For nearly half a century American presidents have told us we must end our dependence on imported oil. It is 2012 and we are more dependent than ever, with a total oil bill that has mushroomed to $700 billion a year. Half of that goes to pay for foreign petroleum.
The “Oil Economy”
- The problem starts with the fact that we live in an “oil economy,” in which oil is the single most important factor driving global commerce and ensuring our economic health. Oil is so critical that nations will go to extraordinary lengths—even engage in military action—to ensure its continued supply. If you control the flow of petroleum, you can name your price because our economy won’t function without it. That’s why the price of oil is so high, even though the developed economies continue to be mired in an economic slump.
Our Problem is Not Coal, Nuclear, Solar or Wind; Our Problem is Oil
- Oil accounts for 70% of what America spends each year on fuel. In contrast to the $700 billion spent annually on oil, coal costs the United States only about $30 billion a year. Coal, nuclear power and renewable energy sources produce 80% of America’s electricity but account for only 8% of the national fuel budget. Our problem is oil’s monopoly over transportation.
Global Demand Will Drive Oil Prices Higher
- Last year, worldwide demand for petroleum grew by 2.3 million barrels a day to 88 million barrels, while consumption in Japan, Europe and the United States declined. China plans to move 50 million people to the city each year over the next decade, creating massive transportation demands and, in turn, demands for fuel. Similar urbanization trends are underway in India, Africa and throughout the developing world. This means the price of oil will continue to rise and inflict economic hardship, unless replacement fuels are available.
Domestic Drilling Is Good But Won’t Solve the Problem
- New oil is harder to find, takes longer to develop and requires a lot more capital. The number of operating rigs in the United States right now actually is the highest in almost 30 years. We are not running out of oil; the question is how much oil can be extracted at a reasonable cost. Oil must be in the range of $50 a barrel to sustain economic growth, far below the current level of more than $100 a barrel.
America’s Fuel Markets Are Not Free and Open
- Until barriers to competition are eliminated, Americans will suffer increasing economic hardship. There are three reasons why our oil addiction has resulted in a closed, single-commodity market for transportation:
- Less than six percent of vehicles on U.S. roads run on “Flex Fuels” that can use 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.
- Hundreds of regulations make it too expensive for consumers to convert their vehicles to flex fuels.
This is why America is so dependent on oil, and why it has been so difficult to forge a new transportation path based on an open market for fuels that give consumers a choice about what fuel they use to power their vehicles.