Of all the meaty issues that are going to be served up on the presidential election platter -- health care, Iran, deficits, the future of Social Security, Medicare, immigration, the future of America to name but a few -- it is highly likely that the price of gas will be that platter's main course. For unlike any other issue, this one affects our lives not in the abstract, but in capital letters; not once a month, but nearly every day. And, where one might, through an act of will or self-preservation, hide just about any other issue under the mental rug, the price we pay for a gallon of gas is simply too central, too overwhelming, to be separated from our daily concerns.
As central a focus as the price of gas-at-the-pump is going to be, it is an issue which candidates will address with fatuous finger-pointing, superficial slogans and brainless bromides where tachlis -- Yiddish for "seriousness of purpose" -- should reign supreme. Moreover, most every challenger -- whether running for President, Senate or House of Representatives, will espouse the same simple-minded solution for this utterly complex challenge: "Vote for me! I will lower gas to $2.50 a gallon!" "Vote for me! I will drill everywhere from Butte, Montana to the Beaufort Sea" "Vote for Me! I will free America from its dependence on Arab oil!"
Sorry fans, but it ain't gonna happen. Candidates who suggest that utter complexity can be parsed through sheer simplicity are charlatans; voters who buy into that simplicity are to be pitied.
And so, in keeping with the old adage "To be forewarned is to be forearmed," we present a little quiz about oil, energy independence and the price of gas . . .
1. The world's largest producer of oil is:
A. Saudi Arabia
C. United States
The correct answer is D, Russia. The next four, in order of production output are Saudi Arabia, United States, Iran and China.
2. The largest single foreign source of American oil comes from:
C. Saudi Arabia
The correct answer is E Canada. In order of quantity imported, ranging from most to least, America gets its oil from Canada, Mexico, Saudi Arabia, Venezuela and Nigeria.
3. True or False: During Barack Obama's first three years in office, America's rate of oil production and exploration fell dramatically.
False: According to the International Energy Agency (IEA), during the last 3 years of the George W. Bush administration (2006-2008), America produced 1.78 billion barrels of oil. During the first three years of the Obama administration (2009-2011), America produced 2 billion barrels of oil, a nearly 13% increase.
4. True or False: The best way to lower the price of gas at the pump is to drill for more oil here in America.
False. A statistical analysis of 36 years of monthly, inflation-adjusted gasoline prices and U.S. domestic oil production by The Associated Press shows no statistical correlation between how much oil comes out of U.S. wells and the price at the pump. If more domestic oil drilling worked as politicians say, we'd now be paying about $2 a gallon for gasoline.
5. True or False: If America could reduce its oil imports to zero, we could insulate ourselves from the global market and set our own prices.
False. It is virtually impossible to be insulated from the global market -- even if we do not import a single barrel. Gasoline prices will always be determined by world petroleum prices. The only way to keep prices significantly lower than the world market would be to institute price controls, which President Richard Nixon did in March 1973. (In 1973 Congress passed the Emergency Petroleum Allocation Act which created a two-tier system of price controls on domestic oil. The price of “old” domestic oil was frozen, but “new” domestic oil was decontrolled. These controls were phased out by the end of the Carter Administration.)
There is no single reason why gas prices rise or fall. Having said this, it must be admitted that the price of gas at the pump does have more to do with the petroleum futures' market than with either the production or consumption of gasoline. And what frequently "fuels" the petroleum futures' market is a combination of worry, fear and uncertainty about the future. When, as an example, there is a rise in bellicose rhetoric vis-à-vis Iran ("If elected, Iran better watch out!" or "If you persist in putting more economic sanctions on us, we'll retaliate by shutting down the Straits of Hormuz!") speculators drive up the price per barrel against the possibility of what might happen in the future. Interestingly, even if Iran finds itself able to sell only half the oil due as it did prior to sanctions, if the price per barrel will increase 30% or 40% -- which it could well do -- their income won't be all that much less. In other words, it would be wise for politicians to lay off the bellicose blather.
Is the market really that sensitive to rumor and possibility? Absolutely. Just listen to any day's closing market report on CNN, MSNBC or the BBC, and you will hear analysts explaining what, in their opinion, led the Dow Jones led to advance or decline. Uncertainty about the Greeks' ability to handle their debt, for example will send the market down. If, however, the next day the EU and the IMF even hint at providing Athens with, say, a $100 billion loan, the market will go up. It's just that sensitive.
So too with energy.
America's and the world's energy future is a highly complex issue. The Department of Energy's "International Energy Outlook" anticipates that world oil consumption will increase from 85.7 million barrels per day (mbpd) in 2008 to 112.2 mbpd in 2035. And the largest increase in consumption is not going to be taking place in the United States, but rather in emerging economies in Africa and Asia. This means that America's energy needs are going to increasingly come from unconventional sources like oil sands, extra-heavy oil, biofuels, coal-to-liquids, natural-gas-to-liquids and shale oil -- all of which we have (at least potentially) in abundance, and all of which come with serious ecological consequences.
As noted above, complex problems require far more than simple slogans or birdbrained bromides. "Vote for me!" is obviously not a serious solution to a complex problem. Any candidate who suggests that simply doing "X" or "Y" will solve America's -- and the world's -- looming energy crisis is full of hot air.
And the last time I looked, hot air -- although existing in great abundance -- isn't a great source of energy.
©2012 Kurt F. Stone