Sweet Reason on the Oil Shock
Jun 17th, 2008 by John Stodder
I liked this column by Robert Samuelson. I suspect that’s because, unlike John McCain and Barack Obama, he’s not running for office or trying to advance a party’s agenda, so he can afford to think about the shocking 90 percent increase in oil prices in less than two years in practical terms. Like this:
There’s been a huge transfer of power to oil producers. Even at $100 a barrel, Saudi Arabia, Kuwait and the United Arab Emirates will earn almost $8 trillion in oil revenues between now and 2020, estimates the McKinsey Global Institute. More troubling are the political implications. “This has really strengthened the Iranians, Russians and Venezuelans to be more provocative in the world,” says Larry Goldstein of the Energy Policy Research Foundation. Although governments control crude supplies, private companies have dominated distribution. Anyone can buy oil at a price. Now oil could become a political commodity offered to friends at a discount, withheld from rivals.
How can we retrieve some of our lost power? The first thing is to get out of denial. Stop blaming oil companies and “speculators.” Next, we need to expand domestic oil and natural-gas drilling, including Alaska. Although we can’t “drill our way” out of this problem, we can augment oil supplies and lessen price strains. It might take 10 years or more, because new projects are huge undertakings. But delay will only aggravate our future problems.
Finally, we need to realize high prices may stimulate new biofuels from wood chips, food waste and switch grass. Production costs of these fuels may be in the range of $1 a gallon, says David Cole of the Center for Automotive Research. If true, that’s well below today’s wholesale gasoline prices. To assure new producers that they wouldn’t be wiped out if oil prices plunged, we should set a floor price for oil of $50 to $80 a barrel, says Cole. This could be done with a standby tariff that would activate only if prices hit the threshold. Oil prices are unpredictable and should a price collapse occur, Americans wouldn’t be deluded into thinking we’ve returned permanently to cheap energy. We’ve made that mistake before.
It’ll be a good thing when the election is over and the winner is in his honeymoon phase. A lot of old thinking about energy is ready to be discarded. But it’s about to get a long, last dance.
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