How to Break OPEC

Sunday, November 27, 2011

The following was written by Kevin D'Arcy. Reprinted with permission.

Energy Secretary Steven Chu has stated that his goal is to boost gasoline prices to "European levels." Chu's logic is that high prices will cause us to conserve and force us to choose "alternative" fuels. But the amounts we can save through conservation are so minimal that at best we can only slow down the increasing demand as worldwide population and industrialization grows. But the greater fallacy of Chu's logic is the notion that European level prices will cause us to use alternative fuels. What alternative fuels might those be? Can you fill your Ford with solar energy? Can you drive that Volvo under wind power? How many geothermal miles do you get per tankful in your Toyota? The fact is that oil maintains a vertical monopoly on transportation fuels. Ninety-seven percent of the fuel used to transport people and goods in the United States is petroleum based; consumers have no choice in the matter. Big Oil is very happy about that and OPEC is absolutely depending upon it.

Three popular solutions to our oil dependency have been advocated. T. Boone Pickens urges America to convert its transportation fleet to natural gas — at the cost of tens of billions of dollars in government subsidies. And the expensive Pickens scheme would only swap one straight jacket for another since the vehicles would again operate on a single fuel which America does not possess in long-term abundance.

Another popular answer is "Drill, baby, drill." Increasing domestic production is desirable because it means buying less from foreign sources. But the U.S. produces less than 2% of the world's oil. If we increased our production by 10% a simultaneous decrease of less than 1% by OPEC would keep the world supply unchanged, and prices steady. But OPEC would not even need to cut production because rising worldwide demand would quickly swamp America's increase. "Drill, drill, drill" cannot by itself break OPEC and won't decrease prices in the long run.

Others have proposed a new Manhattan Project to rid us of our "oil addiction." But that idea has floundered because the problem appears so overwhelmingly complicated, and possible solutions so expensive.

The good news is that there is no need for such costly, ineffective, and grandiose schemes; we can rid ourselves of our straight jacket by employing current technology at very little cost. An inexpensive microchip and sensor has been developed that permits car engines to combust any combination of gasoline or alcohol fuels, from 100% gasoline to 100% alcohol or any mixture in between. For an additional $100 or less automakers can build vehicles that break the monopoly of oil and open the transportation fuel market to genuine competition. But relatively few of these "flex fuel" cars are being made for the domestic market because America is in a Catch 22 situation. Consumers don't demand flex fuel cars because filling stations sell only gasoline and diesel. And filling stations don't offer alcohol fuels because most cars can't operate on them. If we solve the chicken-and-egg conundrum by mandating that most of the cars sold in America are flex fuel vehicles (the Open Fuel Standard) a market will be created for alcohol fuels. Producers will supply that market, and consumers will finally have a genuine choice.

Most of us Tea Party folks are economic libertarians who have a well-founded animus toward government regulation. Our knee-jerk reaction to the flex fuel mandate is, "Stay out of it and let the free market handle it." That response would be perfectly sound if the transportation fuel market was truly "free." But free markets work only when there is competition; without it the "invisible hand" becomes a strong-arm tactic. OPEC is a strong cartel and oil maintains a vertical monopoly on transportation fuels. When the price of oil spikes we must buy it anyway. Demand is extremely inelastic because we have no alternative to oil. When the price of orange juice spikes we can substitute something else or simply go without it. When the price of beef is too high, we can buy other meats or even pasta, rice, etc. Lack of choice in the transportation fuel market leaves us hostage to OPEC and Big Oil. The federal government has a duty to break such monopolies and foster competition. But once it has created a competitive market the government must eliminate subsidies, get out of the way, and let freedom and the profit motive do the rest.

So, how do we know this Open Fuel Standard Act [OFSA] will work? We know it will work because it has already been done. Brazil began selling flex fuel vehicles in 2003 and has reduced its oil imports from 80% to 0% by substituting sugar cane ethanol. Naysayers claim this plan can only work in Brazil because it has an ideal climate for sugar cane and plenty of arable land. But only 1% of Brazil's arable land is used for ethanol sugar cane, and every country has its unique resources and its own advantages. America cannot grow much sugar cane, but we have other amazing options in abundance.

Currently, most of America's alcohol fuel comes from corn ethanol. But not all ethanol comes from corn and not all alcohol fuels are ethanol. The beauty of flex fuel cars is that they operate on any alcohol from any source. Enterprising entrepreneurs can make ethanol (ethyl alcohol) from sugar beats, switchgrass, potatoes, and a myriad of other crops. But we can also make methanol (methyl alcohol) from numerous carbon sources including garbage, natural gas, and coal. America has enough coal to fuel us for centuries, and we cannot even imagine the new processes and technologies that will emerge to produce alcohols cheaply and sustainably. Even without the tremendous market incentive that will come with flex fuel cars, scientists and entrepreneurs are already experimenting with ways to make ethanol rapidly and economically from algae. Brazilian sugar cane yields 700 gallons of ethanol per acre. The potential yield from algae is an incredible 5000 gallons per acre, and algae can be grown almost anywhere, including in sea water and in deserts. Never underestimate Yankee ingenuity.

We can produce methanol from coal for about $1.00 per gallon. Since methanol contains half the energy of gasoline, that price is equivalent to about $2.00 per gallon of gas. With economies of scale, new and more efficient methods, innovative technologies and dynamic competition, prices would be reduced further, but even at the current price methanol is an attractive option. And methanol would be produced in America and would generate jobs and profits in America. Even the environmentalists will be on our side because ethanol has a Tom Thumb-sized carbon footprint compared to the T. Rex-sized footprint of 'dinofuel.' And in a tremendous bit of serendipity, methanol can be made directly from CO2 itself. Believers in man-made global warming should be ecstatic.

Until we create the market for them, these alternative fuels will remain insignificant. But as the entire industrialized and "emerging" world converts to flex fuel vehicles (and the world will follow America's lead) oil will become just another commodity like orange juice or beef. Under such circumstances Big Oil would be no more powerful than Big Breakfast Cereal or Big Textile. And OPEC would be broken. Imagine being able to say, "Hey, King Abdulla, President Hugo, and Colonel Muammar, we don't need you any longer. We kicked our addiction, now go take a hike." OPEC lives in fear of that.

America spends about 600 billion dollars per year on foreign oil, and this year OPEC revenues will exceed 1 trillion dollars. We have become so jaded by TARP, Quantitative Easing, and Bush and Obama funny-money that one trillion no longer staggers us. But keep this in mind: 600 billion dollars is equal to one half of the yearly U.S. after-tax corporate profits. Every year we give the equivalent of 50% of U.S. corporate profits to foreigners in exchange for oil. Much of that money ends up in the hands of oligarchs, autocrats, and dictators. It also funds Wahhabi extremist schools in the Muslim world and trains and equips anti-Western terrorist groups. When we break OPEC and lower the price of oil we will put dictators and terrorists on a starvation diet, and do so without sending a single bomb or soldier "over there." Our unhealthy obsession with Mid East politics would end and we could focus on our true national interests. And that 600 billion dollars that we keep at home could be the basis for a long-lasting economic recovery, provided we keep the heavy hand of government out of the development process.

Breaking OPEC and ending the oil monopoly should be a national priority because it is easy to do and the results could be astonishing. In 2008 presidential nominee Barack Obama indicated he favored the OFSA yet he has done nothing to help pass it. President Obama certainly has no qualms about intervening in the auto industry. Not only has he made himself the virtual CEO of Government Motors, he has imposed fuel efficiency regulations which will increase the average cost of a car by $1300 while improving fuel economy by a meager 10 m.p.g. in 8 years. That 10 m.p.g. savings will be subsumed almost immediately by increasing worldwide demand. President Obama also spent 3 billion dollars on the feckless Cash For Clunkers program. That squandered 3 billion dollars could have put 30 million flex fuel vehicles on our highways, giving us a quick start down the road to energy independence. Obama and both parties in Congress have ignored the flex fuel option in favor of costly and non-effective programs. We can't prove motive but Big Oil has plenty of money and influence in Washington and Big Oil does not like the OFSA.

If we are ever going to break the oil monopoly it will take prodding by millions of voters to get it done. The Tea Party must make the OFSA a priority since it will further our goals of strengthening America economically and strategically. Ask your local representative to sponsor H.R. 1687, The Open Fuel Standard Act of 2011. Here is a convenient link to do just that. For more information about the OFSA visit setamericafree.org.

America faces many problems for which there are no easy and politically viable solutions. But here is one major pain in our rears and pocketbooks that can be alleviated easily, quickly, and without controversy. We have been complacent for too long; let's act like Americans. Let's get smart, and let's get busy.

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Tom Ridge Joins the United States Energy Security Council

Wednesday, November 23, 2011

Governor Tom Ridge, former Secretary of Homeland Security, has joined the United States Energy Security Council (UNESC), a strong supporter of the Open Fuel Standard Act.

Ridge joins Alan Greenspan, Robert McFarlane, James Woolsey, and many other distinguished members of this important council (see the full membership roster here). Their main goal is to reduce oil's strategic status and thus ensure America's economic vitality and national security by introducing competition in the transportation fuel market.

Read more about the UNESC.

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Highest Gas Prices in the History of Thanksgiving

Monday, November 21, 2011

Without competition, gas prices will keep climbing. The following is excerpted from a recent USA Today article:

Motorists will probably pay record-high gasoline prices for the Thanksgiving holiday weekend. Regular gas is likely to average $3.37 a gallon next week — up a whopping 51 cents over last Thanksgiving, according to price tracker GasBuddy.com. Adjusting for inflation, that's about 1 cent higher than 2007's previous holiday high of $3.08.

Gas prices are expected to be the highest ever for a Thanksgiving weekend.

Do you want to end OPEC's hijacking of our economy? The Open Fuel Standard Act is the answer we've been seeking. Let's make it happen.

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High Gas Prices Squeezing Americans

Saturday, November 19, 2011

From an article in USA Today: Americans are increasingly hurt by high gas prices, because many lack options that would enable them to reduce the costs of driving, a report today says...

Consumers are no longer responding to price increases as they did in the late 1970s, when many drove less and bought more fuel-efficient cars, says author Skip Laitner, who analyzed U.S. government data. When prices hit $4 in 2008, he says, demand for gas fell only 3%.

Middle-class workers simply don't have alternatives, says Laitner, an economist at the American Council for an Energy-Efficient Economy. He says many moved to distant suburbs when gas prices were lower and can't afford now to move, buy a more efficient car or switch jobs. Also, he says many lack access to public transportation...

Lisa Margonelli, the foundation's director of energy policy. Her team surveyed a representative sample of 2,000 Americans...She says the average family of four now spends more on driving than on health insurance or taxes.

We don't have to keep on like this. We can strip oil of its strategic status. The Open Fuel Standard is the most important first step. If you want to help, start here.

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Three More Co-Sponsors!

Friday, November 18, 2011

The Open Fuel Standard Act has gained three more co-sponsors this week — Madeleine Bordallo [D-GU], John Barrow [D-GA12], and Clifford Stearns [R-FL6].

If any of them are your representative, please give them a hearty thank you.

And if your representative or senators are not on board yet, please make sure they understand the eleven good reasons the Open Fuel Standard is good for America. The best way to reach your congress members is through their staff member responsible for the issue (learn more about that here).

Read tips for being an effective grassroots advocate to learn more about how to effectively influence your representatives. Let's use this momentum and finish the job.

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Congressman Allen West Has Co-Sponsored the Open Fuel Standard Act!

Wednesday, November 16, 2011

The courageous, straight-talking Republican from Florida has co-sponsored the Open Fuel Standard Act. If anyone understands the threat to our national security posed by our continued funding of Wahhabism, it is Congressman Allen West. His understanding of radical Islam is unsurpassed among elected officials.

He understands fully that it is the tremendous wealth of the Saudis that allow them to fund and therefore control ninety percent of the Islamic institutions of the world, to build thousands of mosques, to build madrasses that provide free daily meals to poor Muslim boys so they'll attend and then teach them to hate non-Muslims, to invest in news outlets that promote hatred against the United States, to financially support terrorist training centers, and to pay for the financial support of the families of suicide bombers.

Congressman Allen West fully understands that the Wahhabis are able to do all this because of the tremendous amount of money we give them because so far we have been unwilling to break their monopoly on the transportation sector. And he sees that the Open Fuel Standard would effectively end oil's monopoly and greatly weaken OPEC's power over America's economy and the Wahhabis' influence over the Islamic world.

If Congressman Allen West is your representative, please give him an enthusiastic thank you. And if you know any fans of Rep. West, please let them know he has signed on as a co-sponsor of one of the most important bills to be introduced into the House: The Open Fuel Standard Act of 2011.

Join Rep. West on Facebook here.

Join him on Twitter here.

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Legislative Action Alert from ACT! for America

Friday, November 4, 2011

The grassroots national security organization, ACT! for America, sent out a recent message about the Open Fuel Standard legislation. Here is the message they sent to their subscribers:

BRIGITTE GABRIEL CAPTIVATES CAPITOL HILL: EDUCATES ABOUT OPEC’S CHOKEHOLD ON OIL AND TERROR FINANCING

Last week, ACT! for America President, Brigitte Gabriel, and Director of Government Relations, Lisa Piraneo, were up on Capitol Hill for various meetings and events designed to educate our federal legislators about the connection between OPEC’s price fixing of world oil prices and how that threatens our national security.

In addition to a full day’s worth of meetings with Members of Congress from both sides of the political aisle, Brigitte participated in an important roundtable discussion about this issue for Hill staff, as well as a press conference with Congressmen John Shimkus (R-IL), and Eliot Engel (D-NY), sponsors of H.R. 1687, the Open Fuel Standard Act.


NASCAR driver Kenny Wallace and President Ronald Reagan’s National Security Advisor, Robert McFarlane, joined Brigitte and Lisa during their day on the Hill. In each of the meetings, Brigitte’s passionate words about the connection between OPEC’s manipulation of the world’s oil market pricing — and its ties to terror financing — captivated the Members of Congress and their staff.

In particular, Brigitte and coalition members spoke with Members of Congress about support for the Open Fuel Standard (OFS) Act (H.R. 1687 in the House and S. 1603 in the Senate) as a commonsense first step in breaking OPEC’s chokehold on oil prices.

Immediate progress has come out of these meetings. Already, one Member of Congress who was a part of the OFS meetings last week — Rep. Dan Burton (R-IN/5th) has “seen the light” and signed on to the legislation as a cosponsor. He joins the growing group of Congressional cosponsors this vital legislation has already attracted.

Contrary to what some believe, Canada does not supply the largest share of America’s imported oil. OPEC does. Even if we could purchase largely from our own domestic supplies and our northern neighbor, it will not destroy OPEC’s monopoly on the worldwide price of oil, nor will it decrease the terrorism that is funded through OPEC oil funds.

Why? Oil is fungible. Fungibility is the property of a good or a commodity whose individual units are capable of mutual substitution, such as crude oil, wheat, precious metals or currencies. For example, if someone lends another person a $10 bill, it does not matter if they are given back the same $10 bill or a different one since currency is fungible. If someone lends another person their car, however, they would not expect to be given back a different car, even of the same make and model, as cars are not fungible.

As long as OPEC controls enough of the worldwide oil market (and they certainly do), when they want the price to rise, they simply cut back slightly on their supply. Only a 2-3% drop in supply will typically create a dramatic rise in price.

Therefore, even if the U.S. and Canadian markets are able to generate a 10 to 15% increase in the overall supply of world oil, OPEC would simply cut back their portion of the supply accordingly for a net zero result in order to maintain the level of current pricing.

The fact is domestic oil suppliers have shown little stomach for increasing supply. Why? They like the prices OPEC’s strategy generates! This is why Governor Palin had to file suit in Alaska just to get movement on additional drilling and production. U.S. oil companies have a tendency for sitting on inventory, especially if it is likely that future pricing will be higher.

The only factor that will fundamentally reduce the price of oil is the wholesale introduction of other competing transportation fuels. This alone will finally force OPEC to its knees — and deliver a massive blow to worldwide Islamic terrorism.

To be clear, this is not about supporting ethanol, methanol, or any other specific alternative transportation fuel source. The beauty of the OFS Act is that it doesn’t support ONE particular transportation fuel — it only opens up the market to competition and finally allows the AMERICAN CONSUMER to choose from a variety of fuels for their cars and trucks. Additionally, there are no subsidies tied to the OFS legislation and there is absolutely NO COST to the Federal Government/taxpayers. New cars would cost approximately $100 more for the alcohol fuel capability, but the resulting projected fuel cost savings would be approximately $1,000 per year per car!

***ACTION ITEM***

Please do your part today to break OPEC’s chokehold on the price of oil — and their funding of terrorism. Contact your Members of Congress through our Capwiz site and ask that they cosponsor this important legislation. We’ve made it easy to do by pre-writing the correspondence. Click HERE to reach our Capwiz site and click on the two Open Fuel Standard Act alerts (one for Representatives and one for Senators) to send your message to the Hill today.

With your support, in as little as seven years we can make our nation and our world safer for our children and our grandchildren by taking the teeth out of OPEC and providing Americans a CHOICE when they fuel their vehicles. Brazil has already reached this point. We can be next. But Congress won’t act unless they hear from you.

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