Videos of the United States Energy Security Council's Recent Two-Hour Conference

Wednesday, September 28, 2011

A bipartisan group of 20 former cabinet level officials, retired senators, and prominent business leaders are calling on America's political leaders to address one of the major contributors to our economic vulnerability: Oil's power as a strategic commodity, and its virtual monopoly as the global transportation fuel.

The organization — the United States Energy Security Council (which you can read more about here) — held a two-hour conference at the Newseum in Washington, D.C. last week to formally declare their purpose.

The Auto Channel filmed the event, which you can watch here: All-Star 'Major League' USESC Team Comes to Bat for Alternative Fuels.

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Projected U.S. Dependence on Iraq Oil Highlights Need for Free Market

Saturday, September 24, 2011

On 9 September 2011 Meghan O’Sullivan, deputy national security advisor for Iraq and Afghanistan from 2005-2007, made the case for a post-2011 foreign internal defense mission in Iraq comprised of approximately 10,000 U.S. troops. She opined that the most compelling case for this is “the role that Iraq may play in averting a major global energy crisis in the coming years,” noting,

The world economic recession eased pressure on global oil supplies and provided relief from the climbing energy prices of 2007 and 2008. But a quiet trend of 2010 was that growth in global oil consumption grew at the second fastest rate ever, 2.8 percent, while growth in global crude oil production lagged behind at 2.5 percent. If demand continues to outgrow supply, it will be only a few short years before global spare capacity of oil – one of the indicators most closely tied to prices – gets dangerously low, and jittery markets push prices up and up.

O’Sullivan continued,
…If Iraq remains one of a rapidly dwindling number of Arab countries willing to cooperate with the United States publicly and privately, and if the development of Iraq’s oil resources help the world avoid another energy crisis, some may recalculate the strategic ledger on the U.S. intervention in Iraq.

While it remains to be seen whether the Iraqi government will agree to a continued U.S. military presence after 2011, statements from key Iraqi leaders are not promising. Iraqi cleric Muqtada al-Sadr recently vowed to resume military operations against U.S. military forces and the Iraqi government if American troops remain in Iraq after the end of the year. U.S. attempts to press the issue or sidestep dissenting Iraqi policymakers could cause Iraqis to question their government's sovereignty and exacerbate political instability.

Concerning oil negotiations, investors may face continued uncertainty given that none of the contracts the Maliki administration has signed with international oil companies have been approved by the Iraqi parliament. The Maliki administration has argued that parliamentary approval of these contracts is unnecessary but this position remains in dispute while debate within the Iraqi Council of Representatives on a new law governing foreign investment in the oil industry continues. Iraq’s history of foreign control over its energy resources makes Iraqi legislators particularly wary of appearing to have been co-opted by foreign interests. This political sensitivity may make contract terms, viewed as controversial in some circles, difficult to enforce.

Of deeper concern is the Iraqi government’s need to address persistently high unemployment, lack of access to basic services, and corruption, which is ranked among the highest in the world. If Iraqis do not see tangible benefits from foreign investment in their oil industry they are likely to blame foreign interests along with their own government officials for financial mismanagement. As observable in Nigeria, the fifth largest oil exporter to the U.S. as of June 2011, the costs of corruption can be significant to foreign investors.

Suspicions abound throughout the Middle East that foreign powers desire to regain control of the region’s energy resources. Western media sources have also questioned the intentions of their own political officials and oil executives concerning energy interests in Iraq. Given the recent history of bad blood between the West and the Muslim world, U.S. officials should be wary of stoking the fires of nationalism in the region.

Whether or not U.S. economic objectives in Iraq are achieved post-2011, it is vital for Congress to take a longer term, comprehensive approach to meeting global energy demand, which is projected to place increasing strain on supply capacity as Meghan O’Sullivan notes. This will in turn drive up the cost of manufacturing and transporting goods and exacerbate unemployment levels. The Open Fuel Standard Act’s free market approach to this problem should attract the bi-partisan support it needs for passage on the condition that Americans mobilize at the state and district level to counteract the financial influence of the oil industry, which surely does not want to relinquish its monopoly over the transportation fuels market.

Nearly 4,500 of our troops have been killed in Iraq to date and tens of thousands more are suffering from post-traumatic stress, traumatic brain injury, lost limbs and substance abuse. Americans must come to the realization that energy security is a vital national interest that the United States has used military force to maintain and that the possibility of future energy conflicts will only increase unless we reduce our dependence on oil.

Competition in the fuels market will not remedy U.S. dependence on the Middle East overnight but it can play a crucial role in reversing our trend toward increasing reliance on the region and all of the security problems that follow. It’s time for members of Congress to demonstrate their support for our troops by putting the free market to work in the interests of our national security.

Thomas J. Buonomo is a former U.S. Army Intelligence Officer. He holds a Bachelor of Science in Political Science and Middle East Studies from the U.S. Air Force Academy and has spent the past six years researching U.S. foreign energy policy in the Middle East.

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Both Houses Now Have an Open Fuel Standard Bill

Friday, September 23, 2011

WASHINGTON, D.C. – U.S. Senator Maria Cantwell (D-WA) joined Senator Dick Lugar (R-IN) in introducing a bill to break oil’s monopoly over the U.S. transportation fuel industry by ensuring that most new vehicles in the United States are capable of running on a range of domestically produced alternative fuels starting in 2015.

By introducing competition among fuels, the Open Fuels Standard (OFS) Act aims to bring about significant reductions in fuel prices paid by U.S. consumers. Transportation fuel choice could also sharply reduce U.S. dependence on foreign oil and reduce the $200 billion “monopoly premium” the Department of Energy calculates U.S. consumers currently pay to OPEC (Organization of the Petroleum Exporting Countries) and other foreign oil producers each year through excessive petroleum prices. Keeping this money within U.S. borders would sharply cut the U.S. trade deficit, safeguard U.S household income, and provide capital and market incentive for investment in new U.S. energy infrastructure.

“For too long oil has had a monopoly over transportation fuel and American drivers have had no choice but to pay volatile and elevated prices at the pump,” said Cantwell. “Phasing in vehicles that can run on fuels other than petroleum will allow a whole host of new domestic sources of transportation fuel to come online, which should reduce our dangerous overdependence on foreign oil and help keep American dollars here at home. I am encouraged by the broad bipartisan and stakeholder support for the Open Fuels Standard Act which I believe is a recognition that this approach will really help diversify our nation’s energy supply and spur investment and job creation.”

The Open Fuels Standard Act requires that starting in 2015, 50 percent of new vehicles manufactured or sold in the United States be flex fuel capable – meaning able to run on non-petroleum fuels such as domestically-produced ethanol or methanol or other alcohols in addition to, or instead of, petroleum-based fuels. In 2018, 80 percent of new vehicles would need to be flex fuel capable. According to a recent report by the Massachusetts Institute of Technology, adding this capability to new vehicles would cost manufacturers between $100 and $210 upfront using technologies already widely available, and consumers could recoup this additional cost through fuel savings within one year of purchasing a new vehicle.

Adoption of an Open Fuels Standard would spur the development and use of alcohol fuels such as ethanol and methanol that can be made from a wide variety of domestic energy resources including agricultural waste, energy crops, natural gas, and even trash. By increasing the share of these abundant domestic fuels in the U.S. market, the Open Fuels Standard Act has the potential to transform a key drag on the American economy, creating new jobs, strengthening our national security, and addressing challenging environmental concerns such as climate change.

— - —

The introduction of the Open Fuel Standard Act into the Senate coincides with the launch of the United States Energy Security Council, whose members include former National Security Advisor Robert C. McFarlane and former Director of Central Intelligence R. James Woolsey who authored a New York Times op-ed today entitled, “How to Weaken the Power of Foreign Oil.” The op-ed stresses the need for Congress to enact an Open Fuels Standard-like requirement in order to end oil’s monopoly as the lynchpin of U.S. energy security. The new Council’s purpose is to focus on reducing U.S. energy vulnerability and enhancing national security by finding alternatives to foreign oil. According to today’s op-ed, the new Council’s members include former Secretary of State George P. Shultz and two former secretaries of defense, William Perry and Harold Brown, as well as three former national security advisers, a former C.I.A. director, two former senators, a Nobel laureate, a former Federal Reserve chairman, and several Fortune-50 chief executives including a former president of Shell Oil North America, John Hofmeister.

Read more about the US Energy Security Council here.

Read more about why the Open Fuel Standard Act is so important here.

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Achieving $2 Gas

Friday, September 16, 2011

It’s possible, with the right policy.

Republican presidential contender Michele Bachman has said that if she is elected, gas prices will fall to $2 per gallon. Such promises have understandably been greeted with considerable skepticism. But $2 gas is exactly what America needs. The question is, how can we get it?

We can’t do it just by expanded domestic drilling. In order for gasoline prices to fall to $2 per gallon, oil prices must be cut to $50 per barrel. And oil prices are set globally, with the dominating influence being the OPEC oil cartel. Since 1973, this cartel, which controls 80 percent of the earth’s commercially viable oil reserves, has refused to expand production, thus keeping petroleum prices artificially high. While, with a more pro-business government, the United States might conceivably be able to expand its production by a million or two barrels per day, OPEC could easily counter by cutting its production to match, or more likely, by simply continuing its non-expansion policy and letting increased Chinese demand take care of the slack.

If we are ever to get $2 gas, the power of OPEC to control oil prices needs to be broken. The United States Congress could do this with a stroke of the pen, simply by passing the bipartisan Open Fuel Standard bill (H.R. 1687). This act would effectively destroy OPEC by requiring that all new cars sold in the USA be fully flex fuel, able to run equally well on gasoline, ethanol, and — most important — methanol. This latter capability is critical because methanol can be, and is, made cheaply in large quantities from coal, natural gas, or any kind of biomass without exception. The United States has only 4 billion tons of oil reserves, but we have 270 billion tons of coal, vast amounts of natural gas, and an enormous capacity to produce biomass. By requiring that all cars sold here (and thus all cars made worldwide) be compatible with methanol, the act would force oil to compete with a fuel whose sources are not controlled by the cartel, and that we and our allies possess in abundance.

Methanol has only about half the energy per gallon as gasoline, but is 105 octane, which means it can be burned more efficiently. Taken together, these two factors make methanol’s current spot price of $1.38 per gallon roughly competitive with $2 gasoline.

Of course, the passage of the OFS bill would not cause gasoline prices to crash instantly. While it would no doubt hit oil futures hard, and thus cut the speculative premium on petroleum prices, the most immediate result of allowing methanol to compete against gasoline in the vehicle-fuel market would be to send methanol prices up, perhaps by as much as 60 percent. This situation would not, however, last for long. Methanol can be made and sold profitably today for $1.38 per gallon. At a 60 percent markup, its manufacture would be super-profitable, and massive amounts of capital would rush in to expand production. This would drive the price of methanol down, dragging gasoline and oil down prices with it, until methanol reached a price point where its production offered no greater profit than that prevailing in the economy at large. The fact that methanol would reach this price — what Adam Smith would term its natural price — follows from the fact that the sources to make methanol are plentiful and diverse, so that no cartel can artificially limit its production.

This underscores the key issue. There is not a free market in oil. Adjusted for inflation, the price of oil has increased eightfold since 1973, but OPEC production has not increased at all. In a free market, such a price increase would spur increased investment, with subsequent expanded production driving the price right back down again. That is why the inflation-adjusted price of coal, and nearly every other industrial commodity, has not risen in four decades. But because of the cartel, oil production has not responded to price increases in the way that it should in a properly functioning capitalist economy. In order for the free-enterprise system to do its work and deliver the cheap fuel the world needs, the ability of this cartel to limit the world’s liquid-fuel supplies needs to be broken. The Open Fuel Standard bill would accomplish that.

High oil prices are wrecking our economy. Since the United States imports 5 billion barrels of oil per year, the current price of nearly $90 per barrel will hit us for $450 billion this year alone, a huge tax on our economy. As a result, millions of jobs and thousands of businesses are being lost. If this wealth-draining process is allowed to continue, fiscal necessity will require us to withdraw the military forces protecting our national interests abroad, without a shot being fired.

Instead of seeking to exploit this catastrophe by placing its blame on their opponents, or posing with empty promises of salvation contingent upon their promotion to higher office, politicians need to take action. Two-dollar gas is not just a nice idea for inclusion in a campaign speech. It’s a critical necessity for economic recovery.

Either we break the cartel, or the cartel breaks us. The Open Fuel Standard bill needs to be passed.

— Robert Zubrin is a member of the Board of Advisors of Americans for Energy and author of Energy Victory: Winning the War on Terror by Breaking Free of Oil.

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Spending Expands to Fill the Available Budget

Sunday, September 4, 2011

The following is a letter to the editor from John K:

Thanks for this article (Putting the Free Market to Work in the Interests of National Security). I'd particularly like to add to the discussion of Saudi Arabia.

I was outraged, and rightly so, when I first saw you post the fact that it costs Saudi Arabia only $1.50 per barrel to produce oil (posted here). In a competitive business environment where retailers of many sectors are struggling with 3% profit margins, the profit charged by Saudi Arabia and OPEC is truly obscene. It's also an illegal monopolistic business practice, but that's the subject of another article. And yet Saudi Arabia tries to hold OPEC prices down and is considered a friend of the US in this respect.

There's an article at Foreign Policy this week regarding Saudi Arabia's failing economy:

Kingdom of Magical Thinking

As we say, spending always expands to fill the available budget, and Saudi Arabia's economy is now dependent on oil prices at a minimum of $85 per barrel just to break even. And what does this go for? Entitlement programs for Saudi citizens that we can no longer afford for our own citizens, and government jobs to subsidize said citizens.

In many Arab Muslim cultures, manual labor is considered below one's dignity and suitable only for non-Muslims or slaves. Hence Saudi Arabia and other oil-rich Arab countries import vast numbers of foreign workers. Arabs largely just want the government jobs for the prestige, and the government gives out so many of these jobs that it really just amounts to welfare. The jobs don't require much real work or responsibility, so they can largely spend the day reading the newspaper and talking with colleagues. If you follow the topic, you will see this kind of news frequently reported in articles like this on at Strategy Page:

A Lack Of Suitable Work

Our own people are in need of real jobs, so the last thing we want to do is send our hard-earned money abroad to support cultures like this.

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