H2Andy:
America is a junkie for oil ... a good start would be to cut back on oil and grow our own supply
the only real way to be independent of oil is to find an alternative energy source that we can control
i don't see that happening anytime soon
Actually I heard a presentation by an economics professor, who was also a Congressman, a few years ago explaining how developing more American oil reserves could actually lead to greater conservation in the long run. Im not an economist and I dont remember all the details but Ill try a Cliff Notes version.
First of all energy prices and oil in particular is one of the most fickle markets because of the extremely low profit margins (despite the large numbers due to great volumes) and very high risk factors. This combined with unpredictable regulatory forces also causes the margin between supply and demand to be very low, Strategic Reserves notwithstanding. This is why an infinitesimal change in anticipated reserves or supply of less than .1% globally can cause huge fluctuations in energy prices. A prime example of this was when Shell announced discovery of new reserves at 30,000 this summer and the world oil price promptly dropped $2 per barrel. There is also an interchangeability of energy factor in the markets where a disruption in natural gas supplies can cause a spike in both gas and oil prices due to both the dual use facilities and different locations using one or the other for the same industry.
Because of the potential for the large energy price fluctuations that started during the market realignment of 1972, weve seen a huge growth in the energy pass through contracts and policies DrBill referenced and both businesses and consumers mentally factor in a fudge factor in energy costs. The energy pass throughs are counter productive to conservation because the entity ultimately responsible for implementing conservation efforts losses any incentive to conserve if they know they can pass energy costs directly to the consumer without a market penalty. The other issue brought up that I never got to fully understand was energy price ranges and margins for error in pricing. The overall economy is influenced by the actual cost of energy, but it is also influenced by what might be a reasonable future or peak cost of energy and since 72 that spread has grown rather large. A consumer example would be that we might find gasoline reasonable at $2.25 a gallon knowing theres the possibility that it will spike up to $2.75 occasionally, but we would be concerned if the price were $2.50 with the potential for $3.00 spikes. Now if we felt confident that prices would not be subject to wild swings we would probably be happy with $2.50 gas that might go up to $2.57 next year.
Without market confidence in a stable energy cost it will plan for and assume the worst, meaning it will build in a large margin for error and the overall economy will grind to a halt long before the actual energy price reaches a point that should slow it down. On the other hand when the price of energy stays below that high possible price people think the price is low enough that they dont see an incentive to conserve. A more stable price for energy allows the price to be high enough to encourage conservation, but not so high as to create a recession or negatively impact the overall economy. A stable price also allows oil companies and producers to feel comfortable increasing their reserves slightly, which increases price stability even more.
Despite hurricanes and earthquakes, American energy production is the most consistently stable in the world and without it the energy speculators would really have a field day. While some of the American reserves that are currently off limits may not be particularly huge in terms of total output, they are certainly big enough to add tremendous stability to the world markets. This happens both because we are adding supply to the market, but American producers with a stable regulatory hand tend to work with larger margins between supply and demand than most other nations firms. This is why contrary to the claims of many environmentalist groups and NGOs what may only sound like a few years supply of oil can have a huge impact on world energy prices and price stability. The other factor in play here is that I dont know of a single energy field that hasnt produced many times more energy than its initial published reserves. To the DIR types here one could say that initial published yield of a new oil field is a rock bottom conservative number that is used for initial accounting purposes based on the best scientific proof before production is actually started. Once production actually starts the reserves of the field can be better determined and it will almost always be more than what was needed to consider the field worth exploring further. We have fields producing in the US today that have exceeded initial expectations by 10 fold or more and theres no end in sight if the fields are properly managed.
If I havent totally confused you, thats how increasing American production can stabilize prices making energy costs more realistic to consumers in a manner that will be an incentive to conservation without damaging the overall economy. We should put a stop to people deciding to drive their SUV all over the state this month because the price of gas is low, parking it next month when gas prices surge, and then pulling it out again the month after. Consumers arent as stupid as they appear at times and they know how to play the game, so lets make the game something thats a win for Americans and the environment at the same time.
