Sticker Shock at the Pumps Symbolizes the Fossil Fuel Malaise
Here’s the scenario: Sticker shock at the gas pumps, with prices nearly doubling overnight. Long lines at the few stations that are open. Crude cardboard signs reading “out of gas” blocking incoming traffic at the ones that are closed. Huge sales on “full-sized” vehicles. Long waiting lists for econoboxes.
Nineteen seventy three? Nineteen seventy nine? How about 2007? The “high” prices that motorists were paying in the spring of 2000 could be a harbinger of a much more serious crisis in oil production and delivery. In the near term, gasoline prices are expected to recede from $2 per gallon, largely because the Organization of Petroleum Exporting Countries (OPEC) has agreed to production increases. The posturing calls in Congress for rollbacks in federal fuel taxes will die out, as will the ad hoc consumer protests.
The price hikes have been very good for Big Oil business: Comparing 1999 profits to 1998, Arco showed a 165 percent increase; Texaco a 36 percent rise; Shell a 38 percent jump; Phillips up 46 percent; and BP/Amoco gaining 35 percent. ExxonMobil might have made money too, if it wasn’t busy merging. As the Institute for Local Self-Reliance points out, oil companies are both very profitable and publicly subsidized, to the tune of $3 to $11 billion annually. Taxpayers for Common Sense has detailed $200 million a year just in tax writeoffs for exploration costs (and another $100 million for going after hard-to-get oil).
Rising prices are annoyances, but have to be seen in perspective. Even with the recent round of hikes, Americans still pay the lowest oil prices in the world, while using the most energy per capita. Because of our insatiable appetite for oil, the oil-rich United States has become a major importer, dependent upon OPEC and its allies for 56 percent of the supply. (At the height of the energy crisis in 1975, we managed to reduce that dependence to 35 percent.)
In the U.S., transportation gobbles up 65 percent of the oil supply, and because of automotive population growth and the growing appetite for sport-utility vehicles, demand has been steadily rising since 1998. Americans currently take twice as many car trips as Europeans, and walk or bicycle only a fifth as often. If the trend continues, by 2010 we could be importing two-thirds of our oil.
A recent editorial cartoon shows a shopper’s eyes popping at the prospect of $1.65 per gallon gasoline, while lugging such groceries as $9.87 a gallon beer, $48 a gallon maple syrup and $4.52 a gallon spring water. If it were sold by the barrel, Ben & Jerry’s Chunky Monkey ice cream would cost $1,105.44, according to petroleum researcher John S. Herold, Inc. High prices don’t shock Europeans, who routinely pay more than $4 a gallon for gasoline, even though they buy oil at the same per barrel prices. The difference is high European gas taxes, which are used in many cases to support alternative fuels and an excellent public transportation system.
The auto industry is gratified that high gasoline prices have affected neither the upward spiral of Vehicle Miles Traveled (VMT) nor Americans’ taste for large, heavy and thirsty sport-utility vehicles (SUVs). The biggest-selling car in America today is not a car at all, but the Ford Explorer SUV. Even with an environmentalist like William Clay Ford, Jr. in the chairman’s seat, Ford isn’t likely to steer an anti-SUV course. Vehicles like the Ford Excursion and the Lincoln Navigator are its profit center, earning the company as much as $15,000 each. From just one Wayne, Michigan factory making sport-utility vehicles, Ford earns the majority of its profits, approximately $3.7 billion a year.
The combination of consumer affluence (and apparent willingness to pay high oil prices) with runaway sales of profitable SUVs means heady times for both the oil and auto industries. What executive wouldn’t rejoice at the sight of citizen’s movements to repeal oil taxes? There’s even a handy foreign scapegoat, OPEC. Too coincidental? Wenonah Hauter, executive director of Public Citizen’s Critical Mass Energy Project, sees the sinister forces of market manipulation and collusion at work.
“There are a number of things coming into play to make oil prices go way up,” Hauter says. “The simplistic way of looking at this is that it’s just the oil-producing nations doing this to the United States. But you had better believe that the oil industry also had a hand in this. The oil-producing nations are very, very dependent on the oil industry for capital investment and new technology for drilling, and with just a few exceptions, the oil companies have extremely close relationships with the nations that produce oil—countries like Saudi Arabia, Kuwait and Mexico. The rise in oil prices is also going to help the domestic agenda of the oil companies that drill in the United States. They’re going to be able to leverage these high oil prices to do things like change policy to drill in the Arctic and to reduce environmental regulations.”
Drilling the Wilderness
Indeed, as Hauter predicts, the pressure to exploit Alaskan wilderness areas is growing. “Some members of Congress are using the oil price hike as an excuse to renew their calls for drilling the Arctic Refuge,” says the Sierra Club in a report entitled Crude Behavior: The Oil Industry’s Influence Over Our Nation’s Energy Policy. “Clearly, destroying one of the most spectacular places on the planet is too high a price to pay for politics as usual.”
Congress voted to remove the ban on North Slope oil exports in 1995, under the banner of relieving America’s currently dismal dependence on imported oil. In early March, Alaska Senator Frank Murkowski (R-AK) stepped onto the Senate floor and proclaimed that we were in the midst of a new oil crisis. His solution: S.2214, a bill to mandate oil drilling in the 1.5-million-acre Arctic Refuge, popularly known as “America’s Serengeti.”
Murkowski says his bill poses no danger to the migratory birds, caribou, wolverines, musk oxen, polar and grizzly bears that live in the Refuge, but a look 60 miles to the west, to the Prudhoe Bay oil fields, proves him wrong. With its pipelines, roads, drilling pads, wells, waste pits and airstrips, the ruined tundra of the oil fields covers 800 square miles. According to the Alaska Wilderness League, 95 percent of Alaska’s Arctic Slope is already open for exploration, and “the odds are little if any recoverable oil lies beneath the last five percent, the Arctic Refuge coastal plain.” A 1987 report prepared for the drilling-friendly Reagan Administration projected an only one-in-five chance of discovering economically viable oil there.
Melanie Griffin, the Sierra Club’s director of land protection programs, says the oil development threatens the refuge’s permafrost, which supports tiny cottongrass plants that are a critical summer food for the 129,000-strong Porcupine River caribou herd. “The oil companies call what they want to do ‘a footprint,’” says Griffin, “and show off pictures of caribou grazing near their pipelines. But what they want to do is a massive industrial development, and this would be a major disruption of the caribou migration.”
Follow the Money
As an alternative to drilling in wildlife refuges, Griffin suggests increasing investment in renewable energy and conservation technologies. “But in this political climate,” she says, “there’s not a lot of support for that.”
And why is that, you may ask? If we were less dependent on foreign oil, wouldn’t we be less susceptible to economic damage from price increases? To understand why that argument falls on deaf ears in Congress, just follow the money. Senators voting to remove the Alaska oil ban in 1995 received 5.3 times more money from oil and gas political action committees than did Senators who voted against lifting the ban, according to the Center for Responsive Politics (CRP).
Alaska’s Murkowski was the Senate’s leading recipient of energy and natural resource money in the 1997/1998 election cycle. Big oil and auto companies contributed $33.5 million overall to political candidates in the period. The oil industry alone gave $22 million, more than any other energy or natural resource sector, CRP reports. Of that total, 76 percent went to Republican candidates considered friendly to industry interests. Big oil was particularly generous to Alaskan Congressman Don Young, who was helped to victory with $119,708. Young heads an important natural resources committee and is an outspoken critic of environmental initiatives.
According to the U.S. Geological Survey, at best the Arctic Refuge contains 3.2 billion barrels of oil, which is only six month’s supply at current consumption rates. It’s perhaps more than a drop in the bucket, but even this transgression against a national treasure would do little to assert American energy independence. There’s considerable evidence that we’re stretching the world’s oil resources to the limits and beyond.
The End of Cheap Oil
As Scientific American observed in a 1998 special report, “The End of Cheap Oil” may be at hand. Demand, the magazine says, could soon start to exceed supply, a problem exacerbated by the concentration of most remaining large reserves in a few Middle Eastern countries. What’s more, some experts say, the size of many countries’ oil reserves has been systematically exaggerated for political and economic reasons. Colin Campbell, a co-author of the Scientific American piece, said in an e-mail message that he expects conventional oil, excluding difficult-to-extract sources like polar and deepwater deposits, to peak around 2005, with all oil reaching a production peak in 2010.
We’ve grown accustomed to a steady, seemingly inexhaustible supply of inexpensive petroleum, but the history of oil drilling—indeed, the history of any use for what was once called “rock oil”—is surprisingly brief. As late as the 1850s, people scratched out a bare existence by soaking up surface oil from springs around Oil Creek in Pennsylvania. The few barrels they produced were used to make patent medicines. An enterprising Yale chemistry professor named Benjamin Silliman, Jr. was the first person to figure out that oil supplies could be reached by drilling (as was then done for salt), and he hit his first strike in 1859. Only a little more than 100 years after “the light of the age” was first proclaimed, we’ve used up half the world’s known oil supply.
“The question is not whether, but when, world crude productivity will start to decline, ushering in the permanent oil shock era,” says oil analyst L.F. Ivanhoe. The World Resources Institute (WRI) predicted in a 1996 study called “Oil as a Finite Resource” that world production could peak as early as 2007, at the low end, or 2014, at the high end. This is not just wishful thinking by environmentalists. John F. Bookout, a former president and CEO of Shell Oil whose comments are cited in the WRI report, is in basic agreement with Ivanhoe and WRI, projecting that production will peak at 75 million barrels a day “around the year 2010.”
Energy Investor magazine is even more pessimistic. “The next oil crunch will not be temporary,” the magazine writes. “Our analysis of the discovery and production of oil fields around the world suggests that within the next decade, the supply of conventional oil will be unable to keep up with demand.”
Ivanhoe, a geologist who spent 12 years at Occidental Petroleum and is now coordinator of the M. King Hubbert Center for Petroleum Supply Studies at the Colorado School of Mines, explains that the critical milestone for world oil consumption “is not when it’s all gone, but when it’s half gone. That’s the peak of production, and it could occur anywhere between 2005 and 2015. The Norwegians, for instance, say that their oil will top out in 2005, and after 2010 it drops off into infinity.”
Though some environmentalists, including car industry critics like Ralph Nader and Amory Lovins of the Rocky Mountain Institute, aren’t convinced that the end of big oil is nigh. There’s some support for that position as well. The U.S. Geological Survey, for instance, reported in late March that the world’s oil and gas reserves are probably 20 percent higher than previously believed. “There is still an abundance of oil and gas in the world,” says Thomas Ahlbrandt, the survey’s petroleum assessment project chief.
The oil companies themselves seem complacent. ExxonMobil claimed in 1999 that “the world has ample supplies of fossil fuel,” adding that “as improved technologies [are] brought to bear, resources once considered impractical can become economic.” Those technologies include the use of tools like virtual reality to find previously unknown deposits of oil. The industry can also take heart in a theory, advanced in The Wall Street Journal, speculating that known oil reserves remain relatively stable because oil is actually a renewable resource, continuously produced by the extremely hot temperatures and high pressures under the surface of the Earth.
But the usually optimistic environmental writer Gregg Easterbrook has been doing the math and thinks the wells will indeed come up dry soon. The world has used up 800 billion barrels of oil, he wrote in The Los Angeles Times, with between 1,000 and 1,600 billion barrels remaining in production-feasible reserves. At the current rate of consumption, it would take 60 years to use up the remaining supply. But, Easterbrook says, “world consumption is not standing still, but increasing. Current global petroleum use, already a mind-bending 71 billion barrels a day, is rising at almost two percent a year.”
Oil consumption in the Third World is skyrocketing. In Taiwan, for instance, oil imports in 1997 were up 70 percent. In China, they rose 37.5 percent in 1996. “We’re either going to have to find huge new deposits soon—which is essentially impossible—or we’re going to see sharply rising prices, shortages and economic disruption,” wrote oil analyst Richard Reese a year before that actually began to happen.
Even if the world isn’t running out of oil just yet, there are many other reasons to end the 100-year reign of fossil fuels. Oil is an environmental nightmare for many different reasons. According to the Environment News Service, for instance, about 706 million gallons of it end up in the ocean every year, “from used engine oil being poure
d down the drain, runoff from city streets, air pollution particles and offshore oil drilling.” Thirty-seven million gallons spill from oil tankers alone, and 15 million more from oil drilling rigs. The 1989 Exxon Valdez disaster, which spilled 11 million gallons into Alaska’s pristine Prince William Sound, is permanently imprinted in the public consciousness.
And then there’s global climate change. Every second, American cars and trucks add 60,000 pounds of the global warming gas carbon dioxide to the atmosphere, two thirds of total U.S. emissions. Every gallon of gasoline burned up in an automobile engine adds another 20 pounds of carbon dioxide, containing five pounds of pure carbon.
If the U.S. were to actually sign on to the international agreement on global warming hammered out in Kyoto, Japan in 1997, it would have to reduce the greenhouse gases it emits to seven percent below 1990 levels by 2012. That would be a near-impossible goal even if our automobile population was stable; instead, since 1969, the U.S. vehicle population has grown six times faster than the human population, 2.5 times faster than the number of households and double the rate of new drivers. Despite being only five percent of the world’s population, Americans own 34 percent of the planet’s cars and drive an estimated two trillion miles annually.
Rising affluence in countries like India and China have made auto ownership an increasingly affordable dream, which could swell the world’s car population past any manageable limits. There are now 600 million cars in the world, but in 2020 there may be 4.5 billion, a clearly unsustainable number if they’re producing emissions and global warming gas at current levels.
Because of all these factors: global warming, supply shocks and impending clean air regulations, the industry is taking its first small steps toward diversification. As they announce their intention to become “energy companies” instead of oil companies, it’s easy to be reminded of the transformation of tobacco-based corporations like RJ Reynolds, which would just as soon sell crackers as cigarettes. It’s not surprising that U.S. Tobacco is now just UST.
The Holland-based Shell Group launched a division called Shell International Renewables in 1997, exploring such areas as solar power and biomass. Shell Hydrogen, another division, is working with DaimlerChrysler on a gasoline processor for the fuel-cell cars the German company plans to introduce in 2004.
Fuel cells, of course, are a very promising technology for ending fossil-fuel dependence. They’re a kind of externally fueled chemical battery that produces electricity without combustion. Fuel cells run on hydrogen, but that fuel can be extracted from a tank of gasoline or methanol using an on-board chemical factory called a “reformer.” It’s the technology that’s favored by the oil companies—for obvious reasons—but running fossil fuels through a reformer creates more emissions and global warming gas than does powering the cell on direct hydrogen gas. DaimlerChrysler’s NECAR (New Car) III, for instance, a fuel-cell car with a reformer, produces levels of the global warming gas carbon dioxide in levels roughly equivalent to that of an efficient diesel engine.
If oil companies do become “energy companies,” hydrogen will probably be one of the technologies in their portfolios. “The efficiency of fuel cells—a technology we’re supporting—is very promising,” says ExxonMobil, adding that “hydrocarbons will still be the most efficient and practical sources for powering [them].”
Fuel cells are on the horizon, but excellent opportunities exist right now to greatly lessen fossil-fuel dependence. One important approach would be raising the stagnant federally mandated Corporate Average Fuel Economy (CAFE) standards to 45 miles per gallon (mpg) for cars (it’s now 27.5 mpg) and 34 mpg for light trucks (from 20.7 mpg). According to the American Council for an Energy-Efficient Economy (ACEEE) such a move, easily achievable by the world’s automakers, would save two million barrels of oil per day.
Equally huge fuel savings could be achieved if motorists switched from behemoth SUVs to fuel-efficient cars. Last December, Honda introduced its two-passenger Insight hybrid car, which achieves 70 mpg through its revolutionary combination of both gas and electric drivetrains, as well as a super-light 1,800-pound body structure. Toyota will be marketing its very fuel-efficient four-passenger hybrid car, the Prius, in the U.S. this summer. The ultra-modern Prius is already a hit in technology-friendly Japan.
But will Americans buy small cars like these, even when the complicated technology is subsidized by their manufacturers and available for a modest $19,000 to $23,000? It’s too early to tell how the hybrids will do, but John Bradley, an ACEEE senior research associate, says that “even though the media has been showing angry people pumping expensive gas into their sport-futility vehicles, it hasn’t changed people’s car-buying habits or caused them to drive any less. Car sales are on pace to exceed last year’s record numbers, and they’re buying mostly trucks and SUVs.”
To be fair to consumers, they’ve been given very little incentive to save energy. Bradley notes that not only has Congress refused to raise CAFE standards, it has also virtually defunded the 77 innovative Clean Cities programs across the country, which together receive what one congressional staffer called “chump change,” $17 million.
We’d conserve far more if we invested in renewable energy research, a priority in the Carter administration that has been languishing ever since. Unfortunately, President Clinton’s budget for energy conservation, solar and renewables was slashed 20 percent by Congress in 1999 and 2000. “I don’t think anyone really believes that we can become more energy independent unless we develop more alternative fuels,” said a frustrated President Clinton at a press conference in March. In the last two years, The Sierra Club reports, Congress cut $7.4 billion from the administration’s efforts to reduce energy consumption, even though the programs could have saved $70 for every $1 invested. This included cuts in funding for home energy conservation, a real issue as home heating oil prices started to rise last winter.
It’s possible that it will take another major energy crisis for us to get serious about saving energy, says Joan Ogden, director of the Center for Energy and Environmental Studies at Princeton University. “Otherwise, gas prices are a weak economic lever,” she says. “If the gasoline bill doubles, costing a few dollars more per week, it’s not a big problem.” Waiting in gas lines, or not being able to find gas at all, that gets people’s attention.
Ogden, who’s been a consultant to Ford and other companies, does believe that oil production is peaking in many parts of the world, and even with major technological improvements it will get more and more expensive to extract the remaining oil. “The oil companies are looking at this problem,” Ogden says. “There are strategic thinkers there, and they’re serious about fuel cells. The tone is changing dramatically.” Shell’s chairman, Mark-Moody Stuart, says, “We need to have a dialogue on responsibility wi
th our shareholders,” and the company runs ads about saving the rainforest. “Greenwashing,” yes, but indicative perhaps of a tiny change in thinking.
The pace of change will have to accelerate. Cheap oil never really was cheap, and we just can’t pay the bill, environmental or financial, to keep it flowing for another 100 years.
JIM MOTAVALLI is editor of E.