American Energy Policy, Asleep at the Spigot

As I have noted in previous posts, the current energy crisis and soaring gas prices really should be a surprise to no one who has any knowledge of the last 35-40 years and any meaningful knowledge of the exploration and production segment of the oil industry. The USA now finds itself in more or less the same situation as at the time of the first energy crisis of the 1970's which saw gas rationing and a radical shift to smaller vehicles. Despite what occurred back then, the USA's political leadership in both parties chose to basically ignored the long term picture and out of perceived political expediency and deference to auto industry lobbyists and pretended that all could be normal again forever. The consuming public was no better as vehicles shifted back from smaller and more fuel efficient to the huge SUV so popular with the soccer mom set in neighborhood like the one I once lived in even though they have ZERO need for a huge gas guzzling off road vehicle. Yes, I confess to owning Jeeps, but each one of them has been actually used for off road purposes on many occasions, principally on the beach on surfing trips, and none of them come close to rivaling a Chevy Suburban for in terms of consumption.

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Even now, most Americans cannot grasp that just maybe the oil prices we are seeing are here to stay, which is perhaps the ONLY thing that will force some sort of comprehensive energy policy to be put together. I believe the next few years will be turbulent economically, and if gas prices remain high, we will see a whole revamping of the US auto industry, assuming the domestic auto makers survive the change over since they put all of their eggs in the high profit gas hogs instead of making serious investment in more fuel efficient vehicle. As for living patterns, numerous stories are already cropping up as to the sudden loss of attractiveness of far flung outer suburbs which will likely have a negative impact on home prices in amny communities. In short, it's a mess that will not be rectified easily or quickly. Here are some highlights from a story that looks at the head in the sand approach that has been the USA's hallmark:

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Over the last 25 years, opportunities to head off the current crisis were ignored, missed or deliberately blocked, according to analysts, politicians and veterans of the oil and automobile industries. What’s more, for all the surprise at just how high oil prices have climbed, and fears for the future, this is one crisis we were warned about. Ever since the oil shortages of the 1970s, one report after another has cautioned against America’s oil addiction.

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Even as politicians heatedly debate opening new regions to drilling, corralling energy speculators, or starting an Apollo-like effort to find renewable energy supplies, analysts say the real source of the problem is closer to home. In fact, it’s parked in our driveways. Nearly 70 percent of the 21 million barrels of oil the United States consumes every day goes for transportation, with the bulk of that burned by individual drivers, according to the National Commission on Energy Policy, a bipartisan research group that advises Congress.

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SO despite the fierce debate over what’s behind the recent spike in prices, no one differs on what’s really responsible for all that underlying demand here for black gold: the automobile, fueled not only by gasoline but also by Americans’ famous propensity for voracious consumption.

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“Much of what we’re seeing today could have been prevented or ameliorated had we chosen to act differently,” says Pete V. Domenici, the ranking Republican member of the Senate Energy and Natural Resources Committee and a 36-year veteran of the Senate. “It was a bipartisan failure to act.” Mike Jackson, the chief executive of AutoNation, the country’s biggest automobile retailer, is even more blunt. “It was totally preventable,” he says, anger creeping into his affable car-salesman’s pitch. . . . . the impact of that change will affect everyone from home builders and homeowners in exurbs to corporate leaders, landlords and commuters in cities.

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[O]n Capitol Hill, members of both parties now say they are furious with Detroit for fighting so hard, and for so long, against higher fuel-efficiency standards. Though analysts say automakers who shoveled out highly profitable and highly inefficient road hogs like S.U.V.’s and pickups deserve much of the blame, they also criticize legislators who failed to provide an incentive for consumers to switch to fuel-sipping cars.

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“We’ve got to fix it or our standard of living will change within a decade,” says Senator Domenici, who is retiring this year. “Oil was too damn cheap, it’s too high now and it’s going even higher. I hope I’m wrong, but the problem is, we can’t catch up soon enough.” According to energy policy experts, it was in the late 1980s and early 1990s — during the administrations of President George H. W. Bush and Bill Clinton — that things began to go wrong. Before that point, the country reaped the benefits of the first fuel-economy standards, passed in 1975, known as corporate average fuel economy, or CAFE.

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[A]dded drilling is unlikely to generate sharply lower prices. A recent study by the federal government’s Energy Information Administration estimated that under the best-case scenario opening up the Arctic National Wildlife Refuge would reduce prices by $1.44 a barrel by 2027. Drilling in broader swaths off the continental United States wouldn’t affect prices until 2030.

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“The 1990s were something of a lost decade for American fuel efficiency.” With oil prices low, consumers began snapping up pickup trucks and sport utility vehicles, which were governed by less stringent fuel economy standards, thanks to a loophole in the original 1975 law. These carried higher sticker prices and profit margins, and both Detroit and foreign automakers were happy to oblige. Although oil prices remained low through the 1990s, consumption patterns were taking an ominous turn.

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What Congress didn’t or couldn’t do, the free market is now doing in the form of higher gas prices: forcing Americans into more fuel-efficient cars. Ms. Cischke of Ford says that in the last two months, “We have seen more of a shift in the market than in 20 years of CAFE. People are buying what they need.” Unfortunately, the shift is happening too fast for a company of Ford’s size. That is among the reasons Wall Street expects Ford to lose more than $2 billion this year.