Q&A with energy watcher James Coyle

Published in the Orange County Register on April 4, 2013. To access the original article, click here.

Q: What factors are causing high gas prices worldwide?

A: First, there's the ever-increasing need for fuel in China and, to a lesser extent, India. These countries push up demand. In China, they're putting 70,000 new cars on the road every day. Those aren't replacement cars; that's a net increase of vehicles every day. And when you combine that with declines in production from Libya, Syria and Iraq and sanctions on petroleum exports from Iran, you have a recipe for high prices.

Q: So when will we get relief at the pump?

A: I hate to be pessimistic, but as long as demand for oil continues to grow worldwide, we can anticipate high prices. While prices in March moved down slightly because of seasonal fluctuations, the long-term trends predict prices remaining around $4 per gallon.

Q: What needs to happen for gas to become more affordable?

A: The usual answer is drill, baby, drill – but the domestic amount of traditionally-recoverable oil that is suitable for production as gasoline offers just a short-term solution. We're talking about unrecovered deposits in the Arctic National Wildlife Refuge in Alaska, off the coast of California and some other places. They could provide relief for 10 years, maybe 20. Recent advances in the recovery of oil from shale extend the timeline out to 50 years, but at a high environmental cost.

In the short term, any increase in supply, regardless of where we drill, will drop the prices. There really is no such thing as a domestic or world market. That's a fallacy; it's all one market. So we can increase tar sands production in Canada, and all that will do is produce enough oil so that China can add another 70,000 cars to the road.

Q: Taking a longer view, are there opportunities for improvement?

A: There are a couple of possibilities that provide some hope. One is biofuels. Researchers are really starting to experiment with the growth of algae and other things that could be burned for energy – not to put gas in your tank but to generate electricity so oil can be freed up to use for gasoline.

Also, we are witnessing a revolution in the production of petroleum and natural gas from shale oil. Ten years ago, the question was "How long before we run out?" It was a scary possibility. Then, in 2002, a new technique was established to unleash energy from shale through fracking. Now, for the first time since the 1960s, the U.S. is exporting energy. This is the most viable source of hope, because other technologies are just too immature. It is, however, a two-edged sword: the sudden availability of cheaper oil and gas from fracking is kicking the bottom out of alternative energy technologies.

Q: Won't conservation help?

A: Yes, it becomes clear that a big part of the answer is conservation, which doesn't have to mean people riding everywhere on bicycles. It can mean things as simple as checking your tires. If everyone in the U.S. kept their tires properly inflated, we would see a 5 percent reduction in the use of gasoline. That might not sound like a lot, but we consume 20 million barrels of oil a day. Five percent would equate to an extra million barrels of oil daily.

How Important is Foreign Oil to the United States?

The networks are inundating us with news of the offshore pipeline leak in the Gulf of Mexico. It reminds us once again that the United States is a major oil producer. Why, then, should we care about sources of oil outside the United States? Couldn't we develop domestic sources of energy and become energy self sufficient--as so many politicians discuss? The answer is no. The United States produces 25% of all the goods and services in the world, but it uses 33% of the world's energy to do so. America is an oil-thirsty country.

According to the International Energy Agency (IEA), in the first quarter of 2010 North America imported 28,368,000 Metric Tons of oil products (crude oil, NGL and Refinery Feedstocks.) Of these, 2,346,000 MT came from the countries of the former Soviet Union. Even with American, Canadian and Mexican domestic production, the NAFTA countries still required massive amounts of foreign oil. Europe, which lacks the North American domestic production capability, imported 78,830,000 MT of which 16,248,000 originated in the former Soviet Union. (IEA Monthly Oil Survey, March 2010)

How great is America's thirst? Well, in 2008 the United States produced 7.6% of the world's oil (300 million MT). In addition, in 2007 (most recent data available) the United States imported an additional 573 million MT, which was over 27% of the world's production. (IEA, Key World Energy Statistics, 2009) Interestingly, all of the top 5 net importers were Pacific Rim countries--United States, Japan, China, India and Korea--demonstrating graphically where economic growth is occuring.

Where did the oil come from? The top 5 oil exporters are all countries with which the United States has had differences over the past twenty years. These countries are Saudi Arabia (17% of world exports), Russia (13%), Iran (7%), Nigeria (6%), and the United Arab Emirates (5%). Clearly, reliable sources of oil are necessary for the United States and its allies.

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at jimcoyle@verizon.net.