Energy Indpendence in Our Lifetime

November 25, 2008
(courtesy CNN)

(courtesy CNN)

John Hofmeister, former president of Shell Oil and now head of Citizens for Affordable Energy, spoke at WNED studios last Friday.  Parts of his speech were covered by the Buffalo News as well as the local television media.  An oil insider, Hofmeister made some great points that the media covered well.

That morning, John also spoke at the Buffalo Niagara Partnership’s Movers and Shakers series, making quite a few comments that didn’t make it into the paper or TV.  One of them was about the run up of oil prices this past summer.

Hofmeister pointed out that the dramatic rise in oil prices had nothing to do about speculation but about Asian aviation fuel demand and China’s preparation for the Olympics.  In its attempts to reduce smog, China demanded a change from burning coal for power to burning oil.  They basically bought up all the diesel fuel that they could, and this was principally responsible for the sudden increases.  Just as suddenly, demand pressure on diesel fuel started to drop shortly after the Olympics.

Interesting.   Since diesel is a middle distillate and gasoline is an upper distillate, one would think that as the world’s demand for diesel increases, a glut of gasoline (as a byproduct of the distillation process) will appear on the open market, depressing gasoline prices relative to diesel fuel.  This might make one question whether or not it is wise for the U.S., one of the few countries not fully converted to a diesel transportation infrastructure, to ever do so.

Hofmeister made a few other interesting comments:

  • Without a huge improvement to mass transportation there is no way that dramatic rises in gasoline prices won’t strain many American budgets beyond their limits.  And suburban sprawl makes the mass transit solution untenable.  Because the U.S. has no infrastructure available to support alternative energy transportation in more than a niche manner, there are no short-term alternatives to the internal combustion engine through at least the next decade.
  • When the U.S. was importing 35% of its oil from foreign countries the Nixon Administration, in 1973, declared that the U.S. would be oil independent in 5 years.  35 years later, 65% of our oil is imported and over that time no policies have been developed to reduce that dependence.
  • You would think that the Department of Energy determines – or at least implements – energy policy in the U.S.  Nothing could be further from the truth.  There are 13 Executive branch agencies and 26 Congressional committees that determine policy, plus the courts.  Energy policy is determined politically.

Hofmeister was animated about his last point.  Unless Congress adapts the same model for energy policy as they do for monetary policy – an independent board modeled after the Federal Reserve – no solution to our energy woes will be found.  After 35 years, Congress has proven itself incapable of fixing the problems, and needs to relinquish policy control to an Energy Resources Board with teeth.