Each oil jolt has a lesson – if learned
If the predictable thing about oil prices is unpredictability, then this week's surprise shutdown of more than half of Alaska's oil production fits the prediction. And each oil shock, from Gulf hurricanes to Middle East wars, yields a new teachable moment – if anyone listens.
The lesson in the Alaska oil shutdown is that complacency in the safeguarding of energy supplies and production facilities can come with big, unexpected costs.
A neglect of corrosion within the Prudhoe Bay pipelines of oil giant BP has forced the British-based company to close 16 of its 22 lines that feed into the Trans-Alaska Pipeline. The lines had not been inspected since 1992. All the original oil pipelines on Alaska's North Slope – which opened in 1977 – were designed for only a quarter century of use.
The shutdown could mean an 8 percent drop in US oil production for months, and put more upward pressure on gasoline prices, especially on the West Coast. In California, the average price of regular gas is now $3.19.
Complacency isn't just BP's problem.
Relatively lower oil prices during the late 1980s and 1990s led to much neglect of oil facilities as well as a downturn in seeking new oil sources. In 1998, a barrel of oil cost as little as $10, which dampened enthusiasm to find more oil and greatly reduced the world's spare oil capacity. Now, prices are reaching toward $80 a barrel and have risen about 25 percent this year. (That increase was largely due to unrest in Nigeria's oil fields.)
The lack of global oil-pumping capacity has forced the US government to release oil from its Strategic Petroleum Reserve to offset the loss of Alaskan crude.
By now, after so many oil shocks and high volatility in prices since the great shock of 1973, there should be better consistency in developing new oil supplies and also oil alternatives. Perhaps it is uncertainty over what will cause the next oil shock – war with Iran? – that so rattles the oil industry and the many governments that control their oil industries. Russia, for various reasons, has woefully neglected investments in its vast oil reserves and facilities. Only with the latest rise at the gas pumps has Congress rushed to consider opening up petroleum drilling off the coasts of Florida and California.
The world saw a huge investment in exploration and energy efficiency after OPEC bumped up prices in the 1970s. More oil was extracted from each well, and the US reduced its oil use by almost half for each dollar of production in the economy. Fuel economy standards reduced US oil consumption by 17 percent. Such large shifts in attitudes about energy use could be repeated today with prices so high – although Americans are driving even faster, and thus using more gasoline, on US highways. Thirteen states in the West and Midwest now have 75-m.p.h. speed limits.
One big shift in energy thinking is away from predictions of a quick end to available oil supplies and toward a certainty of regular disruptions of supplies. The Pentagon now plans its war strategy around such disruptions. Learning how to adjust to each one, or prevent it, requires a great deal more effort than governments or energy companies now expend. Just ask BP if it should have done more to inspect its pipelines.