Peak Oil Consequences of Bush's Failed Energy Policies
Illusions of Candor
Rising oil prices just seem unstoppable.
Even I was amazed to see crude pushing $130 on Tuesday. Not because it had gotten to that price, but because it got there so fast. That's 30% over where it was at the beginning of the year.
The peakers (or, if you like, the "peak freaks") have won the debate about oil supplies, and it was the price shock that ended it. I'd still prefer that the discussion revolved around flow rates—that is, whether we can really get from 85 million barrels per day (mbpd) today to 116 by 2030, as the IEA has predicted—but I'll settle for not having to see some "expert" on TV predicting that oil is going back to $45, or $25, or whatever, anymore.
At least the message that oil prices are never going back to those levels seems to have gotten through.
Last July, the National Petroleum Council joined the chorus predicting that oil supply would reach 115-120 mbpd by 2030. I lambasted them for it, along with many other knowledgeable observers.
One of those observers was Matthew Simmons, the world's top oil investment banker, who remarked, "We don't have any idea where those reserves are going to come from or how we are going to get them out of the ground. The odds of this ever happening are zero."
Simmons had argued for years that oil was far too cheap, and would soon go into triple digits. He saw $150 oil not too far into the future, and eventually perhaps $300 oil, but in mid-2007, he was widely ridiculed for it.
Well, Simmons was right. He wasn't the only one, either.
Legendary oil investor T. Boone Pickens agreed with Simmons, and placed his bets accordingly, which made him a fortune. Pickens' latest bet is that we'll see $150 oil by the end of this year.
Goldman Sachs is another. They were the only investment bank to correctly predict today's oil prices last year. Their latest prediction? $148 a barrel this year.
I think that's about right. It might even be a bit on the conservative side.
But not everyone in the oil and investing business has had the vision to see the future of oil clearly, or the guts to make such bold predictions.
Unfortunately for America—indeed, for the world—our president, with all of his experience and knowledge of the oil business, has been one of the last to come around.
The Jawbone of an Ass
When Dubya was first running for president in 1999, and oil had risen to the shocking price of $30 a barrel, he chastised President Clinton for it, arguing that he "must jawbone OPEC members to lower prices."
Perhaps he intended "jawbone" as a reference to Judges Chapter 15 in the Bible, where Samson picks up the jawbone of an ass and uses it to slay 1000 Philistines. That sort of megalomanic Christianity has been a common theme in his presidency. But some of us might read his metaphor a slightly different way...
As his campaign went on, the "jawbone" solution became a regular part of his stump speech. In June 2000, the New York Times reported:
"I would work with our friends in OPEC to convince them to open up the spigot, to increase the supply," Mr. Bush, the presumptive Republican candidate for president, told reporters here today. "Use the capital that my administration will earn, with the Kuwaitis or the Saudis, and convince them to open up the spigot."
His pitch was essentially unchanged in the spring of 2005, with oil now trading in the $50s: "I'll be talking to our friends about making sure they understand that if they pinch the world economy too much, it'll affect their ability to sell crude oil in the long run," Bush said.
When Gov. Bill Richardson was energy secretary under President Clinton, he did plenty of jawboning—or at least, he tried. In an interview with the Associated Press a few days ago, he remarked that "on several occasions they increased production and the price actually went down."
But Bush, he said, was (as they say in Texas), all hat and no cattle. "He never jawbones."
Until recently, that is.
To be fair, Bush has sent his energy secretary, Samuel Bodman, several times to try to talk OPEC into producing more oil, but he too has been frustrated. "I certainly have made my views known. Whether they respond or choose to respond is up to them and not up to me. I'm doing the best I can within the limited sets of options that we have," Bodman recently remarked.
Neither Bodman's efforts nor Bush's have produced results. Not only has Bush earned no capital with Kuwait or Saudi Arabia, he's been earning their disdain.
Last Sunday, on his second jawboning trip to Saudi Arabia this year, the president had the temerity to lecture the Saudis over their morality, social policies, and energy policy. He warned that "the supply of oil is limited, and nations like mine are aggressively developing alternatives to oil."
"Over time," he cautioned, "as the world becomes less dependent on oil, nations in the Middle East will have to build more diverse and more dynamic economies."
The Saudi leadership was swift to respond, chastising those "who are questioning our oil practices and policies." They were also quick to point out that their decision to increase oil production by 300,000 barrels a day by June was not influenced by Bush's trip. That decision was made a week prior, and was simply calculated to meet anticipated demand.
The markets weren't impressed, and responded to his trip by sending oil a few dollars higher, to over $126 a barrel.
"Bush's credibility is zero anyway," remarked Walid Khadduri, a Beirut-based consultant, on the trip. "I really don't know anyone who follows what he says, especially after what has happened in Iraq and then his Knesset speech the other day," he said, referring to Bush's apparent swipe at Barack Obama at a recent speech to the Israeli legislature, wherein he said that "some seem to believe we should negotiate with terrorists and radicals."
Once again, Bush seems to be living in an alternate universe.
Not only is jawboning the Saudis to increase their oil production a kind of negotiation with our "friends" who don't subscribe to most of our democratic ideals, biting the hand that feeds you at the very same moment is a tactic that even a three-year-old wouldn't try.
OPEC knows the score on oil as well as anyone. They are basically correct in asserting that the markets are well-supplied, and that global refining capacity for the ample supplies of heavy sour crude from sources such as Iran, Saudi Arabia and Venezuela is limited.
They also know that, as I have written about previously, the skyrocketing price of oil in recent times has as much to do with the sinking dollar as anything else. But the Bush administration has done nothing about that, so why should OPEC make extraordinary efforts to increase oil production? They would rather simply limit their exposure to the Fed's failed fiscal policy by trading more oil in euros and other non-dollar denominations.
Finally, OPEC knows that peak oil has arrived, and its members are becoming more focused on stewarding their black gold riches for their own countries' benefit than they are on trying to prop up the U.S. economy. "I think it's a mistake to have your biggest customer's economy to slow down," Bush whined, but OPEC is looking at their biggest customers going forward: not the U.S., where petroleum consumption is slowly declining, but the emerging economies of the world, where demand is red-hot.
But President Bush has continued to pretend that we can drill our way to oil freedom, if only those damn Democrats and environmentalists would get out of the way...even though he knows that's not true.
"W" Is For Wrong Way
It's not like President Bush has been oblivious to peak oil. This wasn't his first statement to the effect that oil won't last forever, although he's been careful to avoid the phrase "peak oil." Dick Cheney himself explained the reality of peak oil to the Institute of Petroleum in November, 1999:
By some estimates there will be an average of two per cent annual growth in global oil demand over the years ahead along with conservatively a three per cent natural decline in production from existing reserves. That means by 2010 we will need on the order of an additional fifty million barrels a day. So where is the oil going to come from? Governments and the national oil companies are obviously controlling about ninety per cent of the assets. Oil remains fundamentally a government business. While many regions of the world offer great oil opportunities, the Middle East with two thirds of the world's oil and the lowest cost, is still where the prize ultimately lies, even though companies are anxious for greater access there, progress continues to be slow.
Adding another 50 million barrels par day is like adding another five Saudi Arabias. Even Bush knows that's not possible. The whole time he's been talking about jawboning our friends, he has known what was to come.
And he has done his level best to ensure that America is completely and utterly unprepared to deal with it.
A president who truly cared about his country, knowing what he has known about peak oil, would have taken the galvanizing effect of 9-11 to ask his fellow citizens to drive less, to conserve, to pull together in a campaign of relocalization, and do to all that we could to wean ourselves from our addiction to oil.
Instead, he encouraged us to jump in our SUVs and go shopping.
Instead, he tried to manufacture consent to invade Iraq, and go after its oil militarily on a false pretext, which actually reduced the global supply of oil.
Instead of actually doing something to reduce our dependence on oil, or aggressively pursuing renewable energy technologies that are technically and economically viable today, he has put a big fat thumb on the scale in favor of the oil and gas business, and trumpeted the fairy tale of a "hydrogen economy" and not-ready-for-prime-time switchgrass ethanol.
He has blocked and stalled every meaningful attempt to address the climate change challenge, to the point where America now stands alone in the developed world in opposing the Kyoto Protocol. Worse, the White House has directly intervened to prevent the EPA from granting states the authority to set more stringent air quality standards. This administration has consistently demonstrated a "disregard for the law and science" in its opposition to environmental protection, according to federal judges.
Instead of asking America to reduce its dependence on petroleum, he has argued that we should crawl out even further on that limb by expanding destructive drilling off our coasts, and in our remaining wildlife refuges and natural preserves. This White House has attempted at every turn to gut conservation laws and render their enforcement toothless.
"Until we change our habits, there's going to be more dependency on oil," he admitted, but then has recommended absolutely nothing to change those habits. Instead of doing something effective, like supporting expanded rail service and requiring higher CAFE standards, the administration has sided firmly with the automakers in resisting higher efficiency and emission standards, while leaving Amtrak to struggle along on a life-support budget.
Indeed, he has actually made our problems worse, by killing the Partnership for a New Generation Vehicle program, which promised to deliver 80 mpg cars, and replacing it with a the pie-in-the-sky "Freedom Car" program, which only served to delay any real progress. Oh, and giving tax breaks to SUV drivers.
Not to mention this administration's full-throated support for corn ethanol, which has caused the painful—and entirely predictable—inflation of food prices, but which has not brought oil prices down at all. In fact it has only delayed the inevitable day when we must find ways to reduce our consumption of liquid fuels, a delay that will cost us dearly in the coming years.
"Our problem in America gets solved when we aggressively go for domestic exploration," Bush said after meeting with Afghan President Hamid Karzai a few days ago. "Our problem in America gets solved if we expand our refining capacity, promote nuclear energy and continue our strategy for the advancing of alternative energies as well as conservation," he said.
If only that were true. The nation's refinery utilization is currently at the bottom end of the normal range. Nuclear energy production cannot grow much beyond the current level (I explain the reasons for this in my book, Profit from the Peak), and it isn't going to do squat about our liquid fuel crisis. For electricity production, wind and solar are safer, and in many cases, cheaper than nuclear energy anyway.
And continuing his "strategy" for advancing alternative energy and conservation would amount to doing far too little, too late.
There is talk, and then there is action. With the Bush administration, they are two totally different things.
When you look at the actions of this administration, they are clearly focused on one purpose only: to increase the wealth, and limit the liability, of the traditional energy business. Period.
The rest of the nation has been hung out to dry.
A recent survey by law firm DLA Piper showed that 54% of its top corporate clients cited energy as the top issue that the next president and Congress should focus on, because energy costs are hurting their businesses from top to bottom. Energy costs have trumped the credit crisis, the recession, and foreign competition as their primary threat.
But you wouldn't know it from listening to Bush.
While oil and gasoline prices have hit record high after record high, and the dollar has posted record low after record low, Bush has said next to nothing, other than that he "understands" that America is hurting.
I have no doubt of that, just as I have no doubt that things are going exactly the way he wants them to. He has successfully pushed the difficult choices that this nation has to face onto the next administration, and delayed the growth of renewable energy, while thickly lining the pockets of his friends in the energy business.
Thanks for nothing, Dubya. Don't let the door hit you on the way out.
Until next time,
P.S.: Despite the Bush administration's efforts to forestall it, the alternative energy revolution has started without them...and the profits to be made in the sector are nothing short of amazing. A piece of the action can be yours when you sign up for our premium newsletters, such as Green Chip Stocks and the Pure Energy Trader.