Energy 101

By January 25, 2007Energy

Had the pleasure of being at the National Press Club earlier this week to hear Red Cavaney, head of API, speak about energy. We actually heard him speak a few years back, stole a line from him then that we’ve used exhaustively — and one he reiterated this week, i.e., we are the only country in the world that limits access to its own natural resources.

In this age of fierce global competition, it’s nothing short of lunacy for us to continue to do that. How much of a limit do you think, e.g., China, India and Brazil are putting on their resources? If you guessed, “None”, you’re right.

In any event, Cavaney made some other very salient points. At core, it’s clear that the petroleum industry has some much-needed education to do with the Congress and the general public, but he is determined to make every effort to ramp up, and quickly. Some tidbits from Cavaney’s remarks:

  • 92% of what you purchase has petroleum in its lineage. Think about it — from plastics to anything that is shipped to you or your store, it takes petroleum to get there.
  • This is not a society “addicted to oil,” says Cavaney, but “addicted to mobility.” With the US population now exceeding 300,000,000, there will be an even greater demand placed on all forms of transportation in our increasingly mobile society.
  • “Energy independence” is not realistic. Cavaney points out that even Saudi Arabia and Nigeria import gasoline and diesel fuel. What we need to do, he says, is to create “multiple relationships” with many oil-producing countries while at the same time increase domestic supplies of energy. This will lessen our dependence, will boost our energy security, but independence is likely a bridge too far. (Actually the WaPo made the same point in an editorial on Sunday that was flawed in all but its conclusion.)
  • Some 80% of the known oil and gas reserves in the world are controlled by state-run forms, as in Nigeria, Saudi Arabia, Russia and Venezuela. Only 6% is privately held, with 2-1/2% owned by US companies.
  • The windfall profits tax enacted by the Carter Administration in 1980 cost the industry a third of its workforce, closed a few hundred thousand small wells and resulted in 1.26 billion fewer barrels of oil of production.
  • Congress has already taken one boneheaded step with passage of H.R. 6 last week. If it became law (we surely hope it won’t), it would only drive up the price of gas and drive more production offshore — to nations friendly and unfriendly. The more Congress and the public understand about the economics of the industry, the less likely they are to do more damage.
    Cavaney’s points are well-taken and should be repeated like a mantra in the media and in the halls of the Capitol. Maybe then politicians and policy-makers will decide to put the nation’s economic interests ahead of the cheap political ploy.