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Monday, July 07, 2008

Drilling Into Energy Independence

Cross-posted from the Breakthrough Blog...

Another July 4th has come and gone, accompanied by the usual cries for a new "Declaration of Energy Independence." Continuing a longstanding tradition hearkening back to the 1970s -- the last time both energy prices and American concern with our energy future were as high as they are now -- the punditry and politicos again used Independence Day to declare that the time is now to secure our independence from foreign oil.

Unfortunately, while perennially popular, the tired political narrative of energy independence is stuck in the past, rooted three decades ago in the oil shocks of my parent's youth and resting on a fatally flawed diagnosis of our energy ailments. What we need isn't another call for independence from foreign oil. What we need is a new American energy agenda that secures our Energy Freedom -- one that recognizes that to become truly independent from foreign oil we must free ourselves from oil. Period.

Let's be clear: our growing reliance on imported oil is a problem. At $140 per barrel (today's trading price for crude), the nearly 12 and a half million barrels of oil we import each day to slake our oil thirst sucks over $635 billion out of our economy every year. The cost of oil imports are the largest contributor to our ballooning national trade deficit. It's clearly better for the US economy to spend more money here at home than on importing oil from Saudi Arabia or Venezuela.

So oil imports are a problem. But they are hardly the fundamental problem.

To drill deeper into the challenge of our oil addiction, we must first understand one key concept: oil is a globally-traded fungible commodity. Its price is set on global markets by the highest bidders. Replacing foreign oil with domestic oil will therefore do nothing to solve the most fundamental problems of our oil addiction.

Unless we can produce enough new oil to make a globally significant difference in the balance of supply and demand, the American economy will remain shackled by the dead-weight of soaring oil prices.

Consider the fact that until very recently, the United Kingdom was 100 percent energy independent, a net oil exporting nation, thanks to their abundant North Sea oil fields. That didn't shield the Brits from rising oil prices which spiked fast enough in 2000 to incite truckers to strike and blockade oil refineries in protest.

With oil prices set on a global market, the only way more drilling in domestic oil fields will affect the price we pay at the pump is if we produce globally significant quantities of oil.

For example, the Alaskan National Wildlife Refuge, perhaps our largest reserve of untapped domestic oil reserves, is the focal point for routine calls for increased domestic oil production couched in appeals to increase American energy independence and cut prices at the pump. However, opening ANWR to oil extraction would shave just 1-3.5 cents of the price of a gallon of oil once crude begins flowing a decade from now, according to the US Department of Energy's Energy Information Administration. If we go on the drilling binge the "Drill Here, Drill Now" campaign is calling for and tap perhaps five or six ANWRs worth of new domestic oil supplies, we'll be saving 5-20 cents a gallon at the pump.

A few nickles saved at the pump will hardly secure our economy's independence from the burdens of high oil prices. Gas prices are far past $4.00 per gallon nationally. And then there's that giant sucking sound that is the growing Chinese and Indian demand for oil that will all but ensure that prices rise much, much higher before the first drops of new oil begins to flow from American oilfields.

In short, unless we are willing to make our oil fields state-owned resources and set price controls on domestic oil prices - a very un-American thing to do! - the price we pay at the pump will not be significantly affected by how much oil we import or produce domestically. There may be other reasons we might want to expand domestic oil production, but let's be absolutely clear-eyed about this: we really cannot drill our way to energy independence.

Likewise, we cannot drill our way to lasting national security. We haven't imported a drop of oil from Iran in more than two decades. We import far more oil from our friendly neighbors, Canada and Mexico, than we do from Kuwait or Iraq. Yet that hasn't prevented Iran from playing the oil card every time the Ayatollah feels threatened or kept us out of repeated wars in the Middle East. Until we sever our dependence on oil entirely, mighty America will be at the whim of petty petro-dictators.

Clearly foreign versus domestic oil has little bearing on the environmental consequences of our oil addiction either, including global warming. A gallon of gas from Texas releases essentially the same amount of greenhouse gas emissions or harmful pollutants as a gallon of gas from light sweet Saudi crude. Domestic oil does nothing to help stabilize the climate or clean the air we breathe.

The fundamental problem of our oil addiction is not a lack of energy self-sufficiency, as the tired rhetoric of "Energy Independence" calls to mind. Rather, the core challenge we face today is a lack of choice -- and perhaps "Energy Freedom" is the appropriate term to invoke as we strive to rise to this challenge.

Mobility and transportation are essential to our modern, globalized, interconnected economy. And yet the transportation sector is almost entirely reliant on oil, which makes up more than 90% of the energy we use to get around.

Want to get to work, pick up the kids from school, or visit grandma's house? You have essentially no choice but to fill 'er up. Want to purchase the raw materials for your factory or farm or ship the finished goods to customers? You've got to use oil, whether you ship by train, plane or truck.

When it comes to oil, there simply are no substitutes, and therein lies the problem. Our economy, our security, our climate and our health will never be free from the costs of oil addiction until we provide true Energy Freedom: we need to provide drivers, for the first time since the dawn of the American car era, with true freedom of choice as to what fuel they use to drive their cars. And that will require us to sever our dependence on oil. Period.

This week, the Breakthrough Blog and WattHead will feature a number of posts - at least one a day - that explore ways in which we can sever the link between transportation and oil by electrifying transportation. By plugging America in to new, clean American energy sources we can re-charge our economy, secure our energy future and win our true Energy Freedom. Stay tuned...

[I would be remiss if I didn't offer a hearty hat tip to David Sandalow and his excellent and easy-to-read primer on America's oil addiction and the solutions that will secure our
Freedom From Oil. Sandalow's insights are central to this post and I highly recommend his book for those intruiged and interested in exploring this fundamental challenge to American prosperity.]

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