Oil Supply and Price Solutions

Published over 3 years ago

With gasoline and heating oil prices skyrocketing, I figure its a good idea to start a dialogue about some ideas for solving the problem of limited fuel resources. I'm not making any claims about how limited they are, nor about the pros and cons about conserving oil, or about whether fossil fuels are good or bad, I just want to try and identify the problem and casually throw around some ideas for helping our current situation.

With that "disclaimer" out of the way, now on to the good stuff! First, let's try and identify the problem for today's discussion, and its cause.

What's the problem?

The problem, as I see it, is the the American economy is too large and important to the quality of lives in America (and can affect other nations) to be so increasingly dependent upon a volatile, external component like oil supply, demand, and price. Its not just the question of "how much oil is there?", but of course the corollary - "how many people are willing to buy it, and at what price?"

Sure, there war in Iraq and general instability in the Middle East, where there is reportedly a ton of oil. And yes, there are also lots of problems in Africa with regards to foreign companies benefiting from local oil reserves, resulting in the occasional disruption of the supply there. But it also caused by new economies growing at a surprisingly rapid clip - like India and China - and frankly, in my opinion, the surface of this major factor has just been scratched. I'm expecting China and India to continue with accelerated growth, demanding more and more oil supply every day. This will undoubtedly drive up the price of fuel.

Now on to the ideas...

Drive Less

Probably the easiest way to fix the problem of high gas prices is to not buy gas. This requires not driving. Many people don't have this option, but as a computer consultant and software developer, I can work from home or drive to the office. I still drive to the office to meet with my co-workers, but not as often. We're also setting up more VPNs for them to be able to telecommute as well.

When the weather is good, my wife and I are opting to walk to the store, beach, and mailbox when necessary. It takes more time, but conserves money, and is a good opportunity for some light exercise.

Bikes are also a great mode of transportation, but I prefer to bicycle as a means of entertainment and exercise rather than a mode of transportation. I don't trust the many automobile drivers out there to risk riding a bicycle amongst them.

Driving a car might seems safe, but look at the statistics, they are scary!

Insurance companies provide lower rates to drivers who drive less than 10,000 miles per year (at least in Massachusetts they do). Maybe the government should use a tiered structure for gasoline as well. Even if its negligible, the concept of "the less you drive, the more you save" might have a significant effect on drivers' behavior. Just look at what Bank of America has done with Keep the Change ! Financially speaking, I don't find the offer to be very compelling, but from a conceptual perspective, it is a highly motivating offer.

Drive a Fuel Efficient Car

Small cars are inherently more fuel efficient, and cars that are properly maintained are more fuel efficient. Clean filters, correct tire pressure, and properly tuned engines all contribute to increased fuel efficiency. Also, I believe that modern cars are more fuel efficient than older cars, but I don't have a reference to that effect, so take that as an opinion.

In my opinion, the government should do more to make cars more fuel efficient. I'm not talking about broad strokes here, I'm talking about incentives. American consumers have always wanted and have been willing to pay a premium for powerful cars. I imagine that its why car manufacturers have been so reluctant, and even recalcitrant, to government mandates to increase fuel efficiency, and manufacture electric cars.

Granted, the tide is changing with newer, high performance, electric cars like the Tesla, and those will open consumers' minds to the idea that electric cars can be cool, but the government can do more. By providing manufacturers with tax credits and serious funding for R&D into alternative fueled vehicles, the government can set the stage for a new mode of transportation. The government is already doing this to some extent, but its mostly a symbolic gesture at this point, in my opinion.

The US government is funding research into hydrogen fuel cells, but I'm personally more interested in plain old electricity. We have a decent electrical infrastructure, and there are an increasing number of ways to locally generate electricity, from small windmills and micro-hydro electric generators, to solar panels. Just as Toyota has equipped the Prius with a hybrid fuel / electric drive train, automobile manufacturers can continue this trend, and increasingly shift the bulk of the work to electric power.

I'd especially like to see a diesel / electric hybrid, one that could use bio-diesel would be a hot seller!

Ethanol or Bio-diesel

While I like the idea of using corn based fuel as a mode of transportation, I find corn to be too important a component of our food supply. With the price of food rising with the price of oil, I think most sane people would choose food over mobility if they had to choose only one.

I like the idea of bio-diesel mainly because of its simplicity. It can be home-made (though I would personally refrain), and can be easily blended. It also can be made from recycled cooking oil, which is my favorite factor.

Drill for More Oil

President Bush recently lifted an executive ban on oil exploration. I'm no expert in the oil field, but I don't think the real problem is the supply of crude oil - I think its the refinery business. My guess is that the current price of oil can be used as a great excuse to build a case for drilling for more oil. When Hurricane Katrina disabled several refineries in the Gulf Region, the price of oil spiked. Granted, I think that terrible storm also disrupted some offshore oil platforms, but I have to ask - if we had more crude, do we have the infrastructure to refine it?

Open the Strategic Reserves

Nancy Pelosi recently urged President Bush to open the US strategic oil reserves.

"This Administration has used the Strategic Petroleum Reserve in the past to combat both supply shortfalls and high energy prices, as have the Administrations of President Clinton and President George H.W. Bush. The Reserve currently holds 706 million barrels of oil -“ the most the Reserve has ever held. A small drawdown of the Reserve would increase the supply in the market, reduce the price consumers are paying at the pump this summer, send a strong message to oil speculators and not adversely affect the national security of our country."

I'm not convinced that is the best course of action. The situation is still to volatile to make an informed decision about what to do in this regard. What if the global price of oil continues to skyrocket? Would we regret easing the price at $4 / gallon, when only 6 months later the price is $6 / gallon? I would!

Conclusion

Hydrogen fuel cells are great in concept, but they are still a long ways off. In my humble opinion, we need immediate solutions. Today there are several electric / internal combustion engine hybrids available, as well as 100% electric cars, that offer superior mileage per gallon compared to traditional internal combustion engine powered vehicles. This is the only logical path that I can see ahead of us. Furthermore, I don't think its a silver bullet by any means. It won't solve the problem, but I think its our best chance of reducing the gravity and intensity of the problem.

Unfortunately, I think it will also cause more problems. You may not be aware, but with fuel, there are different types of taxes depending upon the use of the fuel. Fuel used on farms, and fuel used for heat, is taxed much less than fuel used for transportation. Inasmuch, although its possible to use fuel for heating as a fuel for a diesel car, it is tax evasion and illegal. Taxing fuel is easy - its calculated and paid at the pump. No fuss, no muss, no bother. The complication comes with "labeling" fuel for farming, fuel for heating, and fuel for transportation. I'm pretty sure that fuel for farming is dyed red, but I'm not sure about fuel for heating.

So could it be that the question: "how to tax electricity used for transportation?" is holding up the use of electric cars? Possibly. Remember that the Toyota Prius that is shipped to the US comes without a plug, whereas other markets can plug their car in. Is the tax necessary? Absolutely. Roads are incredibly expensive to maintain, and unmaintained roads are dangerous. In the north, roads need plowing in the winter, and plowing destroys the roads, thus requiring more maintenance. Furthermore, snowy and icy roads are even more dangerous than unmaintained roads, so they must be plowed. And when accidents do occur, drivers need support. Police, ambulances, and fire departments all help support the transportation infrastructure.

All this is paid for through taxes. What would be the equitable and "fair share" way to tax 100% electric cars? There are some ideas, but they would face major scrutiny, none are as cut and try as the per gallon tax. Regardless, here are a few ideas:

• Tolls - especially attractive thanks to transponders.
• Tax via mileage - coupled with safety inspections, which are already annual requirements, mileage could be used to calculate non-liquid fuel consumption
• Special electricity fueling stations - I think this is a terrible idea, because you'd be forced to buy electricity, without the option of using your own locally generated electricity, either from a windmill or solar panels. It would also require the build out of electricity fueling stations, which would take years, if not decades.

The tolls program is probably the best, but consumers will protest the glaring expense (the fuel tax is much harder to notice for whatever reason). Privacy advocates will also take note of the potential for invading driver's privacy. The tax via mileage is also a good idea, but could be subject to abuse.