Another flaw in the human character is that everyone wants to build but nobody wants to do maintenance
      —Kurt Vonnegut

2008 is a presidential election year. It’s far too early to tell, but America may be taking a political turn to the left. With bipartisan support, Congress passed and the President signed the Energy Independence and Security Act of 2007 (H.R. 6) in December, 2007. Environmental groups such as the Sierra Club and the Union of Concerned Scientists (UCS) hailed the new law as an historic breakthrough, a major step toward alleviating America’s dependence on foreign oil. H.R. 6 goes much of the way toward fulfilling the energy plans of Democrats Hilary Clinton and Barack Obama.

While many environmentalists1 view H.R. 6 as a welcome development, there are fatal flaws which make the act moot before it comes into effect. The new law will do next to nothing to cure America’s oil addiction, a dependency on imported oil which is bound to get much worse long before the provisions of the new law will kick in—if they ever do. Many environmentalists and so-called “progressives” cling to dangerously naive beliefs about how to solve America’s liquid fuels problem.

More Inconvenient Truths

Nobel Prize winner Al Gore has his inconvenient truths about anthropogenic climate change, but those who study the future oil supply and America’s imported oil vulnerability have theirs too. These trends & truths are even more inconvenient than the former Vice President’s because they will have dramatic impacts on the way Americans live long before 2020. Here’s a partial list of things to worry about.

  1. OECD Oil Supply The large oil consumers in the OECD countries are in trouble. The IEA data (graph left) indicates that oil production has dropped about 8% in the last decade. This trend will continue. Declining U.S. production makes up 40% of total OECD output. Mexico is the latest country to join the list of countries in this group whose production is falling. Other notables include the UK and Norway. It is unlikely that Mexico will be a net exporter after 2013, so U.S. imports must come from other regions like the Persian Gulf or West Africa to make up the difference—they won’t come from Venezuela. West Africa (Nigeria, Angola) output will peak and decline long before 2020, so that leaves the Middle East and Canada. Our northern neighbor remains the largest exporter to the United States. Canada’s output has increased, but that rise is entirely due to the tar sands, where production growth has slowed in the last few years (ASPO-USA, January 2, 2008).
  2. US Crude ProductionU.S. oil production has been declining at the rate of 2.1%/year since 1991 (graph left, crude + condensate only, courtesy of the The Oil Drum). There may be a small rise in U.S. production in the next few years as new deepwater projects come on-stream in the Gulf of Mexico, but developments have been plagued by high costs, delays and underperforming fields. (See the author’s article The Gulf of Despair? and Roger Blanchard’s Oil Dreams in the Gulf of Mexico for details, both from ASPO-USA.)

    Making the generous assumption that new Gulf of Mexico production will slow the decline rate to 1.9%/year, the U.S. will produce 3.986 million barrels per day in 2020, a deficit of 1.129 million barrels per day versus the 2007 production level. According to the UCS, the fuel economy provision of H.R. 6 will save Americans 1.1 million barrels each day in 2020. For oil consumption to stay at current levels minus the 1.1 million barrels savings in 2020, the U.S. will have to import slightly more oil than the amount saved through fuel economy. Americans will be just as dependent on foreign (Persian Gulf) oil in 2020 as they are now, assuming no demand growth in the 12 year period and ignoring new contributions from biofuels, to which we now turn.

  3. Assuming the generous scenario outlined in #2 is correct, only biofuels will shave some number of barrels per day off U.S. oil imports by 2020. See False Hopes and Cellulose for background reading on points made here (ASPO-USA, January 23, 2007). There is good reason to believe that corn ethanol production is approaching a peak level of about 12 billion gallons/year, mainly because of the fuel versus food conflict and the need for supporting infrastructure. Ethanol made from cellulosic feedstocks is not ready for prime time—large-volume commercial-scale production is a decade away. A reasonable—actually, optimistic—assumption is that total ethanol production in the U.S. will be about 15 billion gallons per year by 2020. Following calculations made in the “False Hopes” article, and incorporating the current 6.3 billion gallons of corn ethanol output, the additional ethanol production will replace only 273,000 barrels per day of crude oil in 2020. If these production levels are exceeded, one might expect another 100,000 to 200,000 barrels daily to be eliminated. This range, from 273 to 473 thousand barrels per day, will likely be the total imported oil savings that Americans will realize in 2020 from implementation of the provisions in H.R. 6.
  4. Oil production outside of the OPEC (non-OPEC) is set to peak sometime before 2012. (See Decline Rates and Non-OPEC Supply for background, ASPO-USA, April 11, 2007). The IEA includes natural gas liquids from the Persian Gulf in their non-OPEC calculations, so these form part of the OECD’s growing dependency on the Middle East. Russian production growth, which has supported non-OPEC increases for many years now, will cease by this date. After about 2010, maintaining a plateau of world oil production or any growth that might occur will require higher output from the OPEC producers. Within OPEC, that production will have to come mainly from the Saudis, with some smaller contributions (or not) from the other Persian Gulf states.

    Pressure On Exports Just as non-OPEC oil production wanes and our reliance on the Middle East grows stronger, burgeoning oil demand within the Persian Gulf states is eating away at any production increases that might be achieved (Wall Street Journal reprint). The graph (left) from the CIBC World Markets study OPEC’s Growing Call on Itself shows the trend for OPEC, Mexico and Russia. Subsidized oil consumption within the oil exporters in the Gulf and elsewhere (including Venezuela, Iran, the UAE) is steadily eroding their export base. It is not clear how this demand/export balance will turn out in the period out to 2020, but the odds are that available OPEC exports will not be any higher than they are right now by that date. It is certainly possible, even likely, that OPEC export levels will be lower than they are now if the current consumption and production trends continue.

In summary, the oil savings from H.R. 6 will be paltry, the U.S. will very likely be even more dependent on Persian Gulf imports in 2020, and Middle Eastern oil available for export may be below current levels. Talk about inconvenient truths! Let’s look at some exaggerated claims about the energy bill in this context.

The Sierra Club Solution

Sierra Club Executive Director Carl Pope praised H.R. 6, saying in a prepared statement that—

The leadership in Congress promised a new direction on energy and today they have delivered. This bill is a clean break with the failed energy policies of the past and puts us on the path toward a cleaner, greener energy future.

The centerpiece of this bill is a dramatic increase in fuel economy standards that has been some three decades in the making. It’s testament to the skill and tenacity of Speaker Pelosi, Majority Leader Reid, and other key leaders in Congress that not only have we achieved this historic victory—but that we do so with environmentalists, labor unions, and business standing together in celebration. This bill is a huge Christmas present to the hardworking American families suffering under record high energy prices… [emphasis added]

It’s hard to object to a cleaner, greener energy future, but an historic victory? A Christmas present? The oil savings will almost surely amount to less than 500,000 barrels per day by 2020. That’s next to nothing in the envisioned time frame.

Ford Escape HybridThe “Sierra Club Solution” envisions that Americans will seamlessly make a “gradual transition from huge gas-guzzlers to high-tech electricity and ethanol-guzzlers” (ASPO-USA, December 12, 2007). This venerable environmental organization believes that the single biggest step for solving our energy and global warming problems is fuel efficiency. The UCS speaks of the “extensive benefits attained  from [the] fuel economy agreement” (link op. cit.). This flawed approach has the virtue of requiring no behavioral change on the part of the American people. Technology makes the magic happen

By making our cars, pickup trucks and SUVs go farther on a gallon of gas, Americans can save billions of dollars, curb global warming pollution, and slash our dependence on oil — making our nation safer and more secure…

Modern technology is the key to increasing fuel economy and saving oil… With innovative technology, even SUVs can get great fuel economy…  In 2004, Ford Motor Company unveiled the Hybrid Escape, a SUV that gets 33 mpg. Most auto manufacturers are now set to build hybrid versions of pick-up trucks and large SUVs, proving that a big vehicle doesn’t have to waste a lot of gas. [emphasis added]

Author’s Note: the 33 miles-per-gallon does not quite achieve the 2020 fleet average, which H.R. 6 sets at 35.

In this best of all possible worlds, Americans will still drive SUVs like Ford’s Hybrid Escape, shown above negotiating a rugged terrain covered with wind turbines. The wind turbines are green. The Hybrid Escape is green. All is well.

The “single biggest step” to ridding ourselves of an unsustainable oil dependency and curtailing tail pipe CO2 emissions that contribute to global warming is not fuel efficient SUVs. The single biggest step in the transportation sector is driving less. This can be achieved through telecommuting, sharing rides, cutting out superfluous travel, using trains or buses, etc. One would think that this would be obvious.

There is a bigger problem here—the illusion that Americans have all the time in the world to solve the liquid fuels crisis. This problem is evident in the remarks of Gristmill’s Joseph Romm, who disagrees with Jim Kunstler.

And suppose oil hit $280 a barrel and gasoline rose to $8 dollars a gallon in 2025. You would replace your hybrid with a plug-in hybrid, and those trips less than 30 miles that have made suburbia what it is today would actually cut your fuel bill by a factor of more than 10… The extra cost of the vehicle would be paid for in fuel savings in well under five years. I expect commercial plug-in hybrids to be available within a few years. And as battery technology improves and gasoline prices rise in the coming decade, plug-ins will become increasingly popular. [emphasis added]

Matthew Yglesias, writing at and following Romm’s lead, can’t understand what all the fuss is about.

I don’t really get this. Hybrid cars are already available on the market, are much more fuel efficient than conventional autos, and with the “hybrid premium” standing at a few thousand dollars and falling, it seems obvious that if drastically higher fuel prices emerge, middle class suburbanites are going to respond with slightly altered consumption habits (more expensive cars, fewer plasma TVs and granite countertops) rather than radical lifestyle alterations.

One needn’t agree with all of Kunstler’s apocalyptic visions to see the problems with this reasoning. If Romm thinks we have until 2025 before oil price or supply disruptions overturn our economy, then he probably thinks the Energy Independence And Security Act is a major step forward in solving our imported oil dependency vulnerability. Just buy a plug-in hybrid in 2025 and keep on truckin’! Romm’s dangerous delusion is that business-as-usual can continue uninterrupted until 2025. Even worse, he seems to believe that $280/barrel oil is nothing to worry about since we won’t reach that price for another 17 years. Let’s see how things turn out when oil reaches that price sometime before—perhaps well before—2015.

This “what me, worry?” attitude is shared by Yglesias, who believes that beleaguered Americans will simply buy fewer plasma TVs and granite countertops to mitigate their energy costs. Beyond his thoughtless dismissal of the poor, who have no money and often do without granite countertops, and the middle class, who are scrambling to make ends meet with their maxed out credit cards, the roots of Yglesias’ fundamental error lie in his standard economics assumption that there is no such thing as real scarcity, or to put it another way, scarcity is always a temporary condition. As the oil price rises, substitutes or efficiency measures will smoothly replace oil consumption, and this will make life affordable again. Such a transition requires lots of time. Therefore, Romm (explicitly) and Yglesias (implicitly) assume that we have that time. But we don’t, as our inconvenient truths demonstrate.

Whether Americans will have to make Yglesias’ “radical lifestyle alterations” is the bone of contention. It is evident in the policies of the Democrats and environmentalists that simple changes like driving less are not seen as necessary. Maintaining the status quo is always a popular position to take, and no doubt there would be great resistance to any politician or interest group that argued otherwise, as those who worry about the future oil supply know.

The irony of all of this is that “radical lifestyle alterations” might not turn out to be so bad after all if people could just overcome their fear of change. Unfortunately, wasted time guarantees that those changes will come as a shock to Americans who are being led down the primrose path by those who claim to represent their best interests.

1. This text should not be read as an endorsement of the Republicans, for whom America’s liquid fuels problem seems to be completely off the radar. They will get the treatment they deserve in a future column. Neither party understands the future oil supply issues. Hyperbole about the Energy Independence and Security Act came from the Democrats and their supporters. It is therefore appropriate to examine their unrealistic claims about the efficacy of the new law.

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