Sunday, April 13, 2008
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All about oil
America’s Big Oil is a small, somewhat endearing dwarf as compared with the giant Balrog of OPEC.
(Left to right) Exxon Mobil Corporation Senior Vice President Stephen Simon, Chevron Vice Chairman Peter Robertson, Shell Oil Company President John Hofmeister and ConocoPhillips Executive Vice President John Lowe prepare to testify April 1.
CREDIT: Chip Somodevilla/Getty Images
By Stephanie Ramage
Earlier this month, Congress indulged in yet another circus of ignorance at the taxpayers’ expense, a kangaroo court that would have provided Dickens’ Madame LaFarge hours of enjoyment, the kind of trumped up little blame game that irresponsible Americans have come to love.
““On April Fool’s Day, the biggest joke of all is being played on American families by Big Oil,” said Rep. Edward Markey, D-Mass., as he opened an April 1 hearing aimed at publicly pillorying Big Oil execs for their profits—an event that would allow politicians to grandstand for their constituencies, pretending to “stand up for the little guy” and rail at the oil “suits,” much to the amusement of the masses.
Actually, the joke is on Markey and the other members of the Select Committee on Energy Independence and Global Warming who’d like to hang the present oil crisis around the necks of Big Oil. Here are the facts, in J.R.R. Tolkien terms that an obvious fantasy buff like Markey can understand: America’s Big Oil is a small, somewhat endearing dwarf as compared with the giant Balrog of OPEC. Big Oil companies could have less of a profit margin, and it would have little effect on paying $3.29 cents per gallon for regular unleaded.
As Vijay V. Vaitheeswaran, a correspondent for the Economist, wrote in the December 2007 issue of Foreign Policy magazine: “Whenever the cost of a gallon at American gasoline pumps shoots up, politicians and energy activists claim oil companies like ExxonMobil and BP are fixing prices. Big Oil may appear all-powerful to the consumer, but in reality the major private-sector energy companies with the famous brand names are powerless compared with the OPEC goliaths … it is true that a conspiratorial cabal does meet regularly behind closed doors to rig prices and supply. However, that cabal is not Big Oil. It is OPEC. Saudi Aramco, a charter member, holds 20 times the oil reserves of ExxonMobil, the biggest of the private sector majors. In other words, the Western firms are price takers, not price setters.”
Vaitheeswaran then notes how Venezuela’s and Russia’s recent nationalizing of their oil resources means that their oil is no longer available to Big Oil. “And that is a development that could ultimately hurt consumers, because Big Oil is the only counterweight to OPEC we have,” he writes. Chavez and Putin have put even more power in OPEC’s hands, tilting the table away from already outpowered Big Oil.
Markey and his colleagues were right to demand to know why Big Oil hasn’t invested more in alternative energy source research, but they were wrong to do so to the tune of the old ditty about the world running out of oil. It isn’t.
As Vaitheeswaran writes, “Despite years of oil guzzling and countless doomsday predictions, the world is simply not running out of oil. It is running into it.” Those who claim the world’s oil reserves are running dry, the “depletionists,” imagine oil’s global resource base as fixed. It’s not. “Thanks to advances in technology the average global oil recovery rate from reservoirs has grown from about 20 percent for much of the 20th century to around 35 percent today … two-thirds of the oil known to exist in any given reservoir is still left untapped,” Vaitheeswaran explains.
And though alternative forms of energy will definitely help us, relying on hybrid cars won’t save us. “Imagine a world in which 100 percent of cars are gasoline-hybrids like the Toyota Prius, and you still have a world that is 100 percent addicted to oil,” says Vaitheeswaran, who co-wrote the 2007 book, “Zoom: The Global Race to Fuel the Car of the Future.” Maybe he would agree that it’s the “auto dinosaurs” who should be grilled: “While the auto dinosaurs dawdle, giants from other industries are investing millions to stake a place in the game. In fact, the car of the future may well be brought to you by Sony, Apple, or Intel. Perhaps it will even come from two teenage kids working tirelessly in their garage on the Next Big Thing. What’s certain is that its day is near.”
Yes, but China! China! China! You can’t whisper the word “oil” these days without some Che-Guevera-hat-wearing anarchist-wannabe babbling on about China. Vaitheeswaran argues that China’s voracious appetite for oil doesn’t threaten American access. “What matters most is that oil gets to market, regardless of who owns or produces it,” he writes. “That is why it is very good news for energy consumers that China is overpaying for oil assets around the world. … Every barrel of oil that China develops in Chad, Ecuador or Kazakhstan is a barrel that it does not buy on the world market, leaving more for the rest of us, and easing oil prices.”
Nonetheless, as a Department of Energy official told me last summer, it’s going to take using every form of energy we can find, in addition to continued oil use, to keep up with the demand of a world where more and more countries are developing into larger energy consumers. The department of energy has the job of doling out grants and incentives to get more organizations interested in developing alternative energy resources, and that’s what government should be doing.
“Any substitute for fossil fuels will need to be affordable, reliable, and ubiquitous; and marketers and innovators, not political leaders, will be the ones to deliver it,” writes Vaitheeswaran. He also notes that “Imposing caps on emissions, instituting new taxes, or ending subsidies for fossil fuel industries can get clean-energy innovators off the bench and into the game.”
Whether those taxes should be aimed at Big Oil is up for debate. ExxonMobil claims its tax bill exceeded its earnings by $19 billion over the past five years. But what is sure is that competition will drive down prices. We consumers will have to stimulate that competition by using less oil. But that would be responsible, and not nearly as entertaining as having our Congress harangue Big Oil’s Gimli while OPEC snags our Gandalf—our alternative energy researchers. SP
Stephanie Ramage is news editor of The Sunday Paper.