Fuelling a major crisis

When US President, George W Bush, announced in his State of the Union address this year that “America is addicted to oil”, it was clear the country had reached a turning point, says Abigail Rayner

George W Bush, a Texan oilman, is not usually known for discouraging its use. But he has been compelled to respond to growing discontent about petrol costs, as gasoline, which accounts for 67% of US oil consumption, soared to around $3 a gallon. While that level is reasonable by European standards, it is almost a dollar more than consumers were paying a year ago, and the rapid escalation shows no sign of abating.

The reason: there is only just enough oil to meet the world’s 85m barrel-per-day habit. Global suppliers are pumping at almost full capacity to meet increasing demand from the US, the world’s biggest consumer, and newly industrialised countries China and India. Any interruptions to supply can cause dramatic price spikes. Violence in Nigeria, the war in Iraq, efforts to raise taxes on foreign companies in Venezuela and a terrorism scare in Saudi Arabia, have all played their part in pushing up the price of oil in recent months.

In the US, where fuel is priced more closely to the cost of crude and not subject to as much tax, the spike is felt more profoundly than in Europe. Although European consumers pay higher petrol prices, their governments can protect them from sudden price rises by reducing taxes.

Cheap oil in the US has fostered another dependency: the car.

“Every member of the family has a car,” says J Robinson West, chairman of PFC Energy, an energy consulting firm. “The kid drives to high school, dad drives to the office, mom drives to the store, and Pee Wee, who’s off at college, has a car there too.”

A survey by the Bureau of Transportation Statistics and the Federal Highway Administration revealed a more depressing picture: there were more cars than drivers in US households in 2003. To be exact, there were 231m registered vehicles in the US at the last count in 2003. US drivers travel seven billion miles a day, according to the US Government’s Energy Information Administration.

Many Americans admit that they also have an attitude problem when it comes to gasoline, says Jared Bernstein, director of the Living Standards Program at the Economic Policy Institute, a non-partisan thinktank.

A birthright

“There are many of us who view low-cost energy as a birthright, and react very negatively to price signals that tell people to conserve.”

It is not fair, however, to paint the US’ oil addiction as a problem of individuals. The US is strewn with the spaghetti of highways that encourage driving and strip shopping malls that are only accessible by road. The US only recently modified a tax loophole that afforded small business owners a tax break of up to US$100,000 when they bought a sports utility vehicle (SUV) weighing over 6,000lbs.

The vast sprawl of the suburbs and the exurbs - the suburbs of the suburbs - has provided housing for those who cannot afford to live closer to work or school. It also requires them to drive everywhere. Oil is not an addiction for these people, but a requirement. And while gas prices are rising, their paychecks are not.

While aggregate indicators show a robust economic recovery from the slump felt early in the millennium, the Federal Reserve said in February that median family income rose to $43,200 in 2004, a tiny 1.6% improvement (adjusted for inflation) over 2001.

“These families were feeling squeezed already,” says Bernstein. “When gas prices are going up in that kind of environment it’s going to pinch more and you’re going to feel it.” It is no coincidence that thousands of US families find themselves held hostage to the pump, says Paul Roberts, author of The End of Oil: On the Edge of a Perilous New World. For years, the big US and European oil companies such as Exxon Mobil, Chevron, Shell and BP, have successfully lobbied the Government to ensure it.

“They’ve lobbied to keep the cost of production low, they’ve lobbied to gain access to areas to produce, they’ve lobbied against regulations on anything that would have caused them to spend any money refining fuel. They are certainly in favour of highway spending and they are not in favour of mass transit, and it has been shown that they have worked to derail public transit, trolley systems, train systems and passenger rail.”

Rebate

In April, the Government proposed offering 100m consumers a US$100 tax rebate on fuel. The idea was shot down after aides for several Republican senators were deluged with calls and e-mails from constituents dismissing the idea as a transparent effort to appease voters without solving the fundamental problem.

West believes a sensible energy policy would discourage consumption and also encourage production. He believes the Government should set targets based on efficiency. Currently, preferential tax and road treatment is given to those who drive hybrid cars, which in many cases still only achieve 19 miles per gallon. A better policy, says West, would give preferential treatment to drivers whose cars achieve 35 miles per gallon.

And because alternative fuels take so long to develop, he holds the controversial view that the time has come to drill in the protected Arctic National Wildlife Refuge (ANWR). West says opening the reserve could release 750,000 barrels per day of oil. “Not a trivial amount when excess capacity is 1.7m barrels - you are increasing capacity by 50%.”

Roberts says the oil from ANWR, if there is as much as West predicts, could not be released on to the market fast enough to change the supply picture.

“[Resources from] ANWR will take 10-15 years to bring [to market]; in that time, demand will suck up as much as you can bring on.”

Conservation is key to solving the crisis, says Roberts, but he also believes the US needs to get serious about alternative fuels.

“Those don’t happen overnight, but [the US] has to be ambitious about it and commit the funding and the political will.” He says the US needs to apply the kind of dedication it used for developing the atom bomb during the second world war.

“They needed to develop fuel for this bomb, they didn’t know which of four processes could deliver the fuel in time so they pursued all four processes. It was hugely expensive, but they didn’t really feel that they had a choice. I think there needs to be a similar sense of urgency.” Some have little faith that the answers will come from big government.

Michael M’Gonigle, political economist and environmental lawyer, is pinning his hopes on US universities to lead a cultural shift towards an energy-saving society. M’Gonigle’s book, Planet U: Sustaining the World, Reinventing the University, is a call to action to the US higher education industry, which has a collective $1.2 trillion impact on the economy and accommodates 20m individuals at a time. A move by Portland State University, which has 24,000 students, faculty and staff, to provide subsidies for transit passes, says M’Gonigle, has “totally changed the feel of downtown Portland; it’s gotten cars out of there”. Universities all over the country are partnering with transportation to provide similar services.

Other experts believe big business could hold the key, by bussing their employees to work, or commissioning Detroit to build a truly fuel-efficient delivery vehicle.

There is no quick-fix solution to the US oil crisis, and experts predict that the country faces a sustained period of high prices. But time may be just what the country needs to learn a new way of life that is less dependent on oil.

Abigail Rayner is a freelance writer based in New Jersey.