For the past 40 years, presidential state-of-the-union addresses have called on the U.S. to become energy independent. Legislators typically rewarded such patriotic calls with standing ovations, and then did absolutely nothing about it. That must stop. The citizens and businesses of the U.S. need affordable energy – lots of it — to function, and more of it must come from domestic production.
A History of Oil Crises
The 1967 Oil Embargo
The 1967 oil embargo began one day after the start of the Six Day War between Israel and Egypt, Iraq, Jordan and Syria. Several Arab nations jointly limited or stopped oil shipments to countries supporting Israel. Lack of solidarity within the coalition rendered the embargo ineffective, and it ended after less than three months, having had virtually no impact on energy prices.
The 1973-1974 Oil Crisis
This crisis began during the Yom Kippur War between Israel and several Arab nations. The Organization of Arab Petroleum Exporting Countries (the eight Arab members of OPEC plus Egypt and Syria) stopped oil exports to nations supporting Israel. All members except Libya ended the embargo against the U.S. in March 1974. During and after the embargo, however, OPEC used its position to dramatically increase world oil prices. Between October 1973 and June 1974, U.S. retail gasoline prices climbed from 40 to more than 55 cents per gallon.
Many no doubt remember U.S. reactions to this crisis. Price controls on already discovered oil — intended to stimulate new exploration — led to artificial gas shortages and the odd-even system of gas rationing. Congress enacted a 55 mph speed limit. The Strategic Petroleum Reserve was created to respond to interruptions in oil supply. Daylight savings time became a year-round mandate. Congress passed the first corporate average fuel economy (CAFE) standards, which forced automakers to downsize cars.
The 1979-1981 Oil Crisis
The Iranian revolution of 1979 disrupted Iran’s oil production and caused a panic that drove world oil prices sharply higher. U.S. retail gasoline prices increased about 50% in 1979 and exceeded $1 per gallon for the first time. Prices peaked around $1.40 per gallon in March 1981.
Reduced demand, increased production, and OPEC infighting caused the crisis to recede by mid-1981, but not before it helped push the U.S. into recession. A six-year decline in oil and gasoline prices followed, stimulated by increases in U.S. oil production and oil imports from non-OPEC nations.
The 1990 Oil Crisis
As defeated Iraqi forces retreated during the first Gulf war, they set Kuwait’s oil fields on fire, crippling its oil output. Crude oil prices surged to a record $50.50 per barrel. The crisis was milder and shorter than the previous two as increased production by other OPEC members quickly stabilized prices.
The 2007-2008 Oil Crisis
Crude oil prices climbed from approximately $50 per barrel in January 2007 to a peak of around $140 per barrel in mid-July 2008. Skyrocketing energy consumption in China, India and other developing countries has been the primary driver of this crisis, with the weak U.S. dollar and growing speculation in commodity markets also contributing.
40 Years of Rhetoric
As noted earlier, every U.S. president since the first major oil crisis has made energy independence an imperative — or, at least made it an imperative to talk about it. Unfortunately, the political establishment and the public have lacked the will to turn rhetoric into reality. Instead, congressional and presidential actions have only made us more dependent on foreign energy (Table 1).
Perhaps the clearest presidential energy proposal of the last 40 years was put forth by Jimmy Carter during his July 15, 1979 “Crisis of Confidence” speech. While the former president’s energy policy certainly had its flaws, he did propose several key initiatives and legislative strategies which, had they been heeded, may have altered our situation today:
1) An immediate cap on oil imports at current (1977) levels and ongoing cuts to further reduce dependence on foreign oil.
2) A massive commitment to increase domestic energy production from coal, oil shale, plant products, gas and the sun.
3) Legislation requiring utility companies to move at least 50% of their consumption from oil to other fuels.
4) An “energy mobilization board,” modeled after the World War II-era War Production Board, with the authority to cut through bureaucratic red tape and legal road blocks to expedite energy projects.
Instead, absent any real progress towards energy independence, Carter’s calls to action are just as relevant today as they were almost 30 years ago:
• “The people are looking for honest answers, not easy answers; clear leadership, not false claims and evasiveness and politics as usual.”
• “Energy will be the immediate test of our ability to unite this nation…On the battlefield of energy we can win for our nation a new confidence, and we can seize control again of our common destiny.”
• “The energy crisis is real. It is worldwide. It is a clear and present danger to our nation. These are facts and we simply must face them.”
Foreign Suppliers
Over-reliance on foreign oil is dangerous in terms of security and economics, yet most of the oil we use is imported and at a current cost of more than half a trillion dollars annually. Much of this wealth is going either to countries whose governments have adversarial relationships with our own or to countries where political instability makes future supplies tenuous.
Saudi Arabia, for example, the second largest U.S. supplier (Figure 1), is under constant pressure from other Arab nations to distance itself from the U.S., and history has shown other Middle Eastern supplies to be undependable. Some estimates put oil reserves in Mexico, our third largest supplier, at just 10 years. About 9% of our oil comes from Venezuela, whose current regime is openly hostile to the U.S. Finally, 20% of U.S. oil imports are from Africa, where political turmoil is almost constant.
All told, more than half of U.S. oil imports are from sources that could be described as tenuous or short-term. That, along with crippling energy prices, should be motive enough for the U.S. to seriously pursue energy independence.
Misguided Government
Unless you count mandates and subsidies for ethanol use, the federal government has done little to foster energy independence and much to stymie it.
Taxing businesses’ so-called windfall profits to subsidize development of alternative energy sources, for example, is highly controversial. Many legislators want to go down this road, including Rep. Paul Kanjorski (D-PA), who would establish a “Reasonable Profits Board” to determine when companies’ profits are excessive, and then tax those profits at a much higher rate. This, according to Kanjorski, will encourage oil companies to lower prices!
It also would discourage domestic production and penalize not just the businesses, but their shareholders as well. For example, 52% of ExxonMobil’s stock is held by literally millions of stockholders, either directly or in mutual funds. A windfall profit tax on ExxonMobil would reduce the investment assets of ordinary Americans. Taxes on carbon emissions are no different and merely allow politicians to line government coffers at the expense of businesses, and ultimately consumers.
Unfortunately, at least one untenable “solution” has already been mainstreamed: ethanol production mandates. Soaring foods costs and food shortages are the unintended consequences.
Even more questionable are the bills that have been introduced in Congress that would ostensibly force Saudi Arabia to increase its oil production. In what has to be a new benchmark in hypocrisy, almost all the sponsors have consistently voted against allowing more U.S. oil production. And for those against drilling for oil in the Arctic National Wildlife Refuge (ANWR), consider that the U.S. Fish and Wildlife Service reports that only about 600 tourists have signed up for guided tours of the reserve this year.
If you own a television set, you’ve probably seen oil magnate T. Boone Pickens’ commercials promoting the Pickens plan to fund and build wind turbines and wind power facilities from the Texas panhandle to North Dakota. By using the wind to meet 20% of our electricity needs, he argues, we can convert more natural gas into transportation fuel rather than using it for electricity generation, thereby reducing dependence on foreign oil by one-third in 10 years.
The Pickens plan has merit as part of a larger strategy to grow alternative energy production. So do plans for increased use of solar power, although the Bureau of Land Management, which controls much of the Western lands suitable for solar farms, has placed a two-year moratorium on new leases. Wind and solar are being promoted as primary solutions to the problem when in reality they would require subsidies of at least a trillion dollars, and, combined, could not replace enough energy to keep up with rising demand.
Natural Resources, Nuclear Power
There is no question that energy is needed to continue our way of life. Considering ANWR, the Bakken oil formation in Montana and North Dakota, the outer continental shelf, oil shale (by some estimates, we could recover 200+ years worth of oil just from our shale) and recently discovered deposits in the Gulf of Mexico, the U.S. could and should be producing far more oil than it does. Moreover, we must build more nuclear power plants, which are safe, efficient sources of energy.
With nuclear power and even conservative estimates of our oil, natural gas, coal and oil shale deposits (to say nothing of yet-to-be-discovered sources), the U.S. could easily become energy independent. And alternative energy sources — biofuels, solar, wind, etc. — can help maintain that independence as ongoing research and development make them commercially viable.
‘National Will to Win’
After 40 years of increasing energy costs and growing dependence on oil imports, you would hope politicians would come together to solve the problem. Instead, political posturing, often driven by environmental activists, has prevented progress.
Many in Washington still won’t acknowledge that we must increase domestic energy production from traditional sources if we are to get out of this mess. No, we cannot immediately drill or mine our way to energy independence. However, drilling and mining will move us closer to that goal. We might already be there if we’d started soon after Carter’s assertion that the U.S. could become energy independent:
“We have the natural resources. We have more oil in our shale alone than several Saudi Arabias. We have more coal than any nation on earth. We have the world’s highest level of technology. We have the most skilled work force, with innovative genius, and I firmly believe that we have the national will to win this war.”
If we’ve lost that will, we need to find it again — and act on it this time around.
(Editor’s Note: George Barrett is President and Editor of the Hardwood Publishing Co. This column originally appeared in the Aug. 22, 2008 issue of Hardwood Review Weekly, a leading pricing and trend report for the hardwood grade market. It is reprinted by courtesy of Hardwood Publishing Co. For subscription information, visit www.hardwoodreview.com or call 704/543-4408.)
Table 1.
1970: President Nixon signs National Environmental Policy Act, mandating environmental impact studies for federal projects or projects that include federal funding. The law has since been used to stop or delay energy projects.
1980: President Carter signs the Alaska Lands Act, doubling the size of the Arctic National Wildlife Refuge (ANWR) and making future drilling there only possible through an act of Congress.
1982: Congress passes a moratorium on oil and gas leasing on 85% of the outer continental shelf. It has yet to be rescinded.
1987: Congress rejects President Reagan’s proposal to open up the coastal plain of ANWR to drilling, which his administration claimed would supply 1 million barrels of oil per day.
1990: President George H. W. Bush signs his own moratorium on energy leasing on the outer continental shelf. It was rescinded by President George W. Bush on July 18, 2008.
1995: President Clinton vetoes a congressional spending bill because it contained a provision that would have opened ANWR to oil exploration and drilling.
1999: President Clinton vetoes the Taxpayer Refund and Relief Act of 1999, which included incentives to increase domestic oil and gas production.
2007-2008: A bill that would terminate congressional prohibitions on the offshore drilling and oil shale mining is blocked.
2007-2008: Votes are blocked on several congressional bills that would have provided incentives for the construction of domestic oil refineries and nuclear power plants.
May 2008: A Senate subcommittee defeats a bill that would have ended a moratorium on writing new rules for oil shale development on federal lands, home to about 70% of U.S. oil shale deposits of between 800 billion and 2.1 trillion barrels of recoverable oil.
August 2008: House Speaker Nancy Pelosi (D-CA) proclaims, “I’m trying to save the planet,” as she disallows not just a vote on offshore drilling, but any debate of the issue.
Figure 1. U.S. crude oil imports by source country/region, January-May 2008. (Energy Information Adminstration)
