Truth and consequences – oil, natural gas, the economy and GHG

Recently, the media have been awash with stories on the price of gasoline going down from its recent high of $4.67 in California on Oct. 9 to $3.72 a gallon Dec. 4 (Orange County Register, Dec. 4) and the Saudization of America; that is, America’s evolution into the world’s leading oil producer. Simultaneously, numerous articles have appeared in morning papers and in journals concerning the difficulties Europe has in accessing its large supplies of natural gas due to the fear of fracking. Global warming stories have become popular again, particularly related to its possible relationship to the multiple weather related disasters around the world.

Perhaps only the clairvoyant among us would suggest a precise link between gasoline price decreases, difficulties in drilling for natural gas and global warming. But I suspect there is a relationship, if we look hard enough.

Oil production in the U.S. is growing, but the U.S. is not about to become oil independent. Unlike Las Vegas, where according to the ads, what happens in Vegas stays in Vegas, what results from drilling oil may not stay in the U.S. Producers will seek the highest price they can get per barrel and export a large amount of oil to Asia and Europe. Further, the oil boom may well be relatively short lived as drilling for tight oil or oil from shale proves too expensive. In this context, the price of gasoline at the pump seems only peripherally related to oil production or supply at the present time. Rather, it appears based more on weakness in demand related to the slow economic recovery, changes in auto technology and yes, as Sen. Feinstein suggests, possibly a good deal of price management and obfuscation on the part of producers, refiners and distributors.

Both the U.S. and Europe face increasing public concern over fracking to secure natural gas. A “not in my backyard” syndrome has become visible in both areas. Whether it’s more intense in Europe, as suggested by the Wall Street Journal, than the U.S. is conjectural and whether, if it is more intense in Europe, it relates to public rather than private ownership of oil shale land, as the Wall Street Journal suggests, is also conjectural. After all, opening up public land, assuming proper environmental safeguards and sensitivity to the public, is often easier than dealing owner by owner or parcel by parcel.

What isn’t conjectural is that natural gas is a U.S. and European asset. Its increased use to power electric utilities in the U.S has kept prices for power relatively low and visibly reduced GHG emissions.

To assure a predictable supply of natural gas, fracking issues must be resolved in the near future. Both the general public and public interest groups will have to be assured that environmental and health risks are minimal. Collaborative public, nonprofit and private company efforts to do just that are occurring in Europe and the U.S. They should generate increased public support.

Why does concern over global warming appear to have a second life? Simple! While scientists are not yet able to say with certainty that individual storms, as well as specific droughts, flooding and forest fires, are caused by global warming, the preponderant number of respected scientists agree that the increase in carbon emissions has caused an increase in the earth’s temperature. They conclude that this fact has negatively affected weather patterns and increased the likely probability of disasters like Hurricane Sandy, severe flooding, particularly along coastlines and extended droughts. If emissions continue to stay at high levels, Laguna Beach, Calif. residents should worry about the increase in ocean depths. New Yorkers should worry about lower rental prices for condos in Lower Manhattan and the decline of tax-paying businesses because of a fear of future floods. Tourists and businesses should worry about the future lack of snow at ski resorts. All of us should worry about slower economic growth and an increase in environmental problems.

I believe the flurry of media stories on gasoline, natural gas and global warming can be thought about together, if only, to help create a range of related policy scenarios for discussion. Let me try one. Assume with me, what most economists assume, that our dependency on imported oil is bad for the economy, and U.S. security. Assume, again, with me that oil and gasoline defy exact prediction relative to future costs, except that most economists, again, suggest that they will go higher. Finally, assume with me, what most environmentalists know, that gasoline is a dirty fuel and emits the largest proportion of amounts of GHG.

If you agree with these assumptions then, ask yourself the question, why are alternative fuels not allowed to compete with gas on an even playing field? Why should archaic regulations imposed by the federal government grant gasoline a free ride in the transportation fuel market? Fostering competition, governed by reasonable environmental criteria, would help slow down global warming, reduce the $300 billion we spend every year on oil imports and mute gas spikes as well as gas price increases. If alternative fuels were readily available just after the Kyoto Protocol, the U.S. would reflect a significantly higher reduction in GHG emissions than the 2 percent recorded now. Consumers would face lower fuel costs and the economy would have received billions of dollars of private sector stimulus.