In
the United States, concerns over energy
availability and energy security have increased
sharply since Sept. 11. The level of US
oil imports and domestic consumption are
of increasing concern to environmentalists
and government groups alike, but, some
would argue, reducing oil imports is not
a simple, easy, or perhaps even desirable,
choice.
"What
you find if you step back and look at the issues objectively
is that you can't reduce dependency on foreign oil," said
Larry Goldstein, the president of the Petroleum Industry
Research Foundation (PIRINC). "What you have to
distinguish between is dependency and vulnerability.
You have to protect against disruptions in supply,
which could do enormous damage to the US economy."
In the 1970s, Goldstein and John Lichtblau, chairman
of PIRINC, were instrumental in pushing for policy
changes to address the question of vulnerability
in relation to oil imports. The Strategic Petroleum
Reserve (SPR), a policy that requires a certain
amount of oil to be set aside in reserves, was
conceived and implemented following the 1973-74
Arab oil embargo.
This emergency oil stockpile consists of 560 million
barrels stored in underground salt caverns near
the Gulf of Mexico, with a total storage capacity
of 700 million barrels. The SPR currently contains
enough fuel to keep the country going for 53 days.
The US imports nearly 60 percent of the oil it
uses.
"The kind of policy tools you deal with in
terms of vulnerability are subtly different from
the ones you would deal with in terms of dependency," said
Goldstein. "And one of the most effective
ways to deal with vulnerability, we believe, is
to have a large government stock of oil so that
you could add liquidity to the market during those
brief moments of supply disruption‹which
occur once in a decade. You don't want policies
which will really burden the economy when you're
dealing with a one-in-10-years event." While
there has been criticism of the SPR, Goldstein
and Lichtblau stress that it is an essential part
of US energy policy and should not be underestimated.
"Even though we've never really used it in
20 years of existence," said Lichtblau, "having
it has made a tremendous difference in our policy
because we know that if there is a disruption then
we can call on it for substantial amounts and for
a substantial period of time."
"Not only if there's a disruption," added
Goldstein. "The very fact that we have it
probably minimizes the risks that other countries
would want to blackmail us by threatening to embargo
us as they did in 1973." In essence the SPR
is a deterrent, a vestige of cold war tactics.
Goldstein
added, however, that reducing US dependence on
oil imported
from Saudi Arabia would not protect
the US in the case of a global oil shortage or
price hike. "When you get to issues like Saudi
Arabia," he said, "it's important that
people understand that, even if we were zero dependent
on Saudi oil, a disruption anywhere in the world
is a price increase everywhere in the world. We
all pay the same price for oil, adjusted for quality
and transportation. Countries that are net exporters
of oil‹the UK, Canada, Norway‹pay the
same price for oil [not counting taxes] as do the
Japanese, who are 100 percent dependent on oil
imports."
Essentially,
he is saying that even if the US moves away from
importing oil from the Middle East,
it will still be subject to global oil prices and
supply fluctuations. Therefore, he said, US foreign
policy will have to remain invested in the Middle
East. The SPR isn't the final answer, however,
and energy policy will have to reflect the need
for alternative fuels and for conservation. "We
can't really reduce our dependency on imported
oil," said Goldstein, "but we can reduce
the growth of these imports. I also think the current
administration was negligent in that they didn't
realize that what they should have done in their
early talk on energy policy was embrace conservation,
rather than treat it as a step-child. Our sense
is you need balance and diversity for a sensible
energy policy. You need a little bit of everything."
Goldstein says the call to raise corporate average
fuel economy (CAFE) standards as a way to reduce
fuel consumption and improve conservation conflicts
directly with consumer choice. CAFE standards were
put in place after the 1973 Arab oil embargo in
an effort to promote conservation and fuel efficiency.
In model year 1978 the standard for cars was imposed
at 18 miles per gallon (mpg). The industry began
producing smaller, more fuel-efficient cars to
meet the CAFE standards as well as changing consumer
demand. By 1985 the CAFE standard increased to
27.5 mpg and, despite numerous fluctuations over
the past 15 years, remains at that level now.
Senator John Kerry, Democrat of Massachusetts,
has been pushing for increased CAFE standards and
moving away from high oil imports. Kerry recently
unveiled a bipartisan fuel economy proposal with
Senator John McCain, Republican of Arizona, calling
for CAFE standards for cars to increase to 36mpg
by 2015.
"What we can do right now‹today, tomorrow‹is
improve the fuel efficiency of our cars and trucks
and save millions of barrels of foreign oil," he
said in a statement. "Let me tell you why...I
feel so strongly about avoiding millions of barrels
of foreign oil through greater fuel efficiency:
Because no foreign government can embargo them,
no terrorist can seize control of them..." Goldstein
argues, however, that new CAFE regulations, even
if they were enacted immediately, would neither
benefit the environment nor lower US fuel consumption
because consumer preference is for heavier and
more powerful cars that consume more fuel. Also,
with a fleet of 200 million cars already on the
road, it would take a decade or more to see a measurable
difference resulting from CAFE changes.
"Within cars‹not even looking at the
substitution of light trucks [SUVs] for cars‹consumer
preferences have not stayed constant despite the
fact that the average mpg has," said Goldstein. "Between
1990 and 2000 horsepower and vehicle weight have
not stayed the same, despite the fact that average
efficiency has. Increased horsepower and weight
means increased fuel consumption. Detroit's producing
what the consumer wants." Moving back to the
issue of Saudi oil, both Goldstein and Lichtblau
agreed that, while there is much discomfort about
American dependency on oil from the Middle East,
it will continue to be an important source for
the US. Over the long term they said, the Russian
oil industry, which is rebounding after the collapse
of the Soviet Union, will become the largest producer
in the world. Russian oil will minimize US dependency
on Saudi oil, said Goldstein.
"We're not facing a major oil crisis in the
near future," he said. "US oil production
has declined, but there is still plenty of oil
in the market. Russian oil is not a substitute
source of oil; it's a complement."
PIRINC and its associated consultancy firm, PIRA
Energy Group, are organizing a conference in association
with the Council on Foreign Relations on US-Saudi
relations. The conference is to take place in Washington,
DC on April 23. US Energy Secretary Spencer Abraham,
Saudi Petroleum Minister H.E. Ali Al Naimi and
Dr. Abdulrahman Al-Twijjiri of the Saudi Supreme
Economic Council are among those scheduled to speak.
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