Consumer Energy Report
A Greenpeace environmental activist in a polar bear costume holds up a banner at a Shell gas station in Prague in this May 2012 file photo. The activists are protesting against Shell's Arctic oil drilling project in the north of Alaska. (David W Cerny/Reuters/File)
Energy development in the Arctic: the good and the bad
One of the most contentious domestic political issues in the debate between energy development and environmental policy for over 20 years has been how to develop America’s energy resources in the Arctic. As Shell makes preparations to send offshore drilling rigs into the Beaufort and Chukchi Seas north of Alaska, I thought it would be important to walk through the history of energy exploration in Alaska.
Two weeks ago, I spoke as a part of a lecture series by the Massachusetts-based Manomet Center about energy development and ecosystems in the Arctic. Manomet is a conservation sciences organization that was founded to study migratory shorebirds; I was paired in the lecture with Stephen Brown, one of Manomet’s foremost experts on Alaskan shorebirds. The event was very interesting because it allowed a frank and open discussion of the threats and opportunities in the Arctic. The discussion below is adapted from my presentation.
Long History of Arctic Energy Exploration
Since the 1920s, Americans have known that there were vast reserves of oil in the North Slope of Alaska, when the Navy was given the territory now known as the National Petroleum Reserve as reserve for oil production to supply the fleet as it transformed from coal to oil. The reserve was never tapped, however, because of new finds in more accessible areas like Texas, California, and Oklahoma.
In 1968, a vast reserve of oil, the largest single field in the U.S., was discovered in Prudhoe Bay. However, the oil field could not begin commercial production until there was a way to deliver the oil to markets in the Continental U.S. or around the world. First, an icebreaking oil tanker, the Manhattan was sent through the Northwest Passage to test the feasibility of such a commercial route. When that proved too difficult, it was decided that the only possible route to market for Alaska’s oil was a pipeline from the North Slope.
This was a contentious debate, as landowners and native people wrestled with the environmental impact of such a pipeline. However, with the onset of the first Arab oil crisis in 1973, Congress authorized the expedited building of the Trans Alaska Pipeline System (TAPS). Completed in 1977 at a cost of $8 billion (about $32 billion in today’s dollars), the pipeline marked a significant infrastructure investment. It transports crude oil from Alaska’s North Slope, across 800 miles of tundra, rugged mountains and rivers to Valdez, North America’s northernmost ice-free port.
TAPS carries approximately 15 percent of the nation’s domestic oil production and has transported more than 15 billion barrels of crude oil in its lifetime. Importantly, it has a maximum daily capacity of 2.136 million barrels of oil, although it has never transported its full capacity.
In 2011, Alaska’s North Slope oil production was 562,000 barrels of oil per day. That means that the pipeline is only operating at about ¼ capacity. At its peak production in 1989, Prudhoe Bay was producing about 2 million barrels per day – almost at the TAPS capacity. I don’t know exactly why the field has seen a 71% drop in production over the last 22 years, but I would suspect that it can be attributed to a natural declining field.
ANWR: Trying to Find New Oil Production to Fill the Pipeline
The Arctic National Wildlife Reserve (ANWR) is the largest protected wilderness in the United States and was created by Congress under the Alaska National Interest Lands Conservation Act of 1980. However, unlike other Wilderness areas that are protected from development in perpetuity, under this act, a 1.5 million acre sector of ANWR, the so-called 1002 Area, was designated for study of its hydrocarbon reserves. The Act left it up to a later Congress to open the Area to exploration.
A 1998 report by the U.S. Geological Survey estimated that there was between 5.7 billion barrels and 16.0 billion barrels of technically recoverable oil in the 1002 Area. However, we simply cannot know the actual production potential of the area because exploration wells have never been drilled. The USGS estimates are based on the geologic formations of adjacent lands, not actual exploration within ANWR.
In 1989, Congress was preparing legislation that would open the 1002 Area of ANWR to oil exploration, and it was predicted to ‘sail through’. However, the Exxon Valdez disaster in March of that year quickly stopped consideration of the legislation. The return of Republicans to power in Congress after the 1994 election saw the issue return in Congress. President Clinton vetoed an effort to open ANWR to drilling in 1996, and the early years of the Bush Administration saw several close votes on opening the refuge to drilling. Ultimately, however, the environmentalists won the argument, and ANWR has remained closed.
By the time I was working on staff in the Senate, in 2006, the issue had become ritualized. Everyone knew how each Senator was going to vote on an annual vote, Senator Ted Stevens would get very angry, but the legislation would ultimately fail. Since the 2010 mid-term elections, House Republicans have included an opening of ANWR in their drilling bills, but the Democratic Senate has not even taken them up, and President Obama would veto them.
Offshore Drilling in Alaska’s North Slope
Since 2007, a warming Arctic sea has seen dramatic reductions in summer sea ice. This has allowed energy companies like Shell to contemplate how to extract some of the 22% of the world’s undiscovered energy resources that the US Geological Survey estimates are under the Arctic Sea.
Shell is preparing to send exploration ships to the Chuckchi and Beaufort Seas this summer to explore for oil. They have received permission from the EPA and Department of Interior, and are awaiting permits from the National Marine Fisheries Service and the Fish and Wildlife Service. While these are expected to go through, we should expect to see some significant litigation between now and then. Shell plans to bring about 30 ships and over 500 people to handle the exploration operations. The U.S. Coast Guard, too, will operate a full-time presence in the Arctic this summer for the first time, with a Cutter on patrol at each of the drilling sites. There will be more people off that stretch of beachfront — over 1000 miles from the nearest deepwater port — than probably has ever been there.
I understand that the sea floor in this area is fairly shallow, so the technical problems of drilling at high depth that we all became familiar with during the Deepwater Horizon disaster will not be there. Instead, we will see entirely different threats, like surface ice and severe storms. Shell has experience operating in Russia’s Sea of Okhotsk, but this will remain an extreme environment.
If all goes well, Shell anticipates that the first production of oil will begin in less than ten years, and peak production will be about 1.7 million barrels of oil per day.
Blocking ANWR Production led to Offshore Drilling
Notably, that production figure for offshore oil will be just enough to bring the TAPS back up to full capacity. I believe that if exploration in ANWR had not been blocked, there would not be a push to drill offshore. With new oil pumping through the pipeline, there would not have been enough capacity to accommodate offshore drilling as well. However, as it is now, offshore drilling is the only way to increase capacity to meet the capacity limits of the pipeline. So long as this already existing infrastructure is not fully utilized, there will be pressure, both from oil companies and from Alaska’s politicians, to fill the pipeline.
People gather in front of a bank of solar panels on May 18, 2012, in East Montpelier, Vt. Small, plug-in solar panels are now available for purchase. Finley argues that such products don't make a lot of financial sense in their current forms, but the idea of portable solar is a promising one. (Toby Talbot/AP/File)
Plug-in solar panels: Worth the cost?
An article over on CNET titled "Got a deck? Solar panels now a plug-in appliance," suggests that you can buy from Amazon.com a 1,000 watt solar panel system that plugs into your wall outlet for only $1,099. I thought they were really on to something until I read the comments:
This article was written very poorly. At first read, it would appear that the 1,000 watt system costs $1,099.95, but going over to Amazon, that is just the price of one panel whose rating is 240 watts.
At about $4.58/watt, these panels will not produce electricity to pay for the finance charges alone. You will not be able to recover your investment on this, as the panels deteriorate through time.
If the 1,000 watt system costs $1,099.95, it would truly be disruptive as it will be feasible. But no, this solar PV will not cut it, still too expensive. If they can just sell these to about $2/watt, then it would be very worthwhile, given that you will mount these yourself.
On the other hand, I think this concept has potential (no pun intended). I bought a cheap solar inverter last year similar to the one in the above article just to experiment with. You connect one end to a solar panel and plug the other end into a wall outlet. The device converts your solar panel’s low voltage direct current into high voltage alternating current. Because the voltage (electric potential) from the inverter creates an electric version of back pressure against the voltage from the power company, it will reduce the amount of power coming into your house from the power line, which will slow down your electric meter, reducing your electric bill.
Modern homes tend to have significant phantom loads (appliances that draw a small amount of current even when you turn them off or when not in use): computers on standby, DVRs, televisions, motion sensors, the clock in your microwave and stove, tuners, routers, furnace, thermostat, chargers, and on and on.
Not many people have a thousand watts of phantom load so purchasing a thousand watt system would be a waste unless you plan to run things like the dishwasher, and clothes dryer etc. in sequence the whole time the sun is shining.
These inverters are intended to supplement your house power grid, not to spin your electric meter backwards. They will not send power (Volts times Amps) to your house wiring if there is no voltage coming to your house from the power company. This is to protect electricians who may be working on wiring inside or outside your house when the power is off. They of course, also won’t reduce phantom loads when the sun isn’t shining.
The inverter I purchased off Amazon cost about $100. It isn’t UL listed so I wouldn’t want to place it anywhere that might start a fire if it blew up. The one mentioned in the above article is, in theory, UL listed. I was testing one out just last week in my drive way. I had it plugged into a Kill-A-Watt to see how much power it was supplying for a given solar panel angle. A neighbor walking by asked how much it was producing. When I said “About 35 watts,” he suggested it would never pay for itself, and he was right. But then again, when did granite counter tops ever pay for themselves, or produce any power for that matter? A system like this could be viewed as a high-end appliance to reduce phantom loads.
I’m not recommending that people run out and purchase these because they are of questionable quality at this stage of their development, and I’m also not sure of their legality. I can envision a day when systems like this that cost less than a $ 1,000 might be (as insulation and double pane windows already are) required by building codes in sunny climates to reduce the impact of the significant and growing phantom loads. And who knows, if the price gets low enough, builders and home owners may start installing them to show off to neighbor.
Fuel prices are displayed at a Chevron gas station in Phoenix, Arizona in this October file photo. Rapier argues that there are limits to how much oil speculators can affect gas prices. (Joshua Lott/Reuters/File)
High gas prices? Don't (always) blame oil speculators.
Let’s Play ‘Blame the Speculators’
Most people would probably agree that speculation in the oil and gas markets is hurting American consumers. Consider the case of Aubrey McClendon. Mr. McClendon is the CEO of Chesapeake Energy, where he sells natural gas for a living. Natural gas prices have now been pushed down — by speculators — to below $2 per million BTU. This is a drop of more than 80% from 2008 prices. With these depressed prices, Mr. McClendon will have a hard time ever matching his $112 million of earnings in 2008. Mr. McClendon’s livelihood has been hurt by speculators.
Of course Aubrey McClendon is not your average person, and he isn’t likely to garner much sympathy over the decline in natural gas prices — especially since it has benefited consumers. But I use that example to illustrate the point that speculation is not a one-way street where the average consumer always loses. One of the frequently cited causes of high oil prices is from speculation. In fact, I agree that speculation is helping drive up oil prices. However, there are underlying fundamentals at work as well; otherwise the same speculators who are helping drive up oil prices would be doing the same with natural gas prices. Yet those underlying fundamentals are often overlooked in the rush to blame the speculators for spiking oil prices.
Speculators Play the Game Both Ways
Speculation can drive prices in either direction. If there is a widely held belief that oil prices will be higher, the price of oil will be bid up. It’s the same reason that the share price of Apple rises: Investors speculate that the company will do well in the future and they drive up the price in anticipation of future value. In the case of oil, the most recent speculation is that trouble in Iran could remove a significant quantity of oil from the market, driving prices much higher.
But one has to look no further than natural gas pricing to see that this goes both ways. With natural gas below $2 per MMBTU, producers will struggle to make a profit. They are already cutting back on drilling. The sentiment is that there is a very big supply of natural gas, and so the speculators in that case have driven prices down very low — in this case saving consumers a lot of money. In the case of oil, the fear is that supplies won’t be sufficient to meet current demand.
Incidentally, politicians and consumers frequently ask “Why are oil companies ripping us off by selling oil for $100 a barrel?” But ExxonMobil also happens to be the largest natural gas producer in the U.S. Rephrase the question to ask “Why are oil companies giving us a break by selling natural gas at under $2 when they were selling it for over $10 five years ago?” — and you can start to see that they really don’t have much control over pricing. That is set by how much speculators and actual end users are willing to pay on exchanges like the New York Mercantile Exchange (NYMEX).
Conclusion: There Are Limits to How Much Speculation Can Affect Prices
I am not suggesting that we shouldn’t limit speculation. I really don’t know the answer to that one. If you banned investment banks from participating in the oil markets, my assumption would be that it would cause somewhat lower prices when prices are high and somewhat higher prices when prices are low. It would probably knock off the extreme swings on either end. But my main point here is that speculation by itself is not to blame for high oil prices, and eliminating speculation is not going to fix the problem of high oil prices.
This column was prompted by Eric Bolling’s assertions on Fox News that he has the answer to high gas prices. For weeks he has been hyping his “secret plan” which he “guarantees” will reduce gasoline prices by $1 a gallon. (Steven Colbert recently skewered Bolling’s antics over his secret plan). It turns out that “limit the speculation” was his answer for reducing gasoline prices by $1 a gallon.
That answer itself certainly isn’t new and novel; many people have been pushing this long before Bolling brought it up. But it ignores the two important facts I have highlighted here: Speculation drives prices higher AND lower, and there are often fundamental issues of supply and demand that drive that speculation. And if you want to know the single biggest driver of high gasoline prices today, just look at the consumption growth in developing countries. Eliminating speculation isn’t going to address that issue. Eliminate speculation and today’s gasoline prices would still be high, just perhaps not quite as high. And natural gas prices would perhaps not be as low.
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on www.consumerenergyreport.com.
Gas prices are displayed at a Shell station in Beaverton, Ore., Tuesday, April 24, 2012. The profit margin for oil companies isn't quite as huge as many people think. (Don Ryan/AP)
Are the oil companies gouging gas prices?
Most people, if asked to name off the top of their head which industries were taking advantage of consumers to generate insanely high profits, would likely have the oil and gas industry at the top of their list. Isn’t it a well-known fact that with gas prices spiraling through the roof, “Big Oil” is by far the most profitable industry out there, hence they must be taking advantage of consumers?
Actually, it’s not that simple. But public opinion would have it otherwise.
In fact, industries such as internet information providers and personal computers rank well above major integrated oil and gas (Big Oil) when it comes to profit margins. The simple definition of profit margin is: A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings.
To be sure, the U.S. oil majors have been generating huge profits. As U.S. President Barack Obama pointed out in a recent speech urging Congress to repeal tax breaks for the oil industry, “the three biggest U.S. oil companies took home more than $80 billion in profits. Exxon pocketed nearly $4.7 million every hour.” For more on the breakdown of gas prices, see: What Makes Up the Cost of a Gallon of Gasoline?
But it’s difficult to see it as ‘windfall profits‘ for the oil industry when they rank so low in terms of profit margin. The fact that they’re turning such a large profit speaks more to the scale of their operations rather than excessive profits.
Out of every dollar they did in sales during the most recent quarter, the Major Integrated Oil & Gas industry (a.k.a. Big Oil) kept 7.9 cents in earnings. Compare their 7.9% profit margin to those of Publishing – Periodicals (53.1%), Brewers (20.3%), Industrial Metals & Minerals (26%), Drug Manufacturers – Major (16.7%), Railroads (15.55), Water Utilities (12%), Cigarettes (22.5%), and Industrial Metals & Minerals (26%). Or compare it to other industries that have benefited greatly from high commodity prices such as Silver (41%), Copper (25.1%), and Gold (24%).
Some may argue that Return on Capital Employed is a better metric to use, but in terms of excessive profits and price gouging, I see profit margin as a very telling statistic. What it tells me is that the oil industry is making its money on volume as opposed to unfairly high prices. It’s not the oil companies that are killing us at the pump, it’s us consumers doing it to ourselves by consuming so much.
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on www.consumerenergyreport.com.
Gas price sign at Linwood Gulf, in Linwood, NJ, April 20, 2012. Holland argues that despite Republicans and Democrats slinging blame at each other over high gas prices, neither side has offered any feasible solutions to the problem. (Vernin Ogrodnek/AP/Press of Atlantic City)
High gas prices are a bipartisan failure
Red Herrings: Speculation & Regulation
As I noted last week, I have been working on a short paper for ASP on gas prices. It was published earlier today with a title of “Cause & Effect: U.S. Gasoline Prices.” I also published an Op-Ed in The Hill “Running on empty: Failing to address high gas prices“ and was quoted in Reuters saying “The truth is, neither party is offering policies that will effectively address high gas prices.”
The report seeks to get beyond both party’s preferred narratives on gas prices and looks more deeply at the root causes of today’s high gasoline prices. Hopefully, it will puncture some of the assertions and rhetoric that both political parties use about gas prices, whether it’s shouting “speculation!” by those on the left or “too much regulation!” by those on the right.
The truth, of course, is that crude oil is the essential ingredient to 90% of our gasoline supply (ethanol is blended in to provide the other 10%). Although gasoline prices vary widely around the world due to differing tax regimes, regulatory rules, and market requirements, crude oil is a globally traded commodity with prices set in a global marketplace.
This Isn’t the 1950′s
The root problem with the politics of gas prices in the U.S. right now is a failure to admit that we are only a (relatively) small part of a global market. It is as if we were stuck in the 1950s, where production from the U.S. was more than half of the world’s production. Republicans think that all we need to do is produce more, and prices will come down, while Democrats think that it’s all about how Wall Street trades oil contracts. These measures would probably work if the U.S. were producing and consuming half of the world’s oil production. But, in a world where we’re responsible for 9% of production, while consuming 20%, we simply do not have the ability to control prices.
The American market is no longer the most important factor in prices; growth in countries like Brazil, China, and India means that we are at the whims of global prices.
If anything, it is the threat of another war in the Middle East that is driving up prices. A conflict between Israel and Iran, possibly including the U.S., would put the 15 million barrels of oil per day that sails through the Strait of Hormuz at risk. Oil speculators are rightly placing a ‘risk premium’ on world oil supplies because a closure of the Straits of Hormuz would catastrophically drive up the price of oil.
I think the only thing that American politicians could do to reduce the price of oil in the short term, and hence the price of gasoline, is to diplomatically resolve issues with Iran, not further ratchet up tensions.
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on www.consumerenergyreport.com.
Greenpeace activists protest with a projection reading 'Nuclear power damages Germany' on the nuclear power plant Isar near Landshut in this 2010 file photo. Germany suspended its nuclear program last year, but some plants have since reopened. (Frauke Huber/Reuters/Greenpeace/File)
Why Germany is ditching nuclear power
Nuclear Shut-Down Grounded In Recent German History
The German government surprised Europe by announcing the closure of its nuclear power program a year ago this week, immediately after the Fukushima disaster. Some have since reopened, but others never will. They all will be closed and permanently retired by 2022.
This seemed to many of us in the energy field like a rash decision, but it was not. In my conversations around Berlin this week, it has become clear that this was not a simple, snap decision in response to the Japanese tragedy. Anti-nuclear sentiment has a long history and broad support across society.
Rise of the Greens
That consensus against nuclear power has its roots in the Green Party. The Greens emerged from the rebellious 1968 generation. In the U.S. we think of a green party as solely an environmental movement; that’s a big part of the German green movement, but certainly not the only part. The early greens consciously rejected what they perceived as the ideals of both sides of the Iron Curtain that divided their country. They were both anti-capitalist and anti-authoritarian.
Meanwhile, from the 1950s through the 1970s, nuclear power was being promoted on both sides of the Wall as the solution to all energy problems. The founders of the green movement dissented from both sides; nuclear was seen as militarist, because of its association with nuclear weapons; consumerist, because it promoted enhanced use of energy; and authoritarian because it promoted a centralized structure of power. When, after Three Mile Island and Chernobyl, it became clear that nuclear power was also dangerous, opposition was cemented.
Since the 1960s and ’70s, the Greens have matured as a political party and moderated some of their views in order to gain power. Today, they can be counted on for about 15-20% of the national vote,and they can win some local elections. But, their core belief against nuclear power has not moderated. On the contrary, they have largely convinced the rest of the country with their arguments. Even before Fukushima, nuclear power was opposed by more than 80% of the public.
Decision Was Really Made Prior to Fukushima
In the early ’00s, during the Schroeder administration — the first in which the Greens held power — an agreement was made with the utility companies that they would shut down all nuclear power plants by 2022. This was calculated as long enough to pay off all the investment, plus depreciation of the nuclear plants. But, when the conservative government under Merkel came to power, that agreement was suspended — an unpopular decision.
The events a year ago in Fukushima gave Merkel’s coalition government the opportunity it needed to save face while walking away from their decision. Although it may have seemed sudden that Germany was suspending its nuclear power, it should not have been. It is almost enough to say now that to be anti-nuclear is part of being German.
Conclusion: More Anti-Nuclear than Pro-Climate
That does not make it right, though. I am not convinced by their anti-nuclear arguments, but this story shows how decisions and feelings from 40 years ago rebound until today. At that time, their arguments may have made sense, but I believe that addressing the climate and health effects of coal and oil use should be a higher priority than shutting down a largely safe source of carbon-free energy.
When asked about it, the Greens I met with this week in Germany will say that it is not a contradiction to be both in favor of climate action and anti-nuclear. “We will do both” they say. They point out that even before Fukushima, more of their electricity came from renewables than from nuclear. But that is a cop-out and does not acknowledge that political choices are a matter of setting priorities. Their actions show that they are more anti-nuclear than pro-climate action, and that is unfortunate.
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on www.consumerenergyreport.com.
This chart shows the growth in wind energy from 2006-2011. Wind energy use has climbed 350 percent in that five years. (Conusmer Energy Report)
Wind power: America's future?
Generation from wind turbines in the United States increased 27% in 2011 from the prior year, and is up 350% since 2006.
“During the past five years capacity additions of wind turbines were the main driver of the growth in wind power output,” the U.S. Department of Energy reported. “As the amount of wind generation increases, electric power system operators have faced challenges with integrating increasing amounts of this intermittent generation source into their systems.”
Wind is currently the largest source of non-hydro renewable electricity in the U.S.
As the amount of wind generation increases, operators have faced challenges integrating the increasing amounts of this intermittent generation source into their systems.
“Wind energy is the largest source of non-hydroelectric renewable electricity in the United States, contributing 61% of the nearly 200 terawatthours of non-hydroelectric renewable generation in 2011,” according to the U.S. Energy Information Administration.
However, wind power still only accounted for less than 3% of total U.S. electricity generation in 2011.
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on www.consumerenergyreport,com.
This chart, using Energy Information Administration (EIA) data, shows the top 15 sources of foreign oil coming into the United States in 2011. The top exporter to the US is Canada, followed distantly by Mexico and Saudi Arabia. (Robert Rapier/EIA)
Top 15 sources of US crude oil imports
The Energy Information Administration (EIA) recently published an article on 2011 U.S. crude oil imports. I thought it might be interesting to take a look at where the U.S. currently obtains its oil, and how that has changed over the past decade. The EIA story is: Nearly 69% of U.S. crude oil imports originated from five countries in 2011. I downloaded their data sources for 2011 import data, and then also went into the archives and pulled up 2001 import data to create the above table.
Canada is Our Most Important Supplier
Over the past decade, Canada became our top supplier of oil, largely due to increases in oil sands production. The EIA report noted that U.S. imports from Canada topped 2 million barrels per day for the first time ever in 2011, “because more oil is now being transported by rail.” This is one of the reasons that the Keystone XL pipeline protests may have the opposite effect of what the protesters intend. Lack of pipeline access isn’t going to slow the growth of the oil sands much (Canadian crude oil imports were up 12% in 2011), it just forces more oil onto more carbon intensive transport options (and perhaps to more distant destinations). Note that there is also greater risk from transporting oil via rail versus pipeline.
Saudi Arabia declined in importance as a supplier of oil to the U.S. over the decade, falling from the top supplier in 2001 to the third spot last year. Imports from Mexico were down 13% over the decade, but Mexico moved into the Number 2 position due to Saudi Arabia’s sharp drop. Countries that were in the Top 15 in 2001 that failed to make the Top 15 in 2011 were Norway (#8 in 2001), the U.K. (#10), Gabon (#12), Argentina (#14), and Trinidad and Tobago (#15). Replacing them in the Top 15 were Algeria, Brazil, Russia, and Cameroon.
Imports from OPEC nations decreased by 13% over the decade to 4.2 million barrels per day (bpd), and overall U.S. crude oil imports declined 4% to 8.9 million bpd. However, total imports had climbed to above 10 million bpd from 2004 through 2007, and have fallen by 12% from their high point in 2005.
Predictions for the Next Decade
What can we expect over the next decade? My crystal ball says that Canada will continue to be our most important supplier, and that Canadian imports are likely to rise from current levels. Mexico will probably continue to decline as a supplier of oil to the U.S., but imports from Iraq will likely rebound. Nigeria and Venezuela will probably remain in the Top 5, but politics in both countries will play a major factor. Brazil’s importance as a supplier to the U.S. will continue to increase, and Russia is poised to become a larger supplier to the U.S. as well (although they are already one of the top global suppliers of crude oil).
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on www.consumerenergyreport,com.
Gas prices are posted at a gas station in Breezewood, Pa. Holland argues that gas prices can't be blamed on any one individual. (Gene J. Puskar/AP)
Who is to blame for high gas prices?
Who is to Blame?
I’ve been working for the past week on a fact-sheet for ASP on gas prices; what is causing this spike, and why they’re going so high. I will post a link to it when we publish it, but suffice it to say that we’re not going to come down and say that President Obama is responsible for high gas prices. Although I believe that there are some good reasons to be exploring for oil and gas here at home (e.g. balance of trade, new construction jobs), we should not delude ourselves into thinking that’s going to actually lower prices. More to come when we release the report next week, so keep an eye on this space.
I want to take a minute, though, to write about a few conclusions I’ve drawn after diving into the sometimes heated and nasty rhetoric around gas prices. One big conclusion that I’ve come to about gasoline in the U.S. is that we simply use too much of it; much more than is necessary. I think that’s mostly a factor of the low pump prices that we had grown accustomed to over generations. Though prices have been high and very unstable since 2005 when Katrina shut down refining in the Gulf, we have really only begun to change our economy to the new world of high prices. I wrote before about how the U.S. energy market is poised for a “Fundamental Shift” as we produce more oil and use less. However, I am somewhat surprised that it continues to take this long.
Why Gas Prices Differ From Other Goods
Along those lines, I think that we complain about gas prices more than about price increases in any other good or service. My hypothesis is that the unique way in which we buy gasoline has a lot to do with how we complain about it. Every time you fill the pump it’s relatively similar: you stand in front of the gas tank and watch the numbers click over on the meter. Other than digitization, this has not really changed since the 1950s. What has changed is the price; we remember how something that used to cost less than $20 only a few years ago now costs over $50. There’s a psychological process that goes through our minds saying: “this used to be so cheap – why has this gone up?” That quickly leads into a need to blame someone. Do we buy anything else in this manner – I don’t think so: groceries are a constantly varying basket of goods; electricity is a once-per month bill; housing is only paid for infrequently.
Adam Davidson had a great article “The Real Oil Shock” in the New York Times this weekend saying that even though we like to complain about how high gas prices are, we aren’t really changing behavior because of it. We aren’t driving less, we aren’t buying less of other things, like entertainment or groceries, and we even spend more on driving for social and recreational trips (about $13/week) vs. commuting to work ($8/week).
Lots of Finger-Pointing, But No Real Action
So — what are we doing about gas prices? Complaining. We are voicing our complaints loud and clear. And our political leaders are pandering to that. Newt has promised us $2.50 gas, while everyone in office seems to be scrambling to get out of the line of blame. But, I think that there’s an undercurrent here: we’re complaining because there’s a general feeling that things aren’t going in the right direction; gas prices are a part of that, but they’re not the only thing. People who don’t support the President will blame him for gas prices, while those that do support him will blame Bush’s policies and the Republicans in control of the House.
Of course, none of this is actually true; the price of gasoline is not the result of any of these people’s actions — it is the result of global market forces. The price depends on supply, demand, and threats of future changes in those.
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on www.consumerenergyreport,com.
A money changer shows some one-hundred U.S. dollar bills at an exchange booth in Tokyo in this file photo. Government subsidies for energy have a checkered history, but Finley argues they are ultimately worth it as a way to experiment with new innovations. (Issei Kato/Reuters/File)
Do energy subsidies actually work?
The answer largely depends on your definition of a subsidy and what you mean by payoff.
I’d suggest that many, if not most, subsidies are a roll of the dice (crap shoot) when it comes to the purported pay off. They are social experiments without any guarantee of success, which is not to say they should not be undertaken as long as a mechanism is in place to end the subsidy in a timely manner.
There are many examples that have paid off royally, along with many that were (and are) a waste of time and money to varying degrees.
Electric Vehicle Tax Credit
Obama’s latest idea, to increase the maximum federal income tax credit for electric vehicles from $7,500 to $10,000, certainly fits most definitions of a subsidy. The intended payoff is to kick-start an electric car industry for various reasons (job creation, oil import reduction, reelection). And of course, not everybody is happy about it. From Daily Tech:
However, many in Washington have expressed outrage over the tax credit, stating that sales of plug-in electric vehicles have not met specified goals and that it only provides an incentive for people who are already wealthy rather than giving a break to people in lower tax brackets.
I am hopeful that battery technology adequate for use in personal transport is finally on the cusp of mass-marketability. Let’s face it, the dominant battery technology in use today (lead-acid) powered WWI submarines. If these subsidies turn out to be just what the industry needs to get over that hump, great. And if the technology succeeds regardless of the subsidy, well, that happens sometimes also.
Ethanol, Wind, Solar Hot Water Heaters
We just witnessed the anticlimactic end of the “rob Peter to pay Paul” ethanol blenders’ credit. Next up is the wind energy credit. From Politico:
“Although the credit expires at the end of the year, advocates said the long time needed to plan, permit and construct wind projects means it is essentially expiring right now.”
A significant tax incentive way back during the Carter administration put solar hot water heaters on rooftops all over the country. A few years after the subsidy ended, there were rusting hulks on rooftops all over the country because there was no solar version of the Maytag repairman, and no replacement parts either. The industry failed to kick off in the time frame allocated by the subsidy. Was that technology not commercially viable or did the subsidy end too soon? Global warming wasn’t the concern. Energy independence was the big concern — as it still is — and never mind that we don’t heat water with oil (except in places like Hawaii).
Subsidies That Worked
So, you may be wondering, “Where are these examples that paid off royally?” My first examples are projects that were so capital intensive and technologically risky that private investors were hesitant to tackle them without government assist. Here’s an excerpt of a description of one I found on the internet:
“The project was developed despite seemingly insurmountable engineering, administrative, financial, and political challenges. The lessons learned during the design and construction …helped ensure the success of …projects throughout the world – projects that have benefited thousands of people …”
I’ll give you another hint. These projects have paid for themselves many times over and continue to provide gargantuan amounts of affordable, low emission electricity. Give up? The Hoover and Grand Coulee dams–economic stimulus packages writ large. My Leaf is mostly powered by precipitation stored by dams like these.
Ironically, the latest arguments that have been cobbled together by anti-nuclear activists (not a synonym for environmentalist–whatever that is) about the capital intensive nature of new nuclear power plants would have been applicable to these dam projects as well. And there were safety concerns:
“The Colorado River Board found the project feasible, but warned that should the dam fail, every downstream Colorado River community would be destroyed, and that the river might change course and empty into the Salton Sea.”
The real poster child for government subsidies that have paid off royally would have to be nuclear power plants, which provide three times more low-emission electricity than hydro does–without destroying river and desert ecosystems.
Capitalizing on Tax Credits
I have a long and sordid history of capitalizing on tax credits. We received a $3,000 credit when we bought our Prius back in 2006, even though we would have bought it anyway. In hindsight, because the commercial success of the Prius has little if anything to do with that tax credit, I would chalk that subsidy up as an example of one that did not pay off, or to be more exact, a subsidy that did nothing but move money from the public larder into the pockets of lucky citizens in the market for a hybrid at the time, oh, and also into the pockets of dealerships who didn’t have to dicker about price. Before the tax credit, supply was just barely keeping up with demand. After the credit, we all had to put $1,000 down and wait several months for one to arrive.
A few years ago I capitalized on a $1,800 tax credit to upgrade my twenty-year-old furnace to a 95 percent efficient one. Would I have upgraded any way? Probably not because of the expense and added complexity, but I was motivated to upgrade quickly because there was a one year window and I didn’t want the furnace to die the year after the credit expired. In hindsight I realized that this tax credit was, in reality, a carefully crafted means of prying money out of bank accounts into a sagging economy, not so much an attempt to reduce natural gas use.
As the owner of a 23 year-old Cherokee, I desperately wanted to take advantage of the cash for clunkers handout as well and would have done so had the Leaf been an option at the time. Speaking of which, we will soon receive a $7,500 rebate on the purchase of our Leaf (in addition to the $3,000 we did not pay in state sales taxes).
Add that up somebody. Was it worth it? I don’t know, but we sure use a lot less oil than we did five years ago.
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on www.consumerenergyreport,com.
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