Sunday, July 17, 2005

The crisis that isn't 

I hate to beat this horse to death but seeing as it is an important topic I will. Many have said that if oil is too expensive demand will drop as alternative fuels are used. The Venezuelan opposition and anti-Opec lobby have always used this arguement. Prices must be kept low to please consumers lest they stop buying our oil. And when Chavez and his oil guru, Ali Rodriguez, proposed revitalizing OPEC and aiming for significantly higher prices they were ridiculed by their opponents. Even their modest price band of $22 to $28 was seen as too high.

Well here we are at $60 a barrel oil today and the sun is still coming up. Not only are the higher prices sticking it looks as if most consumers don’t care and still consider these prices reasonable. Witness this article from the New York Times about the non-existent oil crises:

The oil uproar that isn’t:

When oil prices spiked in the early 1980's after the Iranian revolution, Jared Nedzel gave up his 1978 Pontiac Trans Am, an emblematic American muscle car, for a smaller, less extravagant Toyota Corolla. He was on his way to Cornell University to study civil engineering and he needed a more economical car.

Today, Mr. Nedzel, a 44-year-old software developer who lives near Boston, owns a Toyota 4Runner, a sport utility vehicle he bought two years ago. It gets about 17.5 miles per gallon, as much as the Trans Am did, and he uses it for his 45-minute commute to work and for driving near the beaches of Martha's Vineyard to get to his favorite fishing spots.

Gasoline prices have spiked again, to more than $2.25 for a gallon of regular in Boston last week, just above the national average, according to the AAA. But energy costs do not weigh on Mr. Nedzel's mind. "Just another gas crisis," he said, expressing an opinion held by many others. "I'm not hyperventilating about it."

For Americans, oil shocks no longer seem so shocking.

The Arab oil embargo of 1973 and the Iranian revolution in 1978-79 exposed America's vulnerability to powerful forces outside its control, forces that sent fuel prices to record levels, prompted anger over gas lines and led to bookend recessions that defined a decade of economic turmoil.

By 1980, the energy crisis and the inflation it spawned had left Americans in a vindictive mood, contributing to the re-election defeat of President Jimmy Carter, who had promised to wage the "moral equivalent of war" against dependence on foreign oil.

But the latest escalation in oil prices - to as much as $60 today from less than $30 a barrel a little more than two years ago - has produced a much more limited response. Energy legislation that President Bush is pressing Congress to pass this summer would bring little relief. And while Americans say in polls that they are deeply disturbed by high gasoline prices and looking for someone to blame, most people continue to drive just as avidly as before; purchases of gas-guzzling sport utility vehicles have slowed but there has been no significant shift to more fuel-efficient cars.

Furthermore, gasoline consumption has continued to rise, up 1 percent in May compared with the same month last year.
The earlier oil shocks produced remarkable changes, including the rise of the Japanese auto industry as Americans turned to smaller, more efficient cars out of choice and necessity. With carrots and sticks, the United States managed to cut, temporarily, energy use per person and to scale back the share of oil in its overall energy mix.

The federal government established a strategic petroleum reserve as an insurance policy against global supply disruptions, set a national 55 m.p.h. speed limit and spent billions - much of it wasted, however, on alternatives like shale oil that proved far too costly, particularly after crude oil prices fell when economic recession tempered the demand for energy.

But this time around, the government has done almost nothing to reduce the nation's vulnerability to a sudden interruption in oil supplies. Even the advocates for the long-stalled energy bill that has finally passed both houses of Congress - though in radically different forms - acknowledge that neither version of the measure will be effective.
Crude oil imports have doubled over the last three decades, and now account for nearly two-thirds of the oil Americans burn. Before the 1973 oil embargo, imports accounted for only about one-third of America's energy consumption. In the same three-decade period, oil demand in the United States has grown by 18 percent while domestic production has continued on a slow and probably irrevocable path of decline.

The problem is not the latest price rise, which, adjusted for inflation, is still well below the peak in early 1981, when oil cost the equivalent of $86 a barrel in today's dollars; gasoline, released from price controls, briefly sold back then for the equivalent of $3 a gallon. And it is not just imports; even if the country produced enough oil to meet its domestic needs, in a global economy a price shock would still be felt in the United States.

The fundamental problem, experts say, is that Americans depend almost exclusively on relatively large and heavy private vehicles, virtually all of them running on gasoline, for crucial daily tasks like getting to work and taking their children to school. "Americans live in a car-driven culture where they want to do as much as possible as fast as possible," said Amy Myers Jaffe, the associate director of Rice University's energy program in Houston. "I can drop off my dry cleaning, pick up my prescription drugs, do my banking and buy my lunch, all without leaving my car."
The failure to control consumption is most glaring in the country's transportation sector, which now represents two-thirds of all oil demand in the United States and is solely accountable for the growth of the nation's oil thirst over the last three decades. Each day, America's fleet of more than 200 million cars guzzles 11 percent of the world's daily oil output. Gasoline consumption has risen 35 percent since 1973, compared with a 19 percent increase in overall crude oil consumption.

The growth comes mainly from light trucks, including sport utility vehicles, which account for almost half of all cars sold in the United States. For many consumers, the advantages of an S.U.V. - size, power and an increased sense of security from driving a taller vehicle - largely overshadow one of their main drawbacks, higher fuel consumption.

So what do we see? Not only have actual events proven with a vengeance that Chavez and Rodriguez were right and their opponents like Toro-Hardy and Sosa Pietri were wrong but that if anything Chavez and Rodriguez were too conservative in what they were trying to accomplish!!


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