In the last
couple of years, there has been a lot of talk about how to reduce energy prices
in The United States. Proposals for a
solution have usually centered around working to make the U.S. more energy
independent, yet, it seems that many are unable to agree as to how this should
best be carried out. Ideas have ranged
from producing more alternative energy to building additional pipelines and
drilling for more oil in the U.S.
However, the people who support these latter arguments, those who supported the formerly proposed Keystone XL Pipeline and say
that we should merely try and produce more oil, appear to be ignoring some
basic economic principles.
Secondly, oil is, after all, a finite resource.
Like it or not, no matter what side of the political fence you are on, we
will eventually run out of it. Even if
you don’t care about the environment and you believe that we still have quite a
bit left, shouldn’t we still be looking ahead and investing resources into
alternatives energies for that time when we do ultimately run out? Surely, that is what a sensible person would
do, right?
However,
citing the fact that oil is a limited resource and that using it is harmful to
the environment will hardly turn heads.
Most people, even if they are unwilling to do anything about it, already
know this. If someone is still insisting
that the answer to all our problems is more domestic oil production, you will
likely get nowhere repeating these facts to them. So, in order to formulate a more contextually
relevant argument, let us focus on the purely economic side. Why wouldn’t producing more oil here in the
United States, or building a pipeline to the Gulf Coast, reduce prices at the
pump?
Well, first
off, let us look at a bit of history.
Back in the 1970’s, when Richard Nixon was in office, the government
tried to lower domestic gas prices. They
did this by creating a price ceiling, meaning that they legally set a maximum
price at which gasoline could be sold.
The results, as you may well know, were disastrous. OPEC and other oil producers diverted shipments
elsewhere to where prices were higher, and America faced a severe fuel shortage.
Now, the
point to be made is that it is virtually impossible for one country to enjoy
substantially lower fuel prices without severe government intervention and
powerful domestic production. Imagine,
if the rest of the world were paying $100 per barrel of oil, but Americans were
only paying $50 per barrel, no one would sell their oil to us. They would divert it to places like China and
Europe, where they would be paid more.
Additionally, why would American producers sell oil to other Americans
at such a low price? They would
similarly ship it overseas.
The only
way that America could enjoy such a disparity in prices would be if we had the
ability to produce all of our own fuel, at a lower price then that set by the
world market, and if it were made it illegal to export oil. However, here too, there are problems.
Right now,
we purchase oil from such a diverse group of producers for national security
reasons. Think of the saying “Don’t keep
all of your eggs in one basket”. We do
not want to be reliant on one single source for all of our oil, and this
includes American producers.
What if our own oil wells
eventually run dry? After that, we would
have absolutely no choice but to rely
on others. To think of it from a cold, purely
analytical point of view, you might say that we should conserve our own natural
oil reserves so that if, and when, the world’s oil supply is consumed, America
could continue to sustain herself, unthreatened. If we use up all of our own resources now,
what will we do when the rest of the world runs out and we have nothing
left? A realist might say that it would
be in America’s interest to use everyone else’s oil first, before we use much
of our own.
Now, as for
the supposed economic benefits of building yet another pipeline, some of the
same false assumptions exist here too.
As with increasing domestic production, simply channeling a larger
amount of oil through the U.S. will not reduce prices. How could it?
The more oil that is pumped into the U.S. from one source, the less we will
purchase from another.
Really, it does not matter where a
raw material comes from. The world
market distributes resources to the highest bidders. If, somehow, America had so much oil that it
allowed for lower prices, we would no longer be one of the highest bidders and
the market would stop distributing to us.
Short of nationalizing the oil
industry, there really is not much that the U.S. government could do to
significantly change gas prices (if they could, don’t you think that they would? It would certainly get votes…). In the end, it all boils down to the world
market. As long as our economy is dependent
on oil, not just foreign oil, but any source
of oil, we will remain under the thumb of market whims and groups like OPEC.
So, on the one hand, America could
greatly increase domestic production and make it illegal to export oil. However, our own reserves are painfully limited
with respect to demand and we would be in a very nasty situation a few years
down the road. Yet, on the other hand,
where we go about things as they now are, we will remain at the mercy of OPEC
and the world market. Do either of these
routs seem appealing? Although the
latter option will likely lead to a more gradual transition within our own
country, both alternatives will eventually end with our running out of
oil. Neither approach suits itself to
the long run.
We could continue to play this
crippling and sometimes bloody game, or we could begin to seriously look for a
way out of it. Oil is a nasty, risky
business, and as long as we continue to rely on it, we will be in danger. This is not where we want to be, especially
if you wish for America to remain the leader of the world.
A person with a severe drug
addiction can hardly be expected to be as prosperous as one who can remain
above such influences. The same dynamic
exists among states. If a person could produce their own drugs, would they
really be that much better off? They might be able to avoid the financial
costs, but they would still have to tolerate the ill-effects of the drug. Is sticking our heads in the sand and
pretending that the addiction can be made not to harm us really the answer?
To go anywhere, we have to put this
country through rehab. There are almost
innumerable options available for us to choose from, and I will not attempt to
list or explain them all. However, it
remains that we must find and use alternatives now, while we still have the
chance and the ability. We do not want
to wait until gasoline is at $10 a gallon, and when our economy is ailing, to
then look up and try to find some substitute.
So, you be the one to decide. Looking past rhetoric and party lines, which
path do we ultimately want to travel down?
Which alternative seems the best to you?