Roger Baker : Oil Addiction Generates Denial

The major sin of the big oil companies was to get their customers addicted, to set up lobbies to keep them addicted, and to deny the looming shortage problem, including the threat of global warming.

By Roger Baker | The Rag Blog | May 23, 2012

It’s easier to fool people than to convince them that they have been fooled. — Mark Twain

Denial is a basic symptom of addiction that involves hiding the truth, refusing to talk about the problem, rationalizing, or dismissing the situation — defensive patterns of behavior that the addicted employ to avoid facing reality. This same principle of denial holds true whether the addiction applies to an individual or to an entire nation.

It is certainly no exaggeration to say that the United States has been a nation addicted to a continuous supply of cheap imported oil for at least the last 35 years. This has been so ever since President Jimmy Carter promised to take a leadership role in breaking our oil habit in 1976. At that time he characterized the U.S. energy crisis as the “moral equivalent of war.” The USA has been in denial ever since.

By 2006, our imported oil habit was still growing and caused about 35% of our trade deficit. (See Figure 1 in this link.) Since then, we have been able to produce more oil and cut back on our oil imports (see Figure 3), but now it has risen so much in price that it constitutes about 60% of the total U.S. trade deficit. Transportation, mostly driving, still accounts for about 70% of U.S. Oil consumption, despite the fact that driving has declined slightly after peaking in 2007.

Oilman and President George W Bush, who was in an excellent position to understand such things, openly declared our national addiction in his state of the union address in 2006:

Here we have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world.

From President Carter to President Bush Jr., our imported oil habit became progressively less sustainable, as the cheap oil was used up. If the continuous stream of tankers that export oil from the Persian Gulf region should be interrupted now, the price would immediately rise to a level that would make fuel unaffordable to many U.S. drivers, and to a degree much more painful and disruptive than we experienced in 2008, or in recent months.

Our continuing addiction to Mideast oil accounts for the vast U.S. military force that we have stationed in the Persian Gulf, which region provides a large and growing portion of the world’s total oil supply. It is sometimes claimed that because the United States gets most of its oil from sources closer than the Gulf region, we are not highly dependent on this region. However, since the oil market is global, any oil supply interruption in the Gulf region would soon translate to high prices everywhere else. The Chinese would soon bid against the USA for the fuel produced from the Canadian tar sands, etc.

Europe, by comparison, has been been largely shielded from big fuel cost increases by its already much higher fuel taxes. These taxes have forced its drivers to adopt lifestyles that minimize their fuel consumption, and thus protect them more from a global oil price rise.

Whenever the U.S. supply of imported oil is threatened with interruption (or if the U.S. economy should recover much), the global marketplace bids up the oil price, and the politically sensitive price of gasoline will rise in step and depress consumer spending . Whenever the world oil price is high enough, it can cause an economic crisis. In this case global demand may contract sharply, as it did in 2009. The price can never rise for long above what the global oil market can bear.

In 2008 we found that limit as we approached $120 a barrel for oil and $4 a gallon for gasoline. Prices are once again beginning to kill demand in the U.S., but under a slightly lower ceiling, because the economy isn’t nearly as strong as it was in the first half of 2008. Now the ceiling is closer to $100 a barrel.

Young people are more inclined to kick their oil habit

The lower third of the U.S. population by income increasingly cannot afford to drive at all.

As a result, many young people in particular seem to be culturally rejecting car ownership as a lifestyle goal, and are arranging their lives so as not to require cars. According to a new report ,

The average annual number of vehicle miles traveled by young people (16 to 34-year-olds) in the U.S. decreased by 23 percent between 2001 and 2009, falling from 10,300 miles per capita to just 7,900 miles per capita in 2009. The share of 14 to 34-year-olds without a driver’s license increased by five percentage points, rising from 21 percent in 2000 to 26 percent in 2010, according to the Federal Highway Administration.

The road lobby, sprawl developers, and climate change denial lobbies all have a dog in the fight and are happy to support groups that help perpetuate oil addiction denial. The Antiplanner, funded by the Cato Institute, is one prominent voice of denial. This Libertarian think tank, founded by one of the Koch Brothers, is still a bit too independent and they are trying to regain control again.

In fact there is now a wealth of evidence for a deep shift in driving behavior.

America’s transportation policies have long been predicated on the assumption that driving will continue to increase. The changing transportation preferences of young people — and Americans overall — throw that assumption into doubt. Transportation decision-makers at all levels — federal, state and local — need to understand the trends that are leading to the reduction in driving among young people and engage in a thorough reconsideration of America’s transportation policy-making…

In accord with the nature of politics, unhappy voters tend to seek political scapegoats to blame for their pain at the gas pump. As a nation in denial of addiction, we seek external causes other than our own behavior, dependent as it is on this unsustainable resource. As a nation, we uniquely depend on private vehicles for commuting as an integral part of the U.S. lifestyle.

Given all the media attention it has attracted over the past few years, the public seems to understand that maintaining the U.S. oil supply is important. They also believe that their driving dependency is tied to political policy. This leads to the false hope that, by choosing the right president, their driving might remain more affordable.

Given this situation, it is easy to understand why the recent rapid rise in the cost of fuel has become a political issue. Likewise, the recent modest decline in fuel price might seem to indicate that some kind of mysterious factor other than a natural oil shortage is at play.

It is hard for the average driver to understand that the price of gasoline is closely tied to oil demand on a global scale; that the cost of domestic gasoline is closely linked to the global market price of crude oil, and that its price rises and falls accordingly. Here we can see that the average U.S. gasoline price closely tracks the price of Brent crude, the global benchmark standard, even more closely than it tracks the price of the WTI grade of crude oil still produced in the USA.

Other factors can be important too, like transportation and refining bottlenecks, but the cost of crude oil is primary. Global supply and demand, including our domestic demand that uses more than 20% of the world’s crude oil production, are the basic factors that determine what we will pay for our gasoline and diesel fuel. Because of our addiction , we seek scapegoats and seek to deny the need to change our own behavior.

Scapegoats for the right

Republicans make the absurd claim that the federal government and environmentalists have prevented the U.S. oil industry from producing enough oil to lower the price of gasoline. The attempt to portray any possible increase in domestic oil production as being sufficient to significantly lower the global price of oil is ridiculous but certainly attracts media attention.

The truth is that we are in the middle of an oil and gas “fracking” boom widely opposed by environmentalists. This drilling boom has indeed lowered our domestic natural gas price confined to areas within easy reach of gas pipelines, but it cannot much affect the price of oil, since oil is relatively cheaply transported by transoceanic tanker to the highest bidder.

The Republicans still contend that enough of an increase in petroleum could be obtained by increased domestic drilling so that it could lower the price of fuel, even down to the $2.50 a gallon gasoline that Gingrich was promising. Few in the oil industry seriously take these claims seriously, but it is the sort of talk that draws a lot of political attention. Mitt Romney has even called Obama to fire his three top energy advisors.

To be realistic about our current situation, the formerly cheap “conventional oil” that was produced by onshore drilling, which helped the USA win WWII, has nearly all been pumped up and is gone forever outside the Mideast. We now have to rely on much more expensive and hard to produce “unconventional oil” sources, like deepwater offshore wells — especially since 2005.

In the current global market, the reality is that the fruits of increased domestic production will be sold to the highest global bidder by the multinational corporations like Exxon.

The price of crude oil has increased globally by a factor of five from $20 to $100 in only about the last decade. In terms of the physical infrastructure appropriate to lubricating and growing a profitable world economy, this has had a profound and deep-seated economic effect, an global economic shock that has been felt everywhere as reduced profits throughout the global economy.

Scapegoats for the left

Democrats and critics of the business community naturally choose different scapegoats than Republicans, often on grounds that sometimes seem almost as far-fetched. These scapegoats tend to be the big oil companies, Wall Street oil speculators, and the oil refiners.

There is little that Exxon can now do to reverse the chronic oil dependence that they have done so much to help create and perpetuate. They are in effect the beneficiaries of a once-abundant, but now increasingly scarce resource in an era in which the production cost is steadily rising. As Exxon’s own reserves of cheap oil run short, they want to stay in business as middlemen, brokers, refiners, and producers of this increasingly scarce fluid vital to the continued functioning of the U.S. economy.

The major sin of the big oil companies like Exxon Mobil was actually, in large part, to get their customers addicted to their products in the first place, to set up lobbies to keep them addicted, and to deny the looming shortage problem, including the threat of global warming. This was recently detailed in the New Yorker. Obama’s response to being blamed for high oil prices has been more political than focused on informing the public of their addiction:

The President’s policies toward the oil industry are not easy to categorize. His actions — attacking oil-company profits while proposing more oil drilling — can best be understood as political responses to rising gasoline prices.

Obama is quite willing to take advantage of the unpopularity of speculators as scapegoats . The Democrats don’t have a coherent position on energy, but as politicians they still have to represent a public angry about fuel costs. What Democrat could resist blaming Wall Street and commodity speculators for driving up oil prices?

With gas prices continuing to soar, 70 members of Congress on Monday pushed federal regulators to stop excessive oil speculation. The House and Senate lawmakers — all Democrats — wrote to the Commodity Futures Trading Commission to urge the agency to immediately put in place limits on traders in crude oil markets and take whatever steps necessary to rein in prices at the pump.

“It is one of your primary duties — indeed, perhaps your most important — to ensure that the prices Americans pay for gasoline and heating oil are fair, and that the markets in which prices are discovered operate free from fraud, abuse, and manipulation,” the lawmakers wrote in a letter organized by Sen. Bernard Sanders…

The problem with blaming Wall Street speculators is that so much of the oil market is global, like the London exchange. In any case, price hedging is a legal and intrinsic part of a normal market involving buyers and sellers. Nailing down future delivery is the natural inclination of commodity dealers operating in a tight market.

The successful speculators tend to amplify price trends, rather than changing market direction. Speculation is a normal part of the business of airlines, for example, who do a service by anticipating and evaluating future fuel price risk. By anticipating future shortages, they make it hard to deny that there are looming oil supply problems that we urgently need to face.

“The fact is that there really are logistic challenges for Europe to replace Iran as a source of oil, and those challenges are going to translate into a higher price,” said James Hamilton, an economist at UC San Diego who has studied past oil-price spikes.

Reasonable voices are no match for addiction denial

Not everyone in Congress has been in denial of our precarious U.S. oil import position. Republican Senator Dick Lugar recently posted an article — “High gas prices threaten recovery” — which explained that there is practically no global spare reserve capacity left to cushion a sharp oil price rise, due to an inflexible and increasing global oil demand in conflict with a fixed global oil supply.

Price stability depends on a cushion of excess oil production capacity that could be brought online within 30 days or so if needed. A good rule of thumb is 5 percent of the market — now about 4.5 million barrels per day — is a sufficient cushion. Drop much below that, and the market cannot easily cope with planned or unplanned outages…

The cushion today is just 1.4 million barrels per day of spare capacity in a global market of approximately 89 million barrels, according to analyst Bob McNally, of the Rapidan Group. Some estimates are even lower. That thin margin already inflates prices, but it also puts global oil markets on the edge of massive upheaval.

Senator Lugar offered his “Practical energy Plan,” which amounts to taking a lot of simultaneous emergency measures to expand domestic fuel production, while reducing consumption. While this is good advice, it would certainly take more time and require more political will than we have available.

However even these kinds of sensible warnings by a moderate Republican Senator are apparently too much for the right-wing oil addiction deniers to tolerate. The Koch brothers, who became super-rich from petrochemicals, helped fund FreedomWorks, part of the opposition that successfully knocked Sen. Lugar out of the Republican primary, and thus removed a respected political moderate.

Little time left to deal with our addiction

Rising gasoline prices should ideally be welcomed as a warning of what is soon to come. One of the keenest observers of the geopolitics of oil and the precarious nature of our U.S. oil dependence is Michael Klare.

Because the American economy is so closely tied to oil, it is especially vulnerable to oil’s growing scarcity, price volatility, and the relative paucity of its suppliers. Consider this: at present, the United States obtains about 40% of its total energy supply from oil, far more than any other major economic power.

We will now have to prepare for major economic changes and high gas prices. Oil and politically sensitive gasoline prices have receded in price the last month, but this is in no way a sign that our lives can return to the cheap oil era of the past. We are busily preparing to fight Iran. The energy wars are heating up globally . The hour is getting late.

Klare now calls on Obama to be honest about the true gravity of our current situation.

President Obama has to be honest with the public. There is no solution to high prices, other than a change in the behavior of our energy use, because there is no cheap oil left on the planet. We have to begin a process of converting to alternative forms of energy or alternative forms of transportation. And he has to be honest.

Will we wake up and face our oil addiction denial in time? As they wisely say, you can evade reality, but you cannot evade the consequences of evading reality.

[Roger Baker is a long time transportation-oriented environmental activist, an amateur energy-oriented economist, an amateur scientist and science writer, and a founding member of and an advisor to the Association for the Study of Peak Oil-USA. He is active in the Green Party and the ACLU, and is a director of the Save Our Springs Association and the Save Barton Creek Association in Austin. Mostly he enjoys being an irreverent policy wonk and writing irreverent wonkish articles for The Rag Blog. Read more articles by Roger Baker on The Rag Blog.]

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