery progress through the U.S. Advanced Battery Consortium is abysmal. In all the years of its existence, this consortium has produced, well, nothing. No batteries for American electric cars. No batteries for American hybrids. No batteries that GM could put into its hyped-up Volt. Nothing at all to help the USA become a leader in battery technology. Zip. (oh, they did recently funnel $15 million into A123, so I expect the folks over there are big fans of this consortium.)

So as much as I would dearly love a similar research grant for Tesla Motors, I am not enthusiastic about government spending on battery research. Much better would be incentives that encourage consumers to buy an electric car. (Imagine if you got a $25,000 tax credit for buying an EV for your “business,” like you can for a Hummer!) This would drive the right behavior throughout the industry, and would spur development.

Moving on to ethanol. I was struck by the glaring absence of any mention of corn-based ethanol. Holy smokes! Did the good people over at Archer Daniels Midland forget to make their political contributions this year? Instead, the President focused on new feedstocks for ethanol, all of the Cellulosic variety. I am still pretty skeptical about this as a serious fuel source, but it seems a lot better than using food for fuel! (Note two recent news articles: on January 16 this year, the Wall Street Journal ran an article called “Ethanol Could Fuel Rise in Corn,” wherein they explicitly discussed the “food-versus-fuel” issue, and NPR ran a story on January 22 discussing the sudden 50 percent hike in the price of tortillas in Mexico, blamed at least in part on U.S. ethanol production from corn.)