Posted on 08/27/2012 4:21:30 AM PDT by SeekAndFind
Recent headlines provoked by two positive but modest developments — a slight early-summer decline in gasoline prices and a laudable increase in domestic oil production — have trumpeted that these developments mean we are on the verge of achieving “energy independence.”
Whoa.
Oil monopolizes about 95 percent of the world’s transportation, and OPEC — eight nations in the Middle East and four others — controls nearly 80 percent of the world’s conventional oil reserves. We cannot change anything fundamental if we continue to permit oil and OPEC, a monopoly with a cartel nested inside it, to maintain their dominance of the transportation-fuel market and if we relegate ourselves merely to working within the framework of that dominance to increase our share of the oil market. It’s true that by doing so we can improve our balance of payments and add some domestic oil-related jobs. Good. But this won’t fill the basic need: to break oil’s monopoly and OPEC’s cartel.
Why is that essential? Because oil is not just a commodity. It is a crucial strategic commodity, as salt was for many centuries when it was the only means of preserving food (to borrow Anne Korin’s excellent analogy). So long as transportation is almost exclusively dependent on oil, we are in thrall to OPEC and its decisions on how much to pump and what to charge us. OPEC has made the basic decision to maintain oil prices at a level where we borrow about a billion dollars a day — equivalent to a tax of some $4,000 a year on every American family. OPEC has this power to, essentially, tax us (without any more representation than George III provided our ancestors), because the Saudis and some others in OPEC can lift oil for less than five dollars a barrel, whereas for the U.S. and most other non-OPEC nations the cost is tens of dollars a barrel.
Saudi Arabia, the swing producer — the nation with large oil reserves that it can tap or not, as it wishes — has indicated that, to meet its domestic-welfare commitments, it needs oil’s price to be more than $90 per barrel. What it means is that, if the price of oil were lower, the Saudi government would need to go to the trouble of putting together an economy in which it couldn’t afford to keep a staggering half of its men unemployed and on the dole.
This low cost of lifting oil, especially in Saudi Arabia, and OPEC’s control of over three-quarters of the world’s reserves of conventional oil is why improved fuel economy for our vehicles, although a good idea, is not the solution to our central problem. Seeing us economize, OPEC can just cut production to keep prices up. We could never reclaim anything like the oil-market dominance we held in the Fifties and Sixties. OPEC would manipulate the market to plunge the U.S. deeper and deeper into debt and force us to spend the maximum it can wring out of us.
OPEC chooses to sell only about 31 million barrels of oil a day, almost exactly what it sold 40 years ago when both oil demand and the size of the world’s economy were about half what they are today. Like John D. Rockefeller at the beginning of the 20th century, OPEC withholds oil from the market to keep the price up. It holds nearly 80 percent of the reserves of conventional oil, but only about a third of what is sold daily on the world market is sold by OPEC. We cannot escape the consequences of OPEC’s price-fixing by buying more oil from, say, non-OPEC Canada and less from Saudi Arabia. There is essentially one worldwide oil market. Other countries will just buy more from Saudi Arabia and less from Canada.
But suppose we become what many, inaccurately, call “energy independent” — that is, we produce about as much oil as we use. Wouldn’t that solve our problem?
No.
The U.K. was, by this distorted definition, essentially energy independent in 2008, and yet there oil hit the same peak, over $145 a barrel, that it hit everywhere else. The high price of diesel fuel in the U.K. led truckers there to strike.
A good idea would be the creation of a North American Energy Alliance. In the event of major hostilities that halted international shipping, the U.S., Canada, and Mexico could still share resources among themselves. Our two major neighbors are allies and good friends, and we should work with them when we can — for example, by permitting construction of the Keystone pipeline in an environmentally sound fashion — from Canada to the Gulf of Mexico.
We should not plan to secede from the world’s oil market. The problem is OPEC’s control of prices, not the fact of trade itself. As long as oil overwhelmingly dominates transportation and OPEC controls oil’s price, we cannot end OPEC’s control of oil prices simply by seceding from the world oil market. We do not become “energy independent” just by being able to produce as much as we use, as Britain learned in 2008.
“Independent” means “free from control by others” — not autarky, that is, shunning imports. We should neither move toward secession nor assume that our oil problems are solved merely because we produce more oil and improve our balance of payments. Instead we should follow Teddy Roosevelt’s example in dealing with Rockefeller’s Standard Oil monopoly and make OPEC’s cartel face competition. The only realistic way to accomplish this is to enable vehicles, in short order and with relatively little investment in new infrastructure, to operate on alternatives to petroleum products.
What are those alternatives?
Biofuels? Probably, to some degree. At present, the best candidates are mainly those made from algae. Biomass gasification to produce synfuels also shows some promise. Ethanol may have a role as well, as long as it can compete, unsubsidized, with gasoline.
Electricity? It has promise, but it won’t move 18-wheelers, and it will take years before all-electric cars and plug-in hybrids are a large-enough share of the vehicles on the road to substantially reduce the market for oil.
Other renewables? We are fans of an evolution toward wind and solar for electricity generation and will be more so as batteries or other electricity-storage systems grow more affordable. But what gets lost in the shouting on the cable-news talk shows is that since less than 1 percent of our electricity is generated by oil, the president’s call for renewable electricity generation to reduce oil consumption is more than 99 percent off base. Two-thirds of the oil we consume is used to move our 250 million cars and light trucks and 8 million heavy-duty vehicles. We can’t solve our oil problem without making it possible for people, realistically and soon, to choose a different transportation fuel.
The laboring oar in any practical, affordable, and near-term competition with oil will have to be pulled by a plan to enable drivers to choose between gasoline and fuels derived from natural gas.
Natural gas has become a game-changer because of horizontal drilling and hydrofracturing (fracking), which now make available huge reserves in shale-gas deposits. The effect of this combination on energy prices is stunning. There are about the same number of BTU’s in a million cubic feet of natural gas as in six barrels of oil. So some years ago, when oil and natural-gas prices tracked one another, if natural gas’s price (in mmcf) was at $8, oil would have been at about $48 — a ratio of 6 (barrels of oil) to 1 (mmcf of gas). But because of horizontal drilling, fracking, and OPEC’s thirst for U.S. dollars, natural gas at one point this year was under $2 per mmcf, while oil was well over $100 per barrel — a ratio of more than 50 to 1.
Fracking and horizontal drilling have caused the price of natural gas to plummet, and OPEC’s machinations have caused oil’s price to reach new heights, so the days of a 6-to-1 price ratio of oil to gas are largely gone. We are now in a world where the ratios are 30 to 1, 50 to 1, or even higher. This completely changes the energy picture.
Certainly drilling, including fracking, must be done in an environmentally sensible manner, but this is entirely feasible. The two of us grew up in Oklahoma, a few miles and a few years apart, hunting, fishing, and camping on land that had been fracked (although at that point fracking had not yet been combined with horizontal drilling). Except when you came across a small valve (a “Christmas tree,” named after its size and silhouette) surrounded by a small cyclone fence, you had no idea of what had taken place thousands of feet below you. Indeed, of the some 4 million oil and gas wells drilled in human history, about 3 million of them were drilled in Oklahoma and Texas. And hundreds of thousands of those, beginning in the 1940s, were fracked. The environmental issues that have understandably been raised about fracking are manageable if both sides are committed to reason.
Cheap natural gas, which is key to ending our vehicles’ oil addiction affordably and promptly, can destroy oil’s monopoly and OPEC’s cartel.
We need to move expeditiously to convert a large share of our buses, delivery vans, and other fleet vehicles to run on compressed natural gas (CNG); and trucks, to run on liqueified natural gas (LNG). The conversions will pay for themselves within a year or two because of the now-huge price advantage that natural gas has over oil. The market is already moving this way.
Moreover, innovative companies are rapidly devising methods for using natural gas as a feedstock for liquid fuels as well as for industrial chemicals. Stay tuned — these will not be limited to the old version of the highly capital-intensive Fischer-Tropsch process invented in Germany in the 1920s. Silicon Valley, Houston, Oklahoma City, and other venues are home to concentrations of very smart folks turning their attention to the goal of driving on liquid fuels made from natural gas. They are already beginning to change the energy game fundamentally.
Finally, the two of us agree that the U.S. should have an open fuels standard, a requirement that vehicles be able to use multiple fuels, not solely fuels derived from petroleum. An open fuels standard would inject fuel competition into the transportation sector. The two of us disagree only on one point: whether, as an alternative to gasoline for powering the family car, natural gas itself or methanol (“wood alcohol”) made from natural gas is likely to move faster into the market.
One of us (Pickens) emphasizes transitioning the nation’s heavy-duty and fleet-vehicle market to compressed and liquefied natural gas, a move that could create more than 400,000 new jobs and cut OPEC dependence by 70 percent. The other (Woolsey) stresses the low, one-time cost (under $100 per car), according to recent studies by MIT and General Motors, of making it possible to use methanol and gasoline in the same vehicle. But the point is not for policymakers, or the two of us, or indeed anyone to resolve these disagreements at the level of policy. The point is to do something OPEC won’t — let the market, the people, decide. Do as the Brazilians do and the Chinese are beginning to do — let drivers pull into a filling station and make their own choice about what to fill up with.
Do we really want to stay on our current path of being less willing than the government of Communist China to permit competition in the transportation sector of the economy?
Moreover, freedom to drive vehicles that run on fuels other than gasoline entail important health benefits. Driving on either natural gas or methanol removes the need to add benzene, which is carcinogenic, or other dangerous chemicals to our fuel tanks for the purpose of boosting octane. Published work by Boyden Gray and Andrew Varcoe shows how the use of benzene, like the use of lead in an earlier era, leads to huge medical costs — tens of thousands of shortened lives and well over $100 billion annually.
Our dependence on OPEC oil and the consequent strain on our national security and the undermining of our economic vitality add up to a problem that does, though, have a solution, if we just stay at it. Let’s choose some leaders who understand the issue and can lead the transition to natural gas as a clean, lower-cost, domestic replacement for today’s diesel, gasoline, and other fuels made from OPEC-controlled oil. And let’s arrange the transition so that the people decide how much natural gas replaces oil.
Let’s make a national commitment to this and bring forward the day when we can all cheerfully tell OPEC that if they don’t like it they can go play in their oil ponds.
— T. Boone Pickens is a longtime oil-and-gas-industry executive. R. James Woolsey is a former director of Central Intelligence, a venture partner with Lux Capital, and chairman of the Foundation for the Defense of Democracies and of the Opportunities Development Group’s Advisory Board.
As long as there is a Muslim in the WH, OPEC will continue to control the U.S. transportation industry with the Unions controlling the TSA stopping and searching Americans and their vehicles.
Americans will never be free of Middle East oil until Obama is out of the WH period. Natural gas, crude oil, Nuclear power, and any other form of natural power that Americans can invent or develop without government control, and NAZI boots on the neck of refineries and oil pipelines will end OPEC’s control over the US!
I have seen T Boone on Cavuto make the case that we could become independent pretty much by fueling the heavy commercial fleet with natural gas.
He is basically a good ol’ boy, but a smart good ol’ boy. T Boone has spent a good bit of time as an elder good ol’ boy studying the problem. Being old and free from the restraints of those not retired frees one’s mind to think beyond the limits of day to day. He has done just that.
The problem now boils down to devising and implementing the transistion.
Let me know when they develop the impact-proof fuel system first.
Seriously? No. We already tried natural gas as a widespread fuel back in the 70s and again in the 2000s (though the second time it was used as a fleet-only fuel). It doesn’t work out at all the way this writer thinks, and there were many homeowners who could tell you about how bad an idea it was when their neighbor’s natural gas compressor for his car went on fire/exploded/leaked and blew up half the block back in the 70s.
BUMP
Boon Pickens wants to recoup the money he lost on his wind farms by driving up the price of his natural gas holdings. We have enough oil to fill all our domestic needs and to become an exporter. We just need to drill it.
Used all the time in racing cars and aircraft, they are called fuel cells. Added with the current technology on the road for collision avoidance, and we have what you desire.
It should also be pointed out that natural gas is only this cheap because demand for it is relatively low. Throw the vehicle population of the US in there and watch prices skyrocket. Remember, the natural gas vehicles would then be competing with powerplants for the natural gas that’s out there. Then you can have expensive vehicle fuel and ridiculous electric bills at the same time.
The natural gas potential with the fracking of our shale deposits is hugh - and that's not including new oil production, coal, and nuclear. Look at what is going on in North Dakota and apply it to other shale trend formations. At least fifty good years of solid production if not 159 years in states that include Ohio.
* crickets chirping *
Maybe if Toyota or Honda jump on board. Anything non-union's a candidate.
Those are intended to contain liquid fuels, not gaseous ones under pressure. If you want an impact-proof gas cylinder, you will find they weigh more than the engine of the car does, empty.
To give you some idea of how long this has been promoted, watch this very early 80s video:
http://www.youtube.com/watch?v=irvktfQvu4M
Those lightweight tanks? Yeah, turned out they delaminated and ruptured after a while, which is why they never went anywhere in the marketplace.
For a given volume tank, you will get far less range on natural gas, as well.
With capturing all of it instead of burning it off will also raise production and lower the cost. So why is it that your glass is twice the size it has to be? Dealing with a problem that is either a glass half full or half empty is not the way one should be looking at efficiency when it comes to dealing with engineering problems.
Honda already sells a $25K natural gas powered Civic variant, the Civic GX.
Nobody except government agencies buys them.
NatGas folks have been dreaming of transportation demand for 30 years at least. And, with the 100% backing of enviro’s - at least throughout the 90’s and the early aughts. You’re right - the explosion risk is too scary and until that’s solved Boone should save his articles and get in the lab.
People have been trying to attack these “engineering problems” with NGVs for at least the past fifty years. Nobody’s solved them all and they’re still not very good.
Capturing it all isn’t even an option with the infrastructure we have now. We would need literally an order of magnitude more pipelines, etc., to even begin to feed the vehicle fleet.
Perhaps some will now understand why the environmental movement is trying to kill natural gas now.
Once natural gas becomes used for transportation fuel, it will be insane to reverse course and pursue subsidized electric, ethanol or algae.
Clean, domestic natural gas, produced by American workers earning above-average wages will become part of our culture in places like Pennsylvania, Ohio and New York.
Turning the traditionally blue states of Pennsylvania and New York into energy proucers will also change the politics of those states......something liberals cannot allow.
Power plants would then revert to coal and nuclear fuel. The reason for coal and nuclear not being used is political, not economic or scientific
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