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Symbolic release from reserve portends coming bad decisions about oil

The Obama administration announced last week its decision to release 30 million barrels from the strategic petroleum reserve. The reserve was established to cushion an emergency disruption of supply. Thirty million barrels of oil may sound like a lot, but it is the amount consumed in the United States every day and a half. It is a symbolic action, one that portends coming bad decisions about oil.

A bit of background and some numbers are in order.

The United States burns 25 percent of world oil consumption and has about 2 percent of global reserves. About two-thirds of oil in the United States is consumed by cars, pickups and SUVs. U.S. oil production peaked in 1970 simply because U.S. oil resources are being depleted. She now imports over 60 percent of her oil consumption, about 40 percent from OPEC countries, including Saudi Arabia and Iraq.

The trends are clear
The total production of conventional oil from non-OPEC countries peaked in 2005. Total global oil production from all countries is now peaking – the production rate will stagnate and then decrease. About two-thirds of remaining oil reserves is in the Middle East. The future brings unavoidable oil scarcity, higher prices and increasing dependence on oil from one of the most volatile regions of the world. There will be minor ups and downs, but the trends are clear. The basic situation has been understood for at least 20 years, some would say 40 years.

What has been the U.S. response?  First, continuation of massive subsidies to oil companies. Second, exceedingly lax auto efficiency standards; the U.S. vehicle fleet efficiency is about half that of the European Union, Japan and many other countries. Third, we are rapidly increasing imports of nonconventional oil from the Alberta tar sands. Tar-sands oil is the dirtiest of the fuels in use. Tar-sands oil production causes massive land use impacts, toxic chemicals pollution, and produces as least as much greenhouse gas pollution as coal. And, the third leg of our oil policy is waging war to facilitate access to Middle East oil – something which, of course, provides many jobs and military-related pork and distraction from the many domestic issues that should be high on our agenda.

The administration claims that its decision to tap emergency reserves is prompted by increasing domestic gasoline prices, now in the $4 per gallon range. White House press releases do not mention that the total price of oil, including subsidies and military costs, but not environmental and health costs, has been estimated to be between $11 and $14 per gallon; what we do not pay at the pump we pay in other ways.

Paying the price of pandering
So what is to be done? Every U.S. president since Dwight Eisenhower has declared the need to do something about oil. Entrenched oil, highway and automobile lobbies have successfully opposed meaningful changes in oil policy. This has been facilitated by a public that is simply addicted to cheap energy in the short run, and largely uninformed about the longer-term implications. The era of cheap gasoline is simply over; we are now beginning to pay the price of decades of pandering to special interests.

Some measures that would help include:

  • Straight talk from the president and other political leaders about the true costs of increasing oil scarcity.
  • Setting a realistic price for carbon pollution, best by a broad carbon tax but a cap-and-trade system would be better than nothing.
  • Aggressive auto, pickup and SUV efficiency standards, for example raising them to on the order of 60 miles per gallon as soon as possible.
  • Aggressively building a public-transportation infrastructure.
  • Shifting rapidly to noncarbon primary energy sources.

Tapping of our Strategic Petroleum Reserve opens the door to a host of other measures. Tapping the reserve is supposed to be done in cases of emergency. Hence, by implication we now have an emergency. This greases the skids for other emergency measures – for example, opening the Arctic National Wildlife Refuge (ANWR), more leases for dangerous oil drilling in deep water in the Gulf of Mexico, federal approvals for pipelines and other facilities for Alberta tar-sands oil and, probably, more military adventures in the Middle East.  Keep tuned, more news is on the way.

Dean E. Abrahamson is a professor emeritus in energy and environment policy at the University of Minnesota. 

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Comments (4)

  1. Submitted by Jeff Wilfahrt on 06/29/2011 - 05:35 am.

    Now this was written piece on the fundamental issue of petroleum and its role in the economy.

    … as an Iraq war protest sign stated, “Who put our oil under their sand?”

    Why do we tolerate SUVs? I mean really, as a starting point why aren’t they under vehicular CAFE standards? It has been twenty years of blind ignorance and there are still Hummers on the road.

    Jeff Wilfahrt, Rosemount, MN

  2. Submitted by rolf westgard on 06/29/2011 - 08:11 am.

    Thanks for this solid analysis of the of oil in our energy future. Don’t hold your breath waiting for our legislatures to get the message or approve unpopular carbon taxes. Cap and trade IMO would be a bureaucratic nightmare.
    Most people tend to equate OPEC with the Middle East. But OPEC includes countries like Venezuela and Ecuador as well big African producers like Angola and Libya. We do get 40% from OPEC, but only about 16% from Saudi Arabia and Iraq – 1.5 million b/d out of 9 million during first quarter 2011.

  3. Submitted by Richard Schulze on 06/29/2011 - 09:14 am.

    Obama approved the release of 30 million barrels, about 4 percent of the 727 million barrels stored in salt caverns along the Texas and Louisiana coasts. It’s true that the U.S. normally taps the reserve for more dire emergencies than exist today, and that exposes Obama to criticism that he acted for political gain. But the reserve has never been fuller; it held 707 million barrels when last tapped, after 2008 hurricanes.

    The branch of government that has the most control over the price of a barrel of oil is Congress. To a *very* small extent, increasing drilling by opening up protected federal territory for oil drilling could increase the supply. A carbon tax could very easily drive down demand for oil, much of which is imported.

    Price is a function of demand, not cost.
    Only by reducing demand will price fall.

  4. Submitted by myles spicer on 06/29/2011 - 10:21 am.

    Recently the History Channel did a show called:
    “The World in 2100”; and did it by decades going forward.

    Our current oil problems are trivial compared to what we could see by say 2050, when oil will be so scarce (and expensive) it could create an enormous dislocation for civilization as we now know it. In addition to the scarcity and cost of fossil fuels, there will be 9 Billion people on earth.

    The time for a course correction is not then…it is NOW; and unless we look into the future and plan for the oil capacity of 2050, we cold have unimaginable consequences. At 78 years old, my concerns about this are minimal — what are yours?

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