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January 2, 2013

Why Some Critics Won't Accept U.S. Energy Independence

January 2, 2013
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For decades, the proponents of so-called green or alternative energy sources have bemoaned the United States’ alleged “dependence on foreign oil” as a chief rallying cry to fire up the average citizen. Americans are very reluctant to pay higher electricity and gasoline prices for abstract concepts such as “fighting global warming,” but they sure don’t like having to “fight wars in the Middle East for oil” either. In this context, the recent report from the International Energy Agency—which predicts that North America will become a net oil exporter by 2030—should have been cheered by these critics of “dependence on foreign oil.” But predictably, they immediately pooh-poohed the report, showing that this debate was never about “foreign oil” or “hostile regimes,” but instead it was about the desire of some groups to fundamentally transform the U.S. energy infrastructure.

For example, consider an article on The Verge decrying the blow to the “clean energy” movement because of the inconvenient truths in the latest forecasts. Look at how the author tries to minimize the significance of these amazing predictions:

According to the IEA’s projections, the US should overtake Saudi Arabia sometime around the year 2017, transforming North America into a net oil exporter by 2030. …In its report, the EIA said US energy production will outpace consumption through 2040, with oil output growing at a faster rate than previously expected.

Oil’s reign, however, will be short-lived.

The IEA’s forecasts show that US oil production will peak at about 11 million barrels per day (mb/d) sometime before 2020, before declining gradually to around 9 mb/d by 2035. The EIA pinpoints 2019 as oil’s high point, and expects production to diminish through 2040. Saudi Arabia, according to the IEA, is projected to reclaim its position as the world’s leading producer sometime around the mid-2020s.

In other words, increased domestic production does not imply lower gas prices.

“No matter where the oil comes from — from certain exporters or from domestic production — its price and availability are still intricately tied with global events and oil availability elsewhere,” IEA Executive Director Maria van der Hoeven said during a speech at Columbia University last week. “It is a fungible, traded product with a deep, liquid, and global market.”

After decades of beating Americans over the head with the mantra that “we’re running out of oil!” it is hilarious to now see the proponents of government-funded alternatives admitting, “Sure, the US will overtake Saudi Arabia and lead the world in oil production…but maybe only for a decade or so.”

As far as the claim that higher production doesn’t lead to lower prices, it is wrong for two reasons. First of all, upon a plain English reading, the claim is wrong. Of course higher oil production means lower oil prices, other things equal. In a world with rising demand for oil, especially in China and India, the price of crude would skyrocket except for the fact that producers will have the incentive to find and develop more sources of crude. As supply increases with demand, prices won’t need to rise as much as they otherwise would have.

Yet there is another problem with the claim. The reason Americans have been taught to hate rising oil and gasoline prices is that the United States has traditionally been a net oil importer. In contrast, rising global prices for oil are a good thing for the people in Saudi Arabia, considered collectively. As North America turns into a net exporter of oil, a high world price of oil is transformed from a liability into an asset.

Let’s move on, as The Verge article gets even more absurd:

Encouraging as these statistics may be for big oil and gas, the hard truth is that a surge in fossil fuel production won’t bring the US any closer to energy independence. Although the country is projected to be self-sufficient in meeting its total energy needs, it will still be reliant upon imports to meet some fuel-specific demands.

“For the US, this means any talk about prospects for energy independence leaving room for global disengagement from global markets or certain regions — that talk must be laid bare for the fallacy that it is,” van der Hoeven said. “Even though the US may be approaching self-sufficiency in total energy, it will still need to import over a quarter of its oil needs in 2035.”

Bruce McKenzie Everett, a professor of international business at the Fletcher School at Tufts University and former Government Relations Manager at Exxon Mobil, says the very concept of energy independence simply “isn’t meaningful,” because the US will always have broader economic and geopolitical interests in the oil market.

“Whether or not the US imports oil, we have a powerful geopolitical interest in the stability of the global oil market, because the whole global economy depends on it,” Everett toldThe Verge. “So our geopolitical and national security posture doesn’t change very much if we start importing less oil, or if we import from Canada rather than Saudi Arabia — it just doesn’t matter.

For those familiar with the energy debates since at least the late 1970s, the above moving-of-the-goalposts is a wonder to behold. It was always the critics of oil and gas who brought up the issue of “independence.” They were the ones who said Americans needed to wean themselves from their gas-guzzling vehicles, because their “addiction to oil” led to foreign wars and trade deficits. So now that the projections show just how silly these warnings were—that oil will soon contribute to trade surpluses—the critics are trying to say Canada is just as hostile as Iran?

The free-market economists have been consistent throughout this debate. It’s not that they are “for oil” or “against wind power,” it’s rather that they oppose government favoritism. It is also about statism, which seems to grow each time people are hoodwinked into believing we have a problem that can only be solved with more government power.Yes, the issue of “energy independence” is a silly notion, but it was brought up by the critics of oil. They are the ones who didn’t understand the first thing about the benefits of international trade and the division of labor. Now, in the wake of the recent projections, the fans of the free-market are simply using these arguments against the interventionists. It is astonishing for the critics to now object that this criterion was never a good one in the first place.

Whether the U.S. overtakes Saudi Arabia as the world’s #1 oil producer in 2017, only time will tell. We certainly have the resources, as we have demonstrated. But we can make a prediction of which we’re very confident: The next time a pro-wind or pro-biomass report makes the rounds, warning of the dangerous dependence of the U.S. on “foreign oil,” we are quite confident that the progressive critics of oil and gas will mysteriously remain silent with their newfound realization that “energy independence” is a chimera. They’ll go back to thinking that reducing U.S. reliance on oil imports from the Middle East is a good thing, so long as the group advancing the argument uses it to agitate for government funding for alternative energies.


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