Out from Under Arab Oil

Owen Jones

Owen Jones is the founder and president of The National Committee for American Energy Independence, which can be reached at <http://www.ncaei.com>.

Americans are a productive people, but in recent decades our progress has been measured in terms of consumption. We are consumers of entertainment, household conveniences, electronic gadgets, gasoline, electricity-everything from the fast food we wolf down to the homes we live in. Most American families move seven times or more and never really do become settled enough to believe we actually belong somewhere. We buy, use and sell. That defines who we are.

We are even consumers of religion, with most Americans agreeable to the notion that faith, like fast food, comes in all kinds of packages and we have the freedom to choose, or switch at will.

Perhaps this is changing. If so, it will be due in no small part to some solemn choices we will want to make in the aftermath of September 11. For example, we are not quite so sure anymore that one religious idea is just as good as another. Regarding Islam, there is a visceral reaction against a religion whose chief priests call for suicidal terror missions against innocent civilians.

And we’re starting to make some connections. Perhaps it is better not to define ourselves so much as consumers any more, especially when it comes to energy, and especially petroleum. American economic progress has largely been fueled by cheap energy. Like whale oil before it, petroleum development has largely been a worldwide venture, pioneered by American know-how and capital. But perhaps we are wondering if buying it on the cheap has really been worth it, considering the fact that every tank of gas we pump fuels the terrorist engine.

I personally believe that the American people are way ahead of the politicians on the subject of energy, as well as the subject of production vs. consumption in general. Our tax system and regulatory environment, coupled with the government’s capacity to create new money without restraint, favors behavior that puts a premium on consumption over production. As a result, we continue to export our productive capacities, while importing things that make our lives as consumers more agreeable. One need not be a clone of Pat Buchanan to recognize that this has been especially true regarding petroleum. And I suspect that if the American people were offered some real choices, they would prefer moving toward a new definition of themselves as producers, rather than just consumers of petroleum.

American capital and know-how hold no monopoly on petroleum exploration to be sure. European giants like BP and Royal Dutch Shell roam the globe and invest tens of billions in search of new deposits. Both are heavily invested right here in North America. And the Chinese industry is coming on strong. But much of the capital and technical expertise required for huge exploration and development projects still emanates from companies headquartered in the U.S.-Exxon/Mobil and Chevron for example. And most of that capital is invested overseas, in trouble spots like the Caspian Sea Basin, where Chevron has committed $20 billion, or in Nigeria, or Indonesia. And many U.S. companies conduct operations on behalf of third world countries that do not have the indigenous expertise-Saudi Arabia being the supreme example.

This makes sense if the global companies were merely going where the oil is. Indeed, America’s domestic reserves are in steady decline (approximately 27 billion barrels are estimated to exist in the ground in the continental U.S., another 16 billion in the so-called Alaskan National Wildlife Reserve.) Not all of this can be sucked out of the ground either. While new technologies promise to improve the efficiency of reservoir management, we are doing well to get half of what’s there. There is always a considerable gap between estimated reserves and recoverable reserves.

Meanwhile, total world reserves are increasing, with better methods available to locate vast new reservoirs, new technology that permits deep drilling offshore, and the general environment that favors free trade and open borders. For example, the vast investment in the Caspian Sea Basin would be unthinkable under the old Soviet occupation.

So there is no problem on a global basis. There are more supplies of petroleum than the world will ever need, prior to our transition to a hydrogen-based economy. If anything, there is too much oil being explored, produced, refined and sold. And a glut of any product results in lower prices. This problem requires the existence of a cartel, so that third world nations that subsist almost entirely on the nationalized production of petroleum do not go bust.

The OPEC cartel claims that its purpose is to produce price stability, but the fact is that political instability is more the rule than not, leading to great swings in prices which are virtually unheard of in other commodities, except for brief spells caused by weather disruptions.

A case in point is the recent history of Venezuela. Under the prior regime, the government’s policy was to produce crude oil at or near capacity. This was called cheating on the OPEC quota, but according to an international lawsuit instigated by a group of American independent producers, Venezuela was attempting to force other OPEC nations to do the same, thus glutting the market, thus creating a free fall in crude oil prices, thereby allowing them to gain market share in the U.S.

Political vagaries being what they are, the new President of Venezuela, temporarily ousted by a coup and then reinstated by a counter coup, needs a higher price per barrel to fund his socialist domestic agenda and line the pockets of his political cronies.

So almost single-handedly, Venezuela caused world prices to drop to ten dollars per barrel during the mid-nineties, and more recently, to climb 350 percent. During the price drop American production declined, major companies laid off tens of thousands of skilled people, another round of small producers went out of business, and at one point, only six hundred American students were studying in colleges and universities to become petroleum engineers.

Now that prices seem to be settling in at around the OPEC target price range of $21 to $23 per barrel, American producers are content.

So what’s the problem?

Well, one problem is that it only costs about a buck or two to get oil out of the ground in the Persian Gulf, in some cases much less. Whereas in North American the cost is about $8 per barrel.

As a result, Europe and America, something called the West, is increasingly dependent on sources of petroleum from volatile, third world nations, many of whom despise us and want to destroy us, and are constrained from doing so only by oligarchical dictators who are pocketing billions of dollars a year, padding the pockets of their many cousins and their many wives, and generally sticking it to us for the privilege.

You would think that this begs for a more nationalistic approach to energy policy. You would be wrong.

The great multinational petroleum entities cringe at this talk because they are committed to the principle of globalism in all of its cultural, economic and political aspects. They essentially epitomize the ideal of global cultural diversity. The management and skilled labor forces of these companies are as multinational and culturally diverse a lot as you will ever find working for the same institution. About the only threshold of cultural diversity you will not find them crossing is the inclusion of women. Petroleum exploration is a man’s job, a man’s world, almost exclusively.

The multicultural identity of the large multinational petroleum companies is a primary reason for the lack of an American policy designed to promote domestic energy independence. The less dependent we are on imports, the less money the multinationals stand to make off their foreign investments.

Save for capital intensive-deep-water projects in the Gulf of Mexico, domestic petroleum production is largely a private affair, the work of large and small independents, all the way down to the thousands of stripper well owners who might each produce only a few dozen barrels per day. But all of that adds up. Their interests are largely in conflict with those of the large multinationals. So it is impossible to create an industry consensus that could present itself to the Congress or the American people. The two interests tend to cancel themselves out.

Then you have the environmentalist movement. What can we say about a large horde of highly educated activists with access to public funds to lobby Congress? The Sierra Club boasts of a million dues-paying members and has recently conducted an ad campaign targeting “moderate” Democrats in the U.S. Senate to scare them away from considering any legislation that would encourage more domestic petroleum production, or virtually any domestic energy production for that matter, unless it’s from windmills.

Ralph Nader may not be able to claim as many members for his Public Interest Research Group, but his members are even more ideologically zealous and effective on a per capita basis. The Democratic leadership in the U.S. Senate knows that had it not been for Ralph Nader, Al Gore would be President today. In another close election, John Kerry and Joe Lieberman cannot afford to have Nader on the ballot. There is a slight chance they can keep him off the ballot next time, but no chance if anything approximating a proenergy production bill passes Congress.

There is simply no countervailing public interest group that represents the interests of both producers and consumers. That’s because until September 11, their interests were at odds as well. Domestic independent producers needed higher crude oil prices, not only to invest in more productive capacity and to stay current technologically, but simply to survive. Americans as consumers wanted it cheap. Period. There are only a limited number of oil producing states. So the politicians have lived or died politically on the altar of cheap oil. To compound the cliché, the chickens are now coming home to roost.

But what about the underlying question posed earlier? Are the major, multinational companies simply going where the oil is? Or is it more complicated than that? Perhaps now is the time that we begin to look at some real facts and statistics to save us from the fog of geopolitics. Yes, American multinational companies are investing their money offshore, but not just because that’s where the oil is. It’s simply cheaper for them to do business offshore. They can bribe corrupt officials, claim foreign tax credits, borrow money from the Import-Export Bank and the Overseas Private Investment Corporation with a guaranteed return on investment by the American taxpayer, and they can pollute a lot more easily than they can in the U.S. or Canada.

This doesn’t make them evil. It simply makes them smart. We’re the ones being stupid. We make it harder and more expensive at home to explore for and produce petroleum, and one wonders why conspiracy theories abound.

So what are the stats really saying? They say that if you look at America and Canada together, there is no intrinsic reason why we should ever have to import a drop of oil ever again. America has between 27 and 43 billion barrels (depending on the political will to open ANWR). Canada has between 1.7 and 2.5 trillion barrels. That’s right. TRILLION.

By opening ANWR, and by removing many of the tax and regulatory barriers unfairly imposed on domestic independence, or by compensating them for same, we can probably increase domestic production by about two million barrels per day. This would represent about twenty-five percent of our current imports. This makes good sense, politically, economically and strategically. But it’s not enough if we want to free ourselves from the political instability, not to mention hostility, endemic to the majority of petroleum exporting nations.

Canada currently produces about 2.6 million barrels per day and is able to export over a million barrels per day to the U.S., supplying most of the petroleum consumed by the Upper Midwest and Chicago. This represents about fourteen percent of our average monthly imports. More than Venezuela. More than Saudi Arabia. The Canadians have the capacity to produce five million more barrels a day. They have the capacity to produce eight million more barrels per day. In fact, they will likely one day do so, except that at the current rate of capital investment it will take them thirty or forty years to get there.

Strangely, you never hear anything about this from the journalistic pundits, articles in the Wall Street Journal, the “Inside the Beltway” think tanks, the lobbyists, the politicians. If some people know about it, they’re not telling. And Canada simply doesn’t understand American politics. They explained the whole deal to President Bush when he visited Alberta last year, but by then he was committed to an energy bill that did little or nothing to help the domestic independent producer, and did not reflect strategic realities post-September 11.

So what is to be done? Assuming of course that we now agree that, post-September 11 and thirty years after the Arab oil embargo, it’s high time we had a national policy in favor of energy independence.

The answer is to involve the American people. A large citizens’ lobby that is well informed on the issue could tell Congress what to do and it would have to listen. The American people now understand that cheap gas is costing us. It’s costing us in terms of lost innocent lives and property, in humiliation, and in an open-ended military commitment that some people argue is costing us as much as $50 per barrel to sustain. (We import close to a billion barrels of crude per year from the Gulf States. Our military war on terrorism has led to an increase in military spending of forty billion. You do the math). So if you were to ask the average man on the street if he would be willing to pay a slight premium for gas in order to fund a reliable alternative to Arab oil he would respond immediately by asking, How do I sign up for that deal?

This is something entirely new, and the politicians are slow to catch on, if they want to catch on. There are, after all, fears in the State Department that even more radical regimes will take over the Persian Gulf states if America thumbs her nose at the region. By remaining connected by oil, we maintain the stability of existing regimes. A good thing by historical standards.

Except that’s simply not what the American people want, for sound moral and strategic reasons. We simply do not want to give the Arabs any more of our money, which is then used, directly or indirectly, to kill our people. That’s not racism or jingoism or xenophobia, but just good common sense. But nobody is asking the American people.

President Bush has stated that the financial war on terrorism is as important as the military one. It should not be limited to FBI agents hacking into the computers of foreign banks. Every American can join this war, by demanding that the politicians of North America get together and join in an energy compact that will bring about virtual independence from OPEC by the end of this decade, or shortly thereafter.

This will require a Congressional bill that goes well beyond what has recently been debated. It may require some guaranteed floor on the price that North American producers can get at the wellhead or the pump. It can either be funded by consumers directly, or it can be funded indirectly by a system in which government agrees to enter into the futures market.

Some of what is needed is simply a reversal of several decades of punishing legislative and administrative decrees that make it harder and harder for domestic producers to compete with third world producers. Some of it will be bold and aggressive enough to be of concern to pure free market theorizers.

It should avoid deliberate punishments like tariffs or tax penalties on foreign production. What it will require is a commitment, not unlike that made on the Manhattan Project. It is entirely feasible from a technical standpoint-producing another eight to ten million barrels per day that is. It is feasible only if considerably more private capital is committed, especially to Canadian development, and many Canadians are rightly concerned about becoming too dependent on U.S. markets for their prosperity. But why not be rich, powerful and prosperous? Sometimes the Canadians take their provincial status a bit too seriously. They have an opportunity to make one of the greatest contributions to civilization ever by nullifying much of the aggression currently exhibited by angry third world nations toward the West. They can do this by becoming the world’s leading petroleum exporting nation. That is the only thing that will bring OPEC, and especially Islamic petroleum exporting nations, in line with reality.

But what about those pesky environmentalists? Let’s simply give the devil his due. He’s won on this issue. Why else would the Chairman of the Board of Royal Dutch Shell be an advocate of the Kyoto Treaty? This despite the fact that it would cost the average Canadian an additional $2,500 per year.

Let’s just admit that we’ve lost this battle for now. Oh, sure, we can argue that it’s far better to produce more petroleum in North America, home to the world’s most stringent environmental rules. Do the environmentalists seriously think that the Central Asian Republics or the oligarchic rulers of the Persian Gulf States care about so-called greenhouse gases? Of course not. But neither do our environmentalists. What they really want is to impose a supposedly nonmaterialistic agenda on everyone by force. They want to turn America into one large monastic community along Cuban lines.

You cannot discuss anything rationally with such people. So let’s just agree to pay for it. It will be a lot cheaper than the $50 per barrel premium we are now paying for Saudi oil, it will tell the world we are serious for a change about not being kicked around, and that we are in this war on terrorism for the long term, and it will have the added advantage of solving the conflict between Israel and the Palestinians. The only reason why we continue to restrain the Israelis from their right to defend themselves from terrorism is our fear of alienating the Persian Gulf states-on whom we depend for twenty-five percent of our petroleum.