Gas Guzzlers' Shock Therapy
Aug. 16 issue - My fellow Americans, drop the fantasy that we'll return to cheap gasoline, and pump it for as long as our withered hands can steer an SUV. As the prophet saith, the end is nigh. Demand for oil is running high—in fact, we're gobbling up the stuff. But world production grew by only 0.6 percent a year for the past five years. At some point, supplies will shrink, not grow.
The two oilmen in the White House maintain that we can drill our way out of this hole. George W. Bush is campaigning on subsidies for more oil production at home, especially in the Arctic. John Kerry says he'd invest in alternative fuels, raise mileage standards for cars and SUVs, and subsidize energy efficiency. For their part, consumers don't want to hear that oil could run out. That Escalade in the showroom just looks too good.
Am I crying wolf? If so, I'm in the company of some pretty big guns in the oil biz—geologists, merchant bankers, analysts and petroleum engineers. They note that the major companies aren't building new U.S. refineries, investing in drilling or enlarging the tanker fleet—suggesting that they don't expect much new oil to appear. Saudi reserves, which the world depends on to fill every energy gap, remain a state secret; outsiders wonder how big they really are.
Princeton geology professor emeritus Kenneth Deffeyes, who's writing a book due in 2005 called "Beyond Oil," waggishly names an Armageddon date: "World oil production will reach its ultimate peak on Thanksgiving Day 2005," he says. Then the long, slow decline begins (for a fuller discussion, see oilpeak.com).
Terrorism is catching the blame for pushing the price of September oil futures to a record $44.41 a barrel last week. In fact, "the war has very little to do with it," says energy consultant Philip Verleger. Prices are rising under the pressure of soaring demand for gasoline. Markets are catching on to the tightening of supplies, even if civilians aren't.
None of this means lines at the gas pumps or gas holding firm at $2 a gallon. Oil prices are cyclical, says oil analyst Matt Conlan at Weeden & Co. They'll peak, then drop, bottom out and rise again. But each cycle will start and end at a higher price.
As you might expect, a campful of critics call this "peak oil" theory nuts. They expect new finds or technologies to keep the black stuff flowing. And maybe they're right. But what if they're wrong? A permanent shrinkage in supplies would so severely damage today's oil-based economy that it makes no sense to wait and see. We need energy options, just in case. If shortages don't develop, we'd still be ahead of the game, with more diverse and cheaper sources of energy for future growth.
What might we turn to? The easiest would be efficient diesel cars, Deffeyes says. They use oil, but are capable of getting more than 90 miles to the gallon. Two little problems: diesels smell bad and pollute the air. But they also can run on a mixture that includes soybean oil, which smells more like salad.
Greenies are eying "hybrid" cars. They run on gasoline but store electrical energy when you step on the brakes. At slower speeds, the cars run on electricity alone (and no, you don't have to plug them in). Consumers Union clocked them at 36 to 51 miles per gallon. The 2004 Toyota Prius hatchback costs up to $1,850 more than conventional models, with some dealers charging over the sticker price. If you drive 15,000 miles a year at an average price of $1.55 a gallon, it takes less than six years to make up that extra cost, says Jim Kliesch of the American Council for an Energy-Efficient Economy. Buyers also get a $1,500 write-off on their federal taxes this year. Some states offer write-offs, too.
Wind technology has already shown its worth. If long-armed windmills were driving electric utilities, there'd be more oil for transportation: planes, trucks and cars.
What's more, we have an enormous untapped resource—namely, conservation. Vice President Dick Cheney famously dissed it in 2001 as no more than a "personal virtue"—warm, fuzzy and essentially useless.
He has blinders on. Conservation, in the form of superefficient energy use, is the fastest-growing and cheapest "source" of energy in the United States. When California's energy prices soared in 2002, the state cut its usage by 14 percent (adjusted for economic growth)—avoiding the need for hundreds of new power plants. Some 40 percent of the nation's energy needs since 1975 have been met purely through using energy more intelligently, says Amory Lovins of the Rocky Mountain Institute, which tackles sustainable-energy projects.
Bush has spectacularly backed off efficiency programs, says the ACEEE. He tried to reduce the new energy-conservation standards for air conditioners. His proposed 2004 budget all but wiped out spending to improve efficiency (Congress restored some of the cuts). The 2005 budget chops again. Required new-appliance standards haven't been issued.
Tying our future to oil is a dangerous game. Dependency on crude is one of the things that enmeshes us in the explosive conflict of the Middle East at a cost, so far, of 1, 051 lives. I wish that Iraq's only export were nuts and dates. We'll be engaged in that part of the world until oil doesn't matter anyway.
Reporter associate: Temma Ehrenfeld
© 2004 Newsweek, Inc.