Monday, March 31, 2008

Independence Day Tripper

Every administration of every president since Nixon has been yammering about the desperate need for an "energy policy" or else whining about "energy independence". Every single attempt to formulate something worthwhile and workable has been an abject failure. And every future attempt will be a failure as well. We might as well carry on about an "eggplant policy" or "silverware independence" for all the difference it will make in the country's future energy situation.

When most hear the cyclical blatherings about energy policy they usually take it to reference some direct federal control of motor fuel prices. We naturally think of our own pocketbooks first and gasoline prices are unquestionably dope-slapping our wallets these days. Many, many folks wonder, as so many do in this age of the ever more cosseting nanny-state, "Why doesn't the government DO something about these awful prices?!!!" Well there is certainly one thing that the government can and has done in the past and that is use the power and creativity of the political class to boldly act thereby making a bad situation immeasurably worse. If there is a more pathetic track record of government failure than the many attempts at "Planning Our Energy Future" I am entirely unaware of it. Further if there is any putative government enterprise more chock-a-block with countless potential unintended consequences than energy policy I am equally unaware of it.

Pop Quiz---From what foreign country do we obtain the largest percentage of oil imported into this country? Saudi Arabia?---not even close. Mexico?---no ceegar senor. Hows about Canada eh? That's right our lovely chilly northern neighbor out does any of the OPEC boogeymen by quite a stretch in terms of how much crude they send our way. This is all just fine and jim dandy but a more important dimension to this situation is the fact that since there is a world market in oil the fact that Canada ships lots of hydrocarbons this way has very little effect on the actual price of a 42 gallon barrel of the stuff. Oil from all the world's producers is sold as futures contracts in the world's commodities markets. The main price variations are far more relevant to the type of crude produced than where it is actually pulled out of the ground. It is a mere convenience that much Canadian oil ships here rather than somewhere else. Significant amounts of Alaskan crude makes its way to Asian markets because it is efficient to ship it there rather than somewhere else. It makes little difference in the price because whether crude is shipped by tanker or pipeline the cost per barrel is a very small portion of its traded price. Canadian proximity might make a big difference in the case of some putative worldwide apocalypse but short of that the current situation will obtain.

The most recent runup of crude prices has finally fully reflected the growing consumption of the Asian market--China and India primarily. The sweet run of low prices in the 80s and 90s has played itself out permanently, most likely, and today's demand picture likely rules out seriouly tumbling crude prices any time soon although anyone would be a fool to say that it is impossible. Like it or not, and few really do, commodity prices are set by world markets which respond poorly if at all to high-minded government meddling. I'm sure many are convinced that a cabal of heartless. international financiers and mean, nasty, greedy, evil oil companies "control" the price of oil to suit their own fell purposes. If so it's an extremely diffuse "conspiracy" involving countless tens of thousands of people in dozens of countries whose aggregate work, research, guesses, and neuroses determine not just the price of crude oil but every other bulk commodity the world consumes.

Equally question begging is why did not this cabal "allowed" the historically low prices of the 1990s when crude hovered at around twenty dollars a barrel? The reason is that the large international energy companies have far far less control over crude prices than the conspiracists happily imagine because they directly control less than ten percent of worlwide production. State run oil companies control the rest but even the supposedly bad-acting middle-eastern oligarchies have limited influence on long term price trends. Short term trends are subject to many factors with emotion not the least of them but long term results are a very good fit with supply and demand realities.

Countering the demand increase from the other side of the globe is the under reported fact that the fleet mileage of the reviled gas-guzzling U.S. automotive fleet is easily double what it was 30 years ago. This is offset by the increased numbers of vehicles on the road but even so the greater efficiency of the U.S. fleet must be factored into oil prices to the extent that they would be even higher if significant advances had not ocurred here. And here we get to the dirty little secret of what will happen if the U.S. fleet significantly increases its fleet mileage. Oil prices will go down of course, or at least they will not go up as much as they would otherwise. Pushing against this happy circumstance is the cruel fact that even if the U.S. fleet were to double its mileage again increasing Asian demand would likely insure that prices would rise, if less than otherwise it's true, but at some point the U.S dog will switch places with the Chinese tail, and become overall less important percentage wise than it is now. Increasingly in years to come oil prices will go their own merry way with the U.S. market having less and less effect. Que sera.

Crude availability and prices will wend their way up and down as per the aggregate actions of billions of people and will take little notice of the foolish bleatings of U.S. presidential candidates--left, right, center, and and otherwise. Woe betide the pols who threaten the public's purse with large fuel tax increases either in the service of energy independence or climate alarmism. They will surely become ex-pols ere long. The U.S. population has not, for any number of good reasons, become as obligingly sheep-like as much of Europe has in terms of how much top-down economic control is politically possible. Aping the European "model" might not be the wisest course now that the Continent is exploring the rather ragged limits of state control with its increasingly unsalutary effects on their economies.

To bluntly invert and paraphrase; To contend against the economic will of 6 billion the world's governments rail in vain. If "Gaia" has a living beating heart it is in the lively world markets in everything from Ipods to hybrids to double-lattes that really and truly represent the "will of the people". The more that governments attempt to impose drastic structural changes in their own markets the greater the outside forces that will countervail. Depend on it. Bet the farm on it. Dredge up every last metaphor you've ever heard on it. We will not be "going it alone" in the world's energy equation and we better get used to it. The world's commodity markets are the real "United Nations" and will affect our lives vastly more than that pathetic husk of a debating society barnacled onto the flank of Manhattan. Revile the market, scream at it, bloodily revolt against it, spout endless anti-capitalist invective against it, strive as you might, it will in the end prevail. Even in the walled-off worker's paradise of North Korea you still have to trade some form of currency for desirable goods and there is a price below which no one will sell you that good. Sounds like a market to me.

As the author Robert Bryce has noted energy independence is not only not possible it is not even a good idea. Nonetheless no pol, national or otherwise, will embrace this reality---not even the hard left which has ludicrously designated itself as a "reality based community". Of course progressives pursue energy independence for entirely different reasons than conservatives. Progressives want less oil imported, and less oil used period, in the service of sundry goals such as "fighting" global warming and efforts at "sustainability" and "renewable" energy sources. Conservatives desire cheap energy prices and dislike lavishing billions on petro-tyrannies with interests frequently at odds with U.S. political and economic goals. Far too often governments and political movements promulgate and encourage policies that do the wrong things for the "right" reasons. Touting energy independence, in any section of the political spectrum, is one of the more spectacular cases of doing the wrong thing for the wrong reasons.

If you take the advice of the post below this one and buy a smaller high-mileage vehicle you will be doing your duty to the bloody "Planet" but more importantly you will be fulfilling your tiny but critical part in the decision-making of the world's markets. Good on you. Count your savings. Quit complaining so damn much about how high prices are and do what comes naturally---use less of something and the price will come down. And you can do one other thing as well. Laugh your tookus off when some gormless politician begins pontificating about ENERGY INDEPENDENCE.

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