By
Hisham Khatib
In
his annual State of the Union address on 31 January President
George Bush gave an important speech in which energy strategy
in the US figured highly. In his most striking declaration Mr
Bush said that “America is addicted to oil which is often
imported from unstable parts of the world.” He added that
by “applying the talent and technology of America, this
country can dramatically improve our environment – move
beyond a petroleum-based economy – and make our dependence
on Middle Eastern oil a thing of the past.”
The
president went on to say “we will invest more in zero-emission,
coal-fired plants, revolutionary solar and wind technologies,
and clean, safe nuclear energy. Breakthroughs on this and other
new technologies will help us reach another great goal: to replace
more than 75% of our oil imports from the Middle East by 2025.”
In reality such goals are more modest than they might have appeared.
The US gets less than 20% of its oil from the Gulf, so what
is this “making our dependence on Middle East oil something
of the past?”
A
centerpiece of the president’s new strategy is emphasis
on ethanol. Ethanol production from corn in the US still relies
on subsidies. However, ethanol from sugar cane in Brazil is
competing with gasoline at today’s prices. Still Brazil’s
ethanol production is only 160,000 b/d, meager compared with
20mn b/d of US oil consumption, which is still increasing. The
amount of land, space, water and energy consumption which ethanol
production needs renders it only useful as a topping-up ingredient
for the global consumption of oil. What most people do not realize
is that biomass, including ethanol production, requires the
consumption of a significant amount of traditional fuels for
growing, sawing, converting and transporting, thus greatly limiting
its role as an alternative for oil and as a transport fuel.
President
Bush emphasized the importance and future of nuclear energy,
which is justified. Nuclear is a proven; it is secure and can
be a clean and safe source of energy. It can also indirectly
serve transport requirement through producing hydrogen for fuel
cells and electric cars. But in a country which has not built
a single nuclear power station (or a refinery) for almost three
decades and where “not in my back yard (NIMBY)”
culture prevails, nuclear energy, while it has potential and
many virtues, will continue to play a declining role on the
US and global energy scene, in spite of the president’s
brave declaration.
Change In
Tone
Significant
in the president’s speech was the change in tone. His
emphasis on alternative energy sources made him sound like a
Democrat. He never made this subject a top focus in the past.
Aside from ethanol and nuclear energy, he also stressed: better
batteries for hybrid and electric cars, hydrogen cars, and solar
and wind technologies, ie new renewables.
But
is this emphasis justified? There is a misconception, not only
limited to politicians, about the role and future prospects
of new and renewable sources of energy. Such sources are disbursed,
intermittent, inefficient, and untradeable. They also need enormous
space and support from traditional energy sources, so are expensive
and will not present a challenge to traditional fuels for decades
to come. During the last three decades politicians and academicians
have spoken of the imminent and promising prospects of new and
alternative sources of energy. Nothing of the kind has happened
and nothing is likely to materialize during the next few decades.
Energy futures are dictated by the continued availability of
oil and gas resources (which are abundant and increasing) and
by markets, although environmental considerations are playing
an increasing role.
There
is no doubt that through technology there has been significant
progress in achieving some measure of energy efficiency objectives
in the US since 1973. This will also continue in the future.
Whereas the American economy grow at an average annual rate
of 3% in 1973-2005, oil consumption growth only averaged 0.5%
annually. However US vehicles still consume around 9mn b/d of
oil, and the volume will not decrease in the next 25 years,
in spite of the president’s brave words. Of the fleet
of 350mn vehicles, no more than 30-35mn will be hybrid cars
in 2030, ie less than 10%. The inertia of the energy system,
particularly the freewheeling gas consumption culture in the
US, will take decades to change.
Petrol Price
Rises
What
the president failed to mention is the only action that can
produce results – raising petrol in US gasoline stations.
Gasoline in the US is cheap, not only by EU standards but also
by those of many poor oil importing countries. This administration,
like those in the past, has declined to consider raising gasoline
taxes, perhaps fearful of angering American motorists. Adjusted
to inflation, gasoline pump prices now are less than those in
1981. The nonpartisan Congressional Budget Office estimated
in 2004 that a new gasoline tax of 46 cents a gallon, up from
today’s federal gasoline tax of 18 cents a gallon, would
reduce consumption by 10% over the next 14 years. Nothing of
this sort has been legislated.
Tackling
local prices represents all that really matters, and it is the
one thing which successive US administrations have sought to
avoid. So contrary to Bush’s declaration, the US will
become more addicted to oil and more dependent on importing
it from “unstable parts” of the world, particularly
the Gulf. To refer to these “unstable parts” is
also incorrect. Oil supplies have proved to be more secure than
the critics feared. Market realities dictate that the US, instead
of replacing 75% of its fuel imports from the Middle East by
2025, will become more dependent, year by year, on oil from
the region.
A draft
bill is before Congress called the “Vehicle and Fuel Choices
for American Security Act”. The bill offers US automakers
loan guarantees and other incentives on condition that they
use the money to retool their assembly lines to sharply increase
their production of flex-fuel cars, running on any combination
of alcohol and gasoline, as well as hybrid and plug-in hybrid
vehicles. If approved this draft bill aims to reduce oil consumption
by 2.5mn b/d by 2015 and by 7mn b/d by 2025 – much more
than that envisaged in the president’s proposal.
Hisham
Khatib
is Honorary Vice Chairman, World Energy Council. The views expressed
are only those of the author, Petroleumworld not necessarily
share these views.
Editor's Note: The following article was written for Middle
East Economic Survey-MEES and first publish by MEES on 13-February-2006.
Petroleumworld reprint this article in the interest of the readers.
Petroleumworld,
do not reflect either for or against the opinion expressed in
the comment as an endorsement of Petroleumworld. All comments
expressed are private comments and do not necessary reflect
the view of this website. All comments are posted and published
without liability to Petroleumworld.
Fair use Notice: This site contains copyrighted material the
use of which has not always been specifically authorized by
the copyright owner. We are making such material available in
our efforts to advance understanding of issues of environmental
and humanitarian significance. We believe this constitutes a
'fair use' of any such copyrighted material as provided for
in section 107 of the US Copyright Law. In accordance with Title
17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.
