The U.S. Should Promote New Capital Investment in the United States, Canada, and Other Oil-Producing Countries
By Peter Huber
So what if Canada—our biggest foreign supplier—sells us oil? We sell Canadians Pentiums, which they need just as much. Energy isn’t a problem because it’s traded. Oil is a problem because some huge reserves of very cheap crude happen to be controlled by regimes hostile to the United States.
Happily for the U.S., oil supplies only 40% of our energy, and Persian Gulf oil only about 6%. The corresponding numbers for Europe and Japan, however, are a lot worse. And we all pay the same global price for oil, whether it’s pumped in Anchorage or Abu Dhabi. Producing all our liquid fuel domestically won’t separate us from oil’s economic, political, diplomatic, and military implications. To do that, we’d also have to forbid exports, regulate domestic prices, and separate ourselves from the economic, political, diplomatic, and security interests of Europe and Asia.
Advocates of “energy independence” talk a lot about wind and solar. But those technologies generate electricity. And the U.S. already generates almost all its own electricity, much more cheaply with conventional coal, uranium, natural gas, and hydro. The independence crowd also advocates domestic production of ethanol and bio-diesel. But the price of these fuels will inevitably track the global price of crude. And if they’re ever produced in significant quantities, they’ll be imported and exported too, right alongside oil.
Expanding production of liquid fuel is a good thing not because it will make any one nation “energy independent,” but because it will lower the price of oil and cut the oil-based wealth of governments that fund our enemies. If we’re serious about that objective, however, we’ll start by expanding domestic production of oil itself.
We certainly could. When Persian Gulf fields ramped up production by 12 billion barrels of oil (BBO) a year in the 1960s, global prices collapsed. This made it politically painless for the U.S. to ban almost all new drilling off the Florida and California coasts, and then in much of Alaska. Today, Alaska contains at least 18 BBO of off-limits crude. And we could fuel many of our heavy trucks and delivery vehicles for a decade with the 20 BBO’s worth of natural gas we’ve placed off limits in Rocky Mountain federal lands. To put those numbers in perspective, America currently consumes about 7 BBO a year.
Beyond oil, the most logical place to look for alternative fuels is in the 60 percent of our energy economy that’s already lit by other fuels. The electric sector of our economy shifted decisively away from oil (to coal and uranium) following oil shocks in the early 1980s. Today, a lot more energy moves through the U.S. electrical grid than through the drive shafts of our cars. The most important economic opportunity for curtailing the power of the petrodollar is centered on technologies that bridge the electric and transportation sectors of energy economies worldwide. Hybrid cars with battery packs that can be recharged from the grid hold the most immediate promise. More rational regulation of the price of electricity, and flatter energy taxes across the board, would accelerate development of grid-to-car technologies.
The one place we won’t find energy independence is in new government regulation and tax jiggering, rhetorically packaged as “efficiency” or “conservation.” Efficiency standards always fail not because consumers hate efficiency, but because they like it so much. The faster we build more efficient engines, the more we build and the more we use them, and the faster energy consumption rises. This too is global process. Energy-consuming technology developed as an expensive curiosity in San Francisco ends up as a ubiquitous staple in Shanghai.
Over 80% of total U.S. energy consumption already comes from North America. Electrification is steadily shifting demand to the not-oil side of the ledger, where coal and uranium supplies are essentially unlimited. Oil, however, does present serious problems, and will continue to, because unstable governments own so much of it. Short of a quarantine or an invasion, the only way to make current owners of oil poorer is to lower the global price of oil. To that end, the U.S. should promote new capital investment in the United States, Canada, and other oil-producing countries that are politically stable, and promote stable government in those that aren’t.