Wednesday, 08.06.08
Double, Double, Oil and Trouble
Photo by flickr user XC Biker under Creative Commons license
Oil prices didn't reach cripplingly high levels because of surging demand in China and other emerging markets. Their growth in consumption was modest and predictable. So what was the main driver?
As House Republicans launch their "Guerrilla Congress" campaign to beat the drilling drum, the question of rising oil prices has become a political issue -- an issue voters now consider more important than Iraq. A number of prominent Democrats point to speculation in the oil market. Republicans, meanwhile, are convinced that the problem lies in our failure to exploit domestic energy resources more aggressively. Hence the Republican call for drilling, drilling, and more drilling, which has been mocked by liberals as a cockamamie ploy that won't solve the problem but will cause environmental despoliation.
There's an obvious tension: if you care about the environment and about carbon emissions, cheap oil isn't good. It's really bad. So when McCain declares he wants a cap-and-trade system and a gas-tax holiday, he seems confused. Similarly, Obama has now decided that offshore drilling is acceptable only as part of a comprehensive energy package -- a straddle almost as awkward as McCain's.
It turns out that the pro-drilling Republicans are in a sense correct: the key culprit in the rising price of gas and diesel really is our environmental rectitude. Starting in the mid-1990s, Democrats and Republicans have worked together to eliminate sulfur emissions from our tailpipes. This is a good idea, as sulfur, like lead, causes the worst, most noxious kinds of air pollution. So it's no surprise that George W. Bush, caricatured as a knuckle-dragging Neanderthal by environmentalists, was eager to take credit for the new regulations. But as energy economist Philip Verleger has explained, the new regulations led to increased demand for low-sulfur crude oils. Refiners can process heavier crude oils into gasoline, but only at high cost. It is even tougher to process heavier crudes into diesel fuel and jet fuel, which are more popular than ever. As new equipment comes on line, those prices will decline, but this is a process that will take years, not months.
So you might think the government would have eased off on boosting its stockpile of low-sulfur crude oils as these new regulations went into effect. Well, guess again. The Strategic Petroleum Reserve had been gobbling up these precious supplies until July, when the House of Representatives forced a temporary end to stockpiling. And biofuels legislation, a supposed "solution," has in fact exacerbated the problem. Refiners have been ordered to blend more ethanol into gasoline, which means they produce less gasoline from crude.
If we really want to reduce prices at the pump, we need to release low-sulfur crude from the Strategic Petroleum Reserve and seriously consider, in coordination with European states facing the same constraints, relaxing our sulfur requirements, at least until new refining equipment is in place within the next two years. But in pursuing these strategies, we're making a fateful decision -- to yoke ourselves to "the tyranny of oil" for another generation.
Driving demandThe Economist cautions that as long as Americans have an appetite for oil, prices will rise over the long term. |
Receding pricesFalling gas prices give American consumers a break, but Colin Barr argues that this drop-off in consumption is a sure sign of a real recession. |
House protestPolitico reports that Republicans are crediting their three-day action on the House floor with lowering oil prices. |
Oil politicsAccording to Rick Newman, both John McCain and Barack Obama are trying to score political points with dubious energy ideas. |
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We have been fighting a costly war in the Persian Gulf for going on two decades at least in part to avoid a crunch in the transition to alternative energy sources. Making a deal with Iran, which many observers think is there for the asking; and facilitating Iraq's ability to pump up to its potential by making clear our ongoing commitment to stabilization there, will work faster and better than offshore drilling.
Posted by robert powell | August 7, 2008 2:28 AM