Llewellyn

King

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June 9, 2008

Energy, Stupid

T. Boone Pickens has the wind up, so to speak, about oil. When the man who has been a savant of the oil patch for decades starts putting his own considerable fortune into wind farms, it is time to sit up and smell the alternative energy.

It is also time to stop worrying about the spiritual advisors of the presidential candidates and to start worrying about their energy advisors. With oil flirting with forward prices of $140 a barrel, the whole world is in trouble and the United States somewhat more so. More so because, out of the world's oil production of 85 million barrels a day, we gulp down an astounding 20 million barrels a day. Man are we thirsty! More so too, because oil is designated in dollars and the dollar has been dwindling in value for years.

Pickens is not alone in his despondency about oil. John Hofmeister, president of Shell Oil Company in the United States, is so alarmed at the rate at which the oil resource is being drawn down that he is taking early retirement to become the Paul Revere of energy, sounding the alarm. Not far behind Hofmeister and Pickens in concern is Robert Malone, chairman and president of BP America. The British oil giant is a major investor in wind and solar power and in the development of hydrogen as a fuel.

These men are goaded by the fear that the oil resource base cannot meet the demands being put on it today and that the situation will be far worse in the future, as China and India require more oil to meet their industrial and social growth. Present oil consumption, according to Pickens, is outpacing production by 1.6 million barrels a day. And there's the rub, but that is not the whole story. There are other factors pushing the oil price beyond supply and demand:

• Fear of new war in the Middle East. Oil jumped $10 when the Israeli deputy prime minister hinted that Israel would try to take out uranium enrichment sites in Iran.

• Ever since Enron, there is reason to believe that ruthless financial operators will manipulate a shortage to their advantage. It was done with electricity in California. And it is quite possible that the future contracts for oil on the New York Mercantile Exchange are being manipulated. At this point, we simply do not know.

• Continuing instability in Africa, and Nigeria in particular, accounts for some of the oil price premium.

• The role of state-owned oil companies is a factor as well. Gradually the big Western oil giants, including BP, Fina and Exxon, have been restricted in their upstream activities in producing countries that have played the nationalist card. This has reduced the rate of discovery and the deployment of advanced technology in many producing countries, but especially in those with big reserves such as Russia, Venezuela and Saudi Arabia. Remember foreign governments are no more efficient than the U.S. government – almost always they are less so.

Environmental follies are not helping. The time to drill in Alaska and on the Outer Continental Shelf of the Atlantic and the Pacific is now. The environmental lobby needs to be trounced on this one, and John McCain needs to reverse himself on drilling in the Arctic National Wildlife Reserve. It is time the caribou shared our pain.

Tub-thumping about American exceptionalism and our unique relationship with the automobile will not help either. Some things were beautiful in their time, but that time is past. We need electric and hybrid vehicles as fast as they can be manufactured. More buses and trains too. To support the shift to electricity, we are going to need to build some nuclear plants fast.

The next presidency will likely be made or broken on the price of energy. Candidates, we are listening. Are you?

© 2008 North Star Writers Group. May not be republished without permission.

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