Alright Nicole, here it is.

My response to this article

CNN has always written articles and given newscasts to its viewers as though they are speaking to a group of morons. This is done in both subtle and obvious ways. Subtle by showing a British MP speaking in front of the houses of Parliament and big Ben, two of what are easily the most recognisable symbols of London/England and on the bottom left corner of the screen it tells me this person is in London, United Kingdom. Well ya know, if that weren’t there I’d think the person speaking into the Camera might be in London, Kentucky. OK, maybe this is necessary when I see people in the US identifying Canada and Australia as Iraq, but I really hope that is a small fraction of the population. I digress. In a recent and more obvious way the financial and economic editors and contributors to the CNNMoney section have warned against an energy independent US.

The first thing that needs to be done is to define an “energy independent US.” Does it mean that the country does not rely on Middle East oil to keep energy costs low? Does it mean that the US relies solely on itself and its own natural resources as a supply of energy? I know of a few who take the idea of energy independence much further where the US uses zero fossil fuels and is kept running on alternative and non polluting sources of energy. I do not believe that we will ever achieve this sort of zero-oil-consumption nation, or world even. No matter how noble a goal, one cannot convince 300 million people to stop using fossil fuels, even though humans lived for thousands of years where they did not burn oil, coal, gas, etc. We are now at a fork in the road: we can start moving toward some notion of energy independence, be it conservation and alternative sources or we can pump and use as much as is possible. What I take from this article is that we should continue to pump and consume at current levels because this is the cheapest option: “Why sentence ourselves to more expensive energy?”

This article is correct on several fronts. It is cheaper to pump oil out of the Middle East than it is to create and develop new sources of alternative energy. What the writer doesn’t realise is that this is its major flaw. When advocating for reliance on continued drilling and extracting in Arabia, I can only suspect that the writer is assuming that Arabian oil production will either at least remain constant if not gradually increase to make up for declines in production from the rest of the world (and I do know the author is knowledgeable of Peak Oil). In his book “Twilight in the Desert” Matthew Simmons describes a phenomenon called rate sensitivity. Without trying to get into too much technical babble, what happens is that if you extract oil out of a well at extremely high rates, as is currently being done, the field becomes damaged and future oil production declines much faster than if a field were properly managed. There is evidence of this around the world, and has just happened in Kuwait last year. Simply put, the Middle East will have a difficult time matching supply with new demand and possibly even current world demand.

Fox is also right with the idea the energy independence from the Middle East, or further, dependence on only US reserves, would be disastrous for the national economy. The US pumps out less than half of what it uses in any given day. At present we simply don’t have the ability supply our own energy needs whereas in the past we did. There are two things that happen: one is that the national economy pretty much freezes. Prices for all energy sources will skyrocket (and never mind oil at 250/bbrl) and our national reserves will be drained. It is possible that the latter may not be able to happen if the former does, but it wouldn’t matter at that point. Another point on lessening Middle East dependence: we do not have friendly countries to fall back on as we did in the 70’s and 80’s with the North Sea oil bonanza. The small amounts of new discoveries have been made in areas of the world that are not the friendliest of places to the US, and will be in direct competition with Chinese demand.

In my opinion, the most important reason to move toward “energy independence” is to hedge against risk and volatile price fluctuations via an oil shock. The world will soon reach a point in the next 2-5 years where global demand surpasses global supply: Peak Oil. When this happens price will go up or demand will have to drop. We have seen over and over again that oil is so incredibly inelastic the price will fluctuate much more than demand (there will obviously be people that conserve, but most will continue to go on consuming and “paying the price”).Peak oil is not the only reason to want this risk/price hedge. Just last week, Saudi Arabian authorities foiled an Al-Qaida plan to blow up one of the largest refineries in the world at Abqaiq, a stalwart of Saudi oil production. Had this succeeded or if Muslim extremists (different extremists than the Wahabi’s) gain control of Saudi Arabia and shut off 10% of the worlds oil supply, oil prices will climb worldwide. During New Year’s, Russia shut off all gas exports to Europe and Eastern Europe experienced a 40% drop in reserves. A number of years ago when Venezuelan oil workers went on strike, gas prices in the US went up, and Venezuela at the time supplied some small fraction (around 1%) of gas to the US. The point is that it doesn’t take much of a disruption, uncertainty or fear in the oil market to make oil prices jump all over the place (remember $6/gallon for petrol in the south after Katrina?). Placing a $250 tariff on oil will certainly ruin economic activity, but what about when $250/bbrl oil through completely private and capitalist markets ruin economic activity and there is no government intervention? As a country, we should not wait around for a replacement for oil. We need to immediately begin investing in alternatives to our beloved Arabian sweet crude. The more forms of power and energy the US has, the less severe will be an oil shock. Whether this actually comes from a peak oil situation, global conflict over energy, natural disasters et al doesn’t matter; risk is uncertainty, developing wind and hydro power will hedge risk and reduce and potential long term financial burdens we may have to bear.

Another way to look at it is like this: Let’s say that oil does become expensive (or even adjusts for inflation) and at that point we begin to develop alternatives ranging from ethanol plants, nuclear plants, biodiesel, wind farms, hydro stations, tidal power, solar panel manufacturing, oil shale extraction, et al. You name, we go for it. All of these industries are very energy intensive. You cannot build a wind farm or even manufacture a turbine without using a lot of oil/oil based fuel. Would it be in our interests financially to manufacture wind farms with oil at $60/bbrl, which is a real bargain, or when it is at $100-$200/bbrl? Develop sustainable energy alternatives now while it is still relatively cheap to do rather than wait around until the cost of electricity is the same for wind power than an oil or natural gas power plant. So in answer to the question “Why sacrifice ourselves to more expensive energy?” I answer because oil will soon be the alternative to today’s alternative energy and our economy, society and infrastructure only know how to use one thing: fossil fuels.

I suppose that to accept my logic as valid you would have to conclude for yourself that oil and other energy prices are going to rise in the future. To deny my conclusions is to say that the price of a finite resource will not go up as we continue to extract and use what will not be replenished. This is one of the only things that I really enjoy and have a passion to debate and discuss. Respond if you so feel.