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April 28, 2005

Bush's Latest Energy "Plan"

Approaching the summer "driving season" when gas prices often spike, President Bush has pumped up a new set of energy proposals. Even the mainstream media regard them as window dressing. (Witness the Washington Post.) But I'll take the proposals as serious and comment.

1. The Bush administration proposes to allow oil refineries on abandoned military bases, claiming that limited refinery capacity is driving up gas prices and that it's hard to get permission to build new refineries. Military bases, as federal property, are exempt from most local regulations.

The overwhelming cause of high motor fuel prices is high world oil prices. World oil prices are high because of lots of demand, especially from the United States and China, and -- especially -- because the oil markets have built a big "risk premium" into prices. "Risk premium" is Wall Street talk for cold sweats. Oil traders are afraid that world oil supply will be disrupted dramatically by violence in the Middle East, such as by crippling the main Saudi oil port. These fears are thoroughly justified. The Bush Administration's military policy in the Middle East is behind this "risk premium."

World oil prices are especially high for the United States because the dollar is down. The dollar is down mostly because of massive federal deficits, created by tax cuts without corresponding spending cuts. The Bush Administration is the cause of this fiscal policy.

Some observers also think the world is already close to "peak oil"--the highest annual rate of production we'll ever reach. At peak oil, most analysts believe, prices go up and become more volatile. This is bad. It may even be very, very bad. According to some few analysts, peak oil also hearkens all manner of other terrible things--pretty much the end of life as we know it. It's the veritable apocalypse. (Excuse my sarcasm. It's just that some of the peak oil folks strike me as scary: they seem positively enthusiastic about dreaming up worst case scenarios. These people, possessed not by reasonable concerns about peak oil but instead gripped with a cult-like obsession about it, remind me a lot of the Y2K cult that held sway in the late 1990s. They also remind me of fringe fundamentalist Christians who believe the end is near, that Armageddon is upon us, and that the Rapture is imminent.)

Refinery capacity is a tiny bit limited in a very few places--the Northwest not one of them--because the nation's fuel appetite is bloated by falling fuel economy (aka, trucks supplanting cars). But mostly, Bush's proposal is irrelevant. Rescuing the dollar by showing serious intent to end deficit spending would have more short-term and long-term benefit to US oil purchasing power. Fully inflating car tires would have far more benefit. And, of course, finding some way out of the quagmire in Iraq would help lower oil prices.

As WaPo notes:

Industry leaders said it is not clear that companies would want to build new refineries because the business historically has not been highly profitable. While demand and profit margins are high now, companies are not convinced those margins will remain high enough to justify new refineries.

2. Bush's plan includes "renewing tax credits for hybrid vehicles and adding them for efficient "clean diesel" vehicles."

That's a good idea. It's just a tiny idea. Hybrids and clean diesel together make up such a tiny share of the vehicle fleet--well under one percent--that they have hardly any effect on total fuel demand. Why not extend the idea to the entire fleet through feebates?

3. Bush also proposes to override state and local government and make the federal government the ultimate arbiters of proposals to build liquid-natural-gas terminals. At least five of these risky facilities are proposed in Cascadia. Such federal intrusion on state and local land-use regulations is wholly unwarranted. If LNG facilities are worth building, the communities that accept them should have a say.

P.S. Oh, and the Bush "plan" also tries to create new incentives for building nuclear power plants. As if nuclear power needs more subsidy than it already has. Even with these subsidies, though, it's unlikely anyone will build any.

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Comments

thanks for your informed perspectives and solid research. we are now working on the follow-up to END of SUBURBIA, called ESCAPE From SUBURBIA, and i have found your information really useful. i will be putting it to good use. cheers!

Posted by: greg greene | Apr 29, 2005 6:38:07 AM

Nice comparison of the "peak" oil folks to Y2K. There is a lot of truth in that. WaPo is correct too that low refining margins is likely the real reason US reinvestment in refining capacity.

There are two things that the Bush admin could do that would immediately impact world oil prices. MMS could begin to lay out the lease areas of the 1002 area in Alaska and fund a 3-D seismic survey for winter 2005-2006. Secondly, he could persuade the new Gov. of Iraq to drop out of OPEC and open up the oil frontier in Iraq to western companies more along the lines of the Canada/US model instead of the state owned oil company model.

Supply/demand for crude is VERY tight right now, which is driving the risk premium. Saudi Arabia was the swing producer with 2-3 million barrels of reserved capacity. That excess reserve is going to China and India right now.

It was the construction of the Alaska pipeline and the 2 million barrels of crude from Prudhoe that broke the back of OPEC. The markets are NOT factoring in additional supplies from Alaska or Iraq. Just announcing such programs would make the risk premium evaporate.

But then folks like you and the Democrats would have a cow over such intelligent moves.

Posted by: Alberto | Apr 29, 2005 7:08:43 AM

>>The markets are NOT factoring in additional supplies from Alaska or Iraq. Just announcing such programs would make the risk premium evaporate.<<

That's because even if the administration took your proposed course of action, it will be years (at best) before any of that oil makes it to market. Oil companies are not investing in Iraq because it is entirely too dangerous, not because anybody (any government, that is) is keeping them out. The oil market is reacting to supply and demand now, not to what might happen in five to ten years.

Posted by: Roy Smith | Apr 29, 2005 8:24:48 AM

We can bioengineer [corn] so we can double and triple it's yeild. Why not ethanol?

No we can't.

There is no corn on the market now that has been engineered to have its yield increased. RR corn increases yield by eliminating competition from weeds, and Cry9C-type strains reduce pest losses.

Plus, most of the corn in the US goes to feed animals, in response to folks with wealth, maximizing their utility by consuming more protein in the form of meat.

D

Posted by: Dano | Apr 29, 2005 9:27:07 AM

Oil, shmoil. There's solar, wind, hydro, nuclear, better techniques to use them..and..methods to perturb the quantum vacuum for cheap abundant energy. By the way, generating fission with boron won't create radioactive waste..and waste from current methods can be remediated with short laser blasts. Why we don't this, God only knows.

That said, oil is likely to go up for quite some time either because 1) peak oil is true and/or 2) markets believe peak oil is true and hoarding starts and/or 3) the current trend of fascism in certain governments means we're supposed to believe it's true so we'll pay more for fuel and become meeker. In any event, it seems that oil is a canard that we need to abandon for the sake of our prosperity, our environment, our good standing among nations, and our political freedom.

Where to start while waiting for a shift in our fuel choices?

1. Walk more, it's good for you.
2. Bike more, it's good for you.
3. Ride the bus, cleaner and more efficient than separate cars.
4. Ride the train, even more cleaner and efficient than the bus.
5. Pool passengers and plan trips.
6. If you can ride bikes, try scooters and motorcycles: 80mpg of gas.
7. Get a hybrid car and convert it to pluggable. Add a solar panel: 80 to 120mpg of gas.
8. Run a diesel car on biodiesel that you buy or make yourself. No oil to buy at all. Diesel hybrids are on the way with low emissions.
9. Become an organic vegetarian. No joke. Eating a pound of animal requires several times as much petroleum (and water) to produce and transport as a pound of plant.
10. Buy things made locally. Besides reducing oil depletion and carbon output, you'll keep money and jobs in your community.

Posted by: Julian | Apr 29, 2005 10:43:38 AM

>>Oil, shmoil. There's solar, wind, hydro, nuclear, better techniques to use them..and..methods to perturb the quantum vacuum for cheap abundant energy.<<

All of which make electricity, not transportation fuel or fertilizer. With regards to transportation, even supposing we could reengineer our transportation infrastructure to be non-oil based, it would take massive amounts of investment, commitment, and a number of years, probably decades. Not a quick solution, at best.

With regards to fertilizer and pesticides, the "Green revolution" of the post WWII period is probably at its end - now we are facing the "Green de-evolution" during which period crop yields worldwide will start dropping (even without considering the effects of climate change).

Posted by: Roy Smith | Apr 29, 2005 11:21:46 AM

>>Oil companies are not investing in Iraq because it is entirely too dangerous, not because anybody (any government, that is) is keeping them out.<<

Nope, not the reason. The Iraqi government hasn't gotten around to setting up the petroleum sector and the rules (lease terms, bonus payment schemes, royalty rates, taxation, fiscal environment, etc.). Essentially the Iraqis are running the Saddam system with help from the US Military and some western contractors. Expensive to operate, yes, but not impossible. I know at these prices many US oil companies would jump at the chance to bid on leases is Iraq. We are years from production, but just knowing the oil is coming will tend to reduce the current price.

I've worked in countries in the middle of a civil war (Algeria & Angola). It is relatively easy to protect drilling operations, assuming you have military support. I felt pretty safe inside the "zone" in Algeria. The Islamists would have cut my throat if I'd ventured out.

Posted by: Alberto | Apr 29, 2005 12:13:02 PM

>>All of which make electricity, not transportation fuel or fertilizer.>With regards to transportation, even supposing we could reengineer our transportation infrastructure to be non-oil based, it would take massive amounts of investment, commitment, and a number of years, probably decades. Not a quick solution, at best.>With regards to fertilizer and pesticides, the "Green revolution" of the post WWII period is probably at its end - now we are facing the "Green de-evolution" during which period crop yields worldwide will start dropping (even without considering the effects of climate change).<<

I'm inclined to think this is a significant concern if we don't start converting our energy production portfolio sooner than later. The ag conversion as well as transport conversion does require an intensive sea change in federal and state capitols. Let's all pitch in and voice our opinions! If DC won't listen, let's start with Salem and Olympia.

Posted by: julian | Apr 29, 2005 12:51:16 PM

Repost for better formatting, sorry.

>All of which make electricity, not transportation fuel or fertilizer.With regards to transportation, even supposing we could reengineer our transportation infrastructure to be non-oil based, it would take massive amounts of investment, commitment, and a number of years, probably decades. Not a quick solution, at best.With regards to fertilizer and pesticides, the "Green revolution" of the post WWII period is probably at its end - now we are facing the "Green de-evolution" during which period crop yields worldwide will start dropping (even without considering the effects of climate change).<

I'm inclined to think this is a significant concern if we don't start converting our energy production portfolio sooner than later. The ag conversion as well as transport conversion does require an intensive sea change in federal and state capitols. Let's all pitch in and voice our opinions! If DC won't listen, let's start with Salem and Olympia.

Posted by: Julian | Apr 29, 2005 12:55:37 PM

Darn glitches. One last try, sorry.

{All of which make electricity, not transportation fuel or fertilizer.}

For transportation, solar and quantum vacuum could generate energy on-board. For fertilizer, I'm not an expert. How did people fertilize crops before the age of oil? I'm sure that converting more of our land back to a fallow state with biodynamic farming would help, although its slow and labor intensive.

{With regards to transportation, even supposing we could reengineer our transportation infrastructure to be non-oil based, it would take massive amounts of investment, commitment, and a number of years, probably decades. Not a quick solution, at best.}

I contend it is possible to reengineer the infrastructure to be non-oil based. The "investment" can come in the form of federal or state tax breaks for individuals and businesses that convert more of their energy portfolio away from oil as well as private investment from R&D companies that can see the emerging market needs and the profits. The commitment grows as gas prices (and lines?) grow. The time frame is fuzzier as few of us have good information on actual oil supply/recoverability, future actions of governments and the organizational requirements to transform from the current industrial methods to others. I'm not a Larouchie, but one thing Lyn says that makes sense is preserving the physical and labor capital of GM. Any major change to our transport paradigm will require advanced tools and dies as well as the skilled operators of these. GM has ample resources of these under their control but have shipped much of it overseas. Should GM be reduced to junk bond status, the US could lose a significant asset for rapid industrial transformation. Ford and Boeing are others to keep tabs on.

{With regards to fertilizer and pesticides, the "Green revolution" of the post WWII period is probably at its end - now we are facing the "Green de-evolution" during which period crop yields worldwide will start dropping (even without considering the effects of climate change).}

I'm inclined to think this is a significant concern if we don't start converting our energy production portfolio sooner than later. The ag conversion as well as transport conversion does require an intensive sea change in federal and state capitols. Let's all pitch in and voice our opinions! If DC won't listen, let's start with Salem and Olympia.

Posted by: julian | Apr 29, 2005 1:05:41 PM

>>For transportation, solar and quantum vacuum could generate energy on-board.>How did people fertilize crops before the age of oil? I'm sure that converting more of our land back to a fallow state with biodynamic farming would help, although its slow and labor intensive.>I contend it is possible to reengineer the infrastructure to be non-oil based. The "investment" can come in the form of federal or state tax breaks for individuals and businesses that convert more of their energy portfolio away from oil as well as private investment from R&D companies that can see the emerging market needs and the profits. The commitment grows as gas prices (and lines?) grow.<<

How do you propose to make this work politically? Particularly since much (most) of the public won't admit that there is a problem with supply or that Peak Oil is a real phenonomenon?

The other big problem is that when commodities experience shortages, prices don't smoothly ramp up in a way that allows markets or the government to deal with them effectively, they spike and cause chaos. Think about what happenned in California with electricity a few years ago. When basic necessities run short (which petroleum unfortunately is for our industrial economy) demand doesn't drop anywhere near as quickly as prices go up.

Posted by: Roy Smith | Apr 29, 2005 1:22:55 PM

>>The Iraqi government hasn't gotten around to setting up the petroleum sector and the rules (lease terms, bonus payment schemes, royalty rates, taxation, fiscal environment, etc.).<<

The Iraquis haven't even gotten around to setting up a government yet. How do you propose that they set all this up? By American mandate? Not likely to work well.

Posted by: Roy Smith | Apr 29, 2005 1:25:58 PM

>>For transportation, solar and quantum vacuum could generate energy on-board.<<

Now, if we could just get somebody to build prototypes of these amazing machines ...

Posted by: Roy Smith | Apr 29, 2005 1:27:40 PM

>>How did people fertilize crops before the age of oil? I'm sure that converting more of our land back to a fallow state with biodynamic farming would help, although its slow and labor intensive.<<

Manure and compost. And they accepted much lower yields as normal. That is the real problem - earth does not physically have enough land to put into agricultural production to allow sustainable yields and still feed over 6 billion people.

Posted by: Roy Smith | Apr 29, 2005 1:29:46 PM

{Now, if we could just get somebody to build prototypes of these amazing machines ...}

solar tech is here, now and improving. And have a look at this:

www.perendev-power.com/My_Homepage_Files/Page4.html

Or these:

www.pureenergysystems.com/
www.newenergymovement.org/

Posted by: julian | Apr 29, 2005 2:14:00 PM

Still no car powered by these technologies ... Some good conspiracy theories about suppression of alternative energy by corporate energy interests though.

Posted by: Roy Smith | Apr 29, 2005 2:39:30 PM

One idea I've heard lately is to have a gas tax which increases by 5 cents a month, every month, for ever.

Posted by: Mike | Apr 29, 2005 3:03:48 PM

>>One idea I've heard lately is to have a gas tax which increases by 5 cents a month, every month, for ever.<<

Exactly what is needed to correct from the fact that markets aren't a good mechanism for adjusting to the effects of Peak Oil. Unfortunately, that is politically impossible unless a solid majority of Americans realizes that climate change and/or Peak Oil production will eventually wreak far more havoc in their lives than gas getting more expensive. Too many Americans, not to mention other parts of the world that want to become America, think that driving gas-guzzlers is their birthright.

Posted by: Roy Smith | Apr 29, 2005 3:16:20 PM

Oil is running out its as simple as that
the saudi spair capacity has disappeared from the market more or less, meaning that any supply disruptions will only push up price further.

people are horribly misguided if they believe oil prices are just a speculative bubble. If this was true how do you explain the many countries where oil production is decreasing ? Oil production peaked in 1970s in USA. It will happen everywhere else eventually.

Posted by: Ian | Apr 30, 2005 5:19:19 AM

Concerning the exact date of Peak Oil? The Rand Corp recently made a study public stating that we need a crash program "Apollo style" to convert our system to a more stable renewable one. Their timeline says that 25 years will be needed to crash convert to a more stable system. So it does not matter if the peak is this year or 10 years from now.
We need to start in 1978. That is when President Jimmy Carter laid out his energy plan for an "Apollo type" conversion.
Of course, we need courageous leadership at the top, something we do not have. We have aWol. Missing in action. Horse milker.

Posted by: Danasaur | May 7, 2005 12:44:38 AM

Just thought I would add something important. Due to the rapid growth of Indian and Chinese economys, oil consumption is just going to rise. It is vital that America start improving the fuel efficency of all vehicles to reduce consumption. I think many people don't realize that here in the US we produce quite a bit of oil. We don't have to eliminate oil use completely, we just have to become more efficent. Once we are consuming just our oil, or very little other oil, the problem of oil consumption is the problem of China and India. And thats just fine by me.

Posted by: Gary Durning | May 11, 2005 1:37:41 PM

I would also add that fuel-efficient vehicles are good not just for America, but for the entire world. We share this beautiful world together, after all. It would be great if America could help lead the way to a greener world, instead of lagging behind. Let's be *good* role-models!


Posted by: Michelle Parker | May 11, 2005 6:00:43 PM