I feel bad for Congressman DoRight. It was over 100 degrees in Washington yesterday and the Congressman was at work in his office in the Rayburn Building. He called me. He was worried about <em>TIME Magazine</em>’s article by Bryan Walsh, called “Over a Barrel” (July 16). Walsh indicated that a new age of cheap oil could undo the nascent green revolution. He indicated that since oil reached 128 dollars a barrel, prices have been falling, are now below 90 dollars a barrel and are projected, by some investors, to fall even further. Walsh suggested that the good times that come with cheaper gas at the pump will lead to dire consequences for our nation’s efforts, already marginal, to address climate change. Walsh suggests that the still embryonic alternative energy sector may collapse with cheap oil. Sounding really down, he wrote, the “world may not be able to withstand another missed chance to break away from oil.” Wow, let’s reserve a ticket on Richard Branson’s supersonic plane for another planet or urge the folks who just found the Higgs Boson particle to grant priority to finding other universes.
DoRight was upset. What if Walsh is right and his commitment to policies supporting alternative fuels is to be sacrificed on the altar of cheap oil? I tried to calm the Congressman down by telling him that I was angry at TIME Magazine for copying the title of my blog on the Fuel Freedom web site. I really wasn’t. Imitation is flattery! But I wanted to see if I could lower his emotional threshold. No such luck!
I told him that the price of a barrel of oil is set globally and fluctuates, over time, significantly. At the present time, the downward trend reflects lower demand because of the uneven state of the world’s economy. A return to economic health in the U.S., Asia and Europe and continuing concern over Middle East tensions, when combined with the lack of an even playing field in the market for transportation fuel and the increased costs of drilling for tight oil, will likely cause oil to increase in price over time. Indeed, I asked DoRight to read the recent report by the U.S. Energy Information Administration (Annual Energy Outlook, 2012). The authors indicate that the reference case price of oil in 2035 in 2010 dollars will be close to 145 dollars a barrel and, if supply is constrained and demand ramps up, the oil price could reach as high as $200 a barrel. If, in the unlikely circumstances, EIA and most energy experts are wrong and the bottom falls out of the oil market, oil costs could approach near 50-60 dollars a barrel or lower. Should this happen, production of the magnitude suggested by Walsh will not occur. Oil companies and OPEC, still an important market driver, will cut back significantly. Prices will rise again.
I suggested to the Congressman that even if the costs of oil continue to go down, gasoline prices will remain at relatively high levels, in light of the monopolistic conditions that exist in the market for transportation fuel. There, likely, will be little weakening in support for alternative fuels.
Once again, I urged him to support, and ask his colleagues to support, opening up the fuel market — now limited primarily to gasoline — to competition from natural gas, ethanol, methanol and other fuels. He should help build a coalition for Open Fuel Standard legislation, removing unnecessary restrictions concerning the use of flex fuels, like methanol and ethanol, and increased production of flex-fuel automobiles. Let an open marketplace and consumers make decisions regarding transportation fuels. Reducing dependency on oil will help flatten spikes in oil prices, will be good for the economy and the environment, will increase safety and will sustain lower prices for automobile and truck fuels for consumers. I urged the Congressman to go home. It was still 100 degrees in Washington and I reminded him that he has a family.+