WASHINGTON — Forty years after the start of the OPEC oil embargo left the U.S. with iconic images of gas lines and a reminder of its vulnerability to Middle East oil producers, America is still susceptible to price shocks stemming from decisions made on the other side of the world, according to a report issued Tuesday.
In the 52-page policy paper, former U.S. military leaders, cabinet secretaries and business leaders recommend ways the United States can pare America’s vulnerability to oil price hikes, by giving alternatives a chance to compete with gasoline and ending “oil’s virtual monopoly as a transportation fuel.”
“As long as the vehicles rolling onto our roads can essentially run on nothing but oil-based fuels and consumers are thus thwarted from making an on-the-fly choice among different fuels, America will remain susceptible . . . no matter how little oil we import,” said former National Security Adviser Robert McFarlane and former Central Intelligence Agency Director James Woolsey in a written introduction to the report by the U.S. Energy Security Council.
The group, founded by McFarlane and Woolsey, is dedicated to reducing the strategic importance of oil.
Because oil is a fungible commodity traded globally, even big surges in domestic production — like the current oil boom — don’t insulate the U.S. from price spikes, whether they are driven by natural disasters or used as political warfare. For instance, in 2011, even as domestic oil production was climbing, crude prices spiked amid turmoil in Libya.
The council notes that Americans have weathered such volatile oil prices because of Middle East activity even though the Persian Gulf has never supplied more than 15 percent of U.S. oil imports:
“What the U.S. imports from the Persian Gulf is the price of oil, much more so than the black liquid itself,” the council wrote. “When the region destabilizes, price goes up for everybody, regardless of their physical exposure to Middle Eastern Crude. Even if the U.S. miraculously became self sufficient in oil, it would not be shielded from the world market.”
The U.S. Energy Security Council, holding a conference in Washington, D.C. today, says the solution is to introduce real competition into the transportation fuels marketplace.
“We must . . . level the playing field and end the decades-old regulatory advantage that petroleum fuels have enjoyed in the transportation fuel market,” the report says. “Opening the door to fuel-competitive vehicles and reducing the regulatory barriers to non-petroleum fuels would reduce the strategic importance of oil with its attendant national security implications and reduce the nation’s vulnerability to oil price shocks.”
But making that dramatic marketplace change requires a transformation in the U.S. vehicle fleet, now largely tied to petroleum-based gasoline, despite new flex-fuel vehicles, natural-gas-powered trucks and hybrids. The Energy Security Council estimates that until about 15 to 20 percent of cars and trucks in the vehicle fleet are capable of running on a variety of fuels, there is little economic incentive for filling stations to add infrastructure for non-gasoline alternatives.
The group says the easiest solution would be a government-imposed open fuel standard requiring most light duty vehicles sold in the United States to be capable of running on another fuel in addition to — or instead of — gasoline or diesel. Rep. Eliot Engel, D-N.Y., and Rep. Ileana Ros-Lehtinen, R-Fla., are sponsoring open fuel standard legislation that would require automakers to phase in production of vehicles that can run on non-petroleum fuels. But since such mandates are a tough sell politically, the group recommends alternative approaches to spur fuel competition:
- Automakers that open at least half of the vehicles in their fleet to competing fuels could get a fuel economy credit for the change. The U.S. Energy Security Council recommends automakers only qualify if the flex-fuel vehicles are capable of running on methanol as well as ethanol, which is made from organic material.
- Federal regulators should make it easier to allow motorists to use low-cost conversion kits to allow their cars to be propelled by substitute fuels.
- Fuel taxes should be restructured to apply to energy content instead of volume — a change that would help non-petroleum fuels, which are less energy dense per volume.
Internationally, the group also recommends collaboration with China and Brazil on alcohol-based fuels, work with China and other emerging shale gas producers to boost the environmental soundness of hydraulic fracturing in their borders. International standards for after-market retrofits of cars, allowing them to run on compressed natural gas or other fuels, also should be developed, the council says.
Questioning the oil boom
A report released Monday by Roubini Global Economics and Securing America’s Future Energy ranked the U.S. roughly in the middle of 13 countries when it came to oil security, because of the United States’ “heavy oil dependence.”
Some energy analysts and policymakers have thrown cold water on the much-celebrated surge in U.S. oil production, warning that it won’t end volatile crude prices.
“If the U.S. is importing even one barrel of oil per day, a foreign supply disruption would drive up the domestic price of all sources of supply,” said University of Houston economist Ed Hirs in a 2011 paper.
Hirs and fellow Yale University graduates argued that the only way to insulate the U.S. from oil price shocks and supply disruptions would be to cut America off from the world crude market. In urging a 10-year phase out of U.S. oil imports from non North American suppliers, the group said that “prudent elimination of foreign oil supplies as a federal policy initiative would be less costly than if the U.S. were to suffer a surprise shock supply interruption.”