An Oil Game: The Future of American Resources

Originally published November 6th in The Campus

On July 11, 2008, the price of a barrel of oil reached a high of $147.27 U.S. Consumers were all feeling the pain of high prices at the pump, at the grocery store, and in almost every aspect of the daily life that depends upon oil.
Since July there has been more than a 50% correction in the price of a barrel to just under $70.00 U.S. Consumers have been rejoicing- they can now enjoy a few more dollars in their pockets- but the long term consequences could be dire.
Currently, the world produces 85 million barrels/day and the world itself consumes about the same amount produced. The U.S. consumes 20 million barrels a day and has to import 12 million of those, 2 million of which are from Canada, 4 million from various other countries and the majority comes from OPEC countries (6 million barrels/day)
Last week the Financial Times reported that the International Energy Agency (EIA) is going to report that, without an increase of investment in exploration and production, there will be a 9.1 percent decrease in world oil. This problem of depletion compounded with other factors could be devastating for the U.S.
One of biggest challenges for the U.S. is the control of the Iranian-Russian coalition over the flow of oil originating from Middle-Eastern OPEC countries. If one controls the flow of oil originating in the in the Middle-East, they have the ability to set the world price.
Iran has a strategic position when it comes to the flow of oil that is shipped out of the Persian Gulf. The narrow Strait of Hormuz, an area in the southern part of Iran and at mouth of the Persian gulf, allows Iran to heavily disrupt the shipping of oil leaving the region.
Russia itself exports 5 million barrels daily and can decide to limit exports to increase price. Another card that Russia has in her hands is the Baku- Tsilisi-Ceyhan pipeline.
One of the goals of the Russian invasion of Georgia would seem to be for the purpose of gaining control of this pipeline. The pipeline was one of the only routes leaving the Middle East towards the West free of Russian or Iranian obstruction.The control of the Baku pipeline gives Russia control of another million barrels a day that flow to the West. These factors seem to have made Russia a big player in world geopolitical system for the first time since the fall of the U.S.S.R.
Increased demand for oil in the emerging markets is another problem that cannot be overlooked. For the first time in 2008, Russia, China and the Middle East are expected to consume more oil collectively than the U.S. In the last year, demand in these countries has increased by about 4 percent collectively and is expected to continue and speed up in coming years.
The current financial crisis may dampen the levels of demand but the long-term demand for oil will probably continue strong with China leading the pack.
Back in America, President elect Barack Obama’s energy platform does not seem reassuring. Obama plans to place a windfall profit tax on oil companies. If the electoral promise is followed through it will cause a further reduction of oil exploration and production.
Oil companies will not be enticed to exploit a valuable resource at a minimal profit margin.
This will further cut domestic supply and increase dependence on foreign oil. A further challenge for oil companies is the limited amount of money available for development of these projects because of the current worldwide credit crisis.
Obama supports further research of green technologies, which are part of the solution but not a panacea. Most of the oil consumed in the United States is used for transportation, almost 70 percent. Even with a significant decrease in consumption, through increase public transit, more rail transport, locally farmed foods, we are years away from the technological developments with personal transportation vehicles, for now man cannot live on Sun and Wind alone.
Further more Obama does not support a lift on the ban of foreign ethanol. This is limiting a significant decrease in the price of ethanol. Many foreign countries like Brazil, produce ethanol at a much lower cost, because sugar cane is a cheaper and more efficient product to produce than corn based ethanol. Obama will be limiting the market’s natural movement to ethanol.
Many other sources should be looked at like nuclear, geothermal, tidal, coal. Increasingly diverse solutions significantly improve the outlook for U.S. economic sustainability. These solutions must be discussed and decided in the public discourse at record speeds. All of these solutions take years to develop and to build the infrastructture necessary.
We cannot just turn a switch and change entirely to alternative sources of energy. If concrete action is not taken immediately, once the credit crisis comes to an end and oil demand begins ramping up once again, the U.S. could find themselves in a situation were they are scrambling to deal with a new risis.
Low oil prices may put a short term smile on some consumers faces but the long-term may reveal expressions of frustration as drivers wait in line at gas stations with their oil ration coupons.

Originally publisher in The Campus, student newspaper at Bishop's University
Available on-line at www.thebucampus.ca/