World Energy Monthly Review

An odd new alliance has formed between environmental groups, labor groups and pro-Iraq war neoconservatives. They are united in their belief that fuel efficiency will save America. Specifically, they believe that if more Americans used fuel-thrifty cars like the Toyota Prius, and if the U.S. developed more alternative sources of energy, like bio-fuels, then the price of oil will automatically fall and the U.S. will become independent of the crude that comes out of the Persian Gulf.

Thomas Friedman, the columnist for the New York Times, recently added himself to this group of wishful thinkers. Friedman even slapped himself with a new moniker, that of “geo-green.” In a recent column, he proclaimed that efficiency will shrink the Arab OPEC members’ oil revenues and “they will have to open up their economies and their schools and liberate their women…It is that simple.”

No. It is not.

No matter how much Friedman, the Greens, and the neocons wish it to be true, conservation and fuel efficiency cannot change a few hard facts, including: the massive costs of transforming the automotive sector, the integration of the global oil and gas market, and rising personal energy consumption.

None of this is to suggest that efficiency isn’t worthwhile or needed. It is, for many reasons. And George W. Bush should be (but is not) using the bully pulpit to push for higher efficiency standards across the board.

But increased efficiency won’t make America “energy independent” as John Kerry stupidly claimed during last year’s campaign, nor will it punish the Saudis or the other oil-rich theocrats who might be funding radical Islamic groups. Yes, Priuses are cool. But they are, as Houston oil analyst David Pursell recently told me, a “Band-Aid on an amputee.”

Even radical increases in America’s automobile fuel efficiency will only slow the rate of growth rate of our oil imports. According to the National Commission on Energy Policy, if automakers increased the efficiency of their fleets from the current 24 miles per gallon to 44 mpg, America’s motor fuel consumption will still increase by 3.7 million barrels per day by 2025. That trend reflects two facts: Americans are driving more miles each year, and Americans own more than 200 million vehicles, each of which has a life span of about 15 years. Converting that fleet to a more fuel efficient one will take decades and cost tens of billions of dollars.

If the U.S. does somehow manage to reduce its overall oil and gas consumption, it will have little effect. Oil is so fungible and demand so high, that crude being loaded at Yanbu that isn’t bought by a refiner in Texas will be shipped instead to Singapore or Shanghai. O il demand has reached parity with supply. Thus, oil buyers cannot effectively deny their petrodollars to a given supplier in favor of another. Natural gas is also becoming a global commodity. The U.S. is on the verge of becoming a major importer of LNG. Much of the global supply of LNG will be coming from the Persian Gulf. Apparently, the neocons, the Greens, and Friedman have decided that gas doesn’t count when talking about independence.

One final point: nearly every discussion of energy efficiency in America points out that per unit of gross domestic product, our energy consumption has been falling. Over the past 30 years, the energy intensity of America’s economy has fallen by half. While that’s true, individual energy use is rising. Since 1987, household energy consumption has increased by more than eight percent and now stands at about 192 million BTUs per year (equal to about 33 barrels of oil). This is part of an inexorable truth: as income rises, energy consumption rises. When people make money, they buy bigger cars and bigger houses. Thus, gains from efficiency are often swamped by increased consumption. And no one, liberal or conservative, has offered a solution to that issue.

In short, America cannot be energy independent in a world that has become interdependent. Saying nasty things about OPEC, or the Saudis, or Venezuela’s president Hugo Chavez, may make good sport, but it ignores how interdependent energy producers and energy consumers have become. The sooner we accept that interdependence, and acknowledge that we are – and will continue to be — linked to energy producers around the globe, the sooner America can move past jingoism and begin creating a comprehensive energy strategy.