The question should not be, “Are we running out of oil?” The simple answer to that question is NO. What we should be asking is, “How much oil can be extracted at a reasonable cost?” Oil must be near $50 a barrel to sustain economic growth, far below the current level of approximately $100 a barrel!
There is a scarce supply of inexpensive oil. Shale, tar sands and deepwater sources are the predominate sources of petroleum in North America, making U.S. and Canadian supplies the most expensive and environmentally destructive to extract. Economic and geopolitical pressures will continue driving up oil prices and the rare conventional “cheap oil” suppliers, such as Saudi Arabia, will continue to be the biggest beneficiaries of the higher prices.
Low-cost producers benefit from the difference between costs, including normal rate of return and price. According to a RAND study, countries like Iran, Iraq, Kuwait, Qatar, Saudi Arabia and the UAE band together in OPEC to influence the world market price of oil by adjusting output. When OPEC reduces supply and pushes prices up, the U.S. economy suffers from trade deficits and loss of consumer purchasing power.
Unless barriers for replacement fuels to enter the market are eliminated, Americans will suffer increasing economic hardship while suppliers continue to benefit from their monopoly of our transportation fuel. Three interlocking forces that maintain the closed, single-commodity market for transportation fuels cause our oil addiction. They are as follows:
- For the most part, auto manufactures don’t produce flex-fuel cars (cars that have the capability of running on a combination of gasoline, ethanol and methanol).
- Fuel distributors and gas station owners have resisted installing non-gasoline pumps, resulting in fewer than 2,000 flex-fuel pumps around the country.
- Current regulations make it too expensive for consumers to convert their vehicles to flex fuels.
Introducing replacement fuel options at the pump that are domestically produced will not only end our reliance on imported oil and keep money in our economy, but it will also defund rogue states. Now the question is, “Who wants to pay for expensive fuels that thwart our economic growth when we can produce and use domestic transportation fuels that pave the way for a prosperous future?”