Tuesday, January 29, 2008

Oil: The Engine Of Freedom And Progress

There are a lot of misconceptions about oil and its role in the world, so I wanted to pass along a few stories to help shed a little light on the situation.

First, a study of over 800 oil fields by Cambridge Energy Research Associates (Cera) has concluded that rates of decline are only 4.5 per cent a year, almost half the rate previously believed, leading the consultancy to conclude that oil output will continue to rise over the next decade. This means that the world is NOT running out of oil! Check out the article for the details.

Second, Robert Bryce shares five myths about breaking our dependence on foreign oil:
1. Energy independence will reduce or eliminate terrorism.

The hype doesn't match reality. Remember, the two largest suppliers of crude to the U.S. market are Canada and Mexico -- neither exactly known as a belligerent terrorist haven. Moreover, terrorism is an ancient tactic that predates the oil era.

2. A big push for alternative fuels will break our oil addiction.

The new energy bill requires that the country produce 36 billion gallons of biofuels per year by 2022. That sounds like a lot of fuel, but put it in perspective: The United States uses more than 320 billion gallons of oil per year, of which nearly 200 billion gallons are imported. So biofuels alone cannot wean the United States off oil. Let's say the country converted all the soybeans grown by American farmers into biodiesel; that would provide only about 1.5 percent of total annual U.S. oil needs. And if the United States devoted its entire corn crop to producing ethanol, it would supply only about 6 percent of U.S. oil needs.

3. Energy independence will let America choke off the flow of money to nasty countries.

Fans of energy independence argue that if the United States stops buying foreign energy, it will deny funds to petro-states such as Iran, Saudi Arabia and Hugo Ch¿vez's Venezuela. But the world marketplace doesn't work like that. Oil is a global commodity. Its price is set globally, not locally.

4. Energy independence will mean reform in the Muslim world.

The most vocal proponent of this one is New York Times columnist Thomas L. Friedman, who argues that the United States should build "a wall of energy independence" around itself and thereby lower global oil prices: "Shrink the oil revenue and they will have to open up their economies and their schools and liberate their women so that their people can compete. It is that simple." When the petro-states are effectively bankrupt, Friedman argues, we'll see "political and economic reform from Algeria to Iran."

If only it were that easy. Between about 1986 and 2000, oil prices generally stayed below $20 per barrel; by the end of 1998, they were as low as $11 per barrel. As Alan Reynolds pointed out in May 2005 in the conservative National Review Online, this prolonged period of "cheap oil did nothing to promote economic or political liberty in Algeria, Iran, or anywhere else. This theory has been tested -- and it failed completely."

5. Energy independence will mean a more secure U.S. energy supply.

To see why this is a myth, think back to 2005. After hurricanes ravaged the Gulf Coast, chewing up refineries as they went, several cities in the southeastern United States were hit with gasoline shortages. Thankfully, they were short-lived. The reason? Imported gasoline, from refineries in Venezuela, the Netherlands and elsewhere. Throughout the first nine months of 2005, the United States imported about 1 million barrels of gasoline per day. By mid-October 2005, just six weeks after Hurricane Katrina, those imports soared to 1.5 million barrels per day.

So we're woven in with the rest of the world -- and going to stay that way. Today, in addition to gasoline imports, the United States is buying crude oil from Angola, jet fuel from South Korea, natural gas from Trinidad, coal from Colombia and uranium from Australia. Those imports show that the global energy market is just that: global. Anyone who argues that the United States will be more secure by going it alone on energy hasn't done the homework.
Finally, Rush Limbaugh recently went on a tear about how oil is the engine of freedom and advancement in the world, relating this fact to why we should not buy into the hype of man-made global warming.


As Limbaugh so effectively communicates, oil is the key to technological advancement, and we should not shy away from its use. To do so would be to deny our own ability to progress forward. Global warming doctrine says we should drastically cut back our oil consumption, but Limbaugh explains why that would be a tragic mistake on a foundational level.

Hopefully this gives you a new understanding of oil and why it's important in this world.

There's my two cents.

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