Archive   |   Biography   |   RSS Feed   |   On Facebook   |   Opinions Home

Crude Courage

Network News

X Profile
View More Activity
By David Ignatius
Wednesday, June 29, 2005

Oil prices hit a record $60 a barrel this week, inducing that familiar feeling that the world is a prisoner of energy gods beyond its control. Some analysts worry that high prices will eventually bring on a global recession that will shrink demand for a while -- until the next spike begins.

"Energy prices are way too high," Treasury Secretary John Snow told CNBC yesterday. "Clearly it's hurting." The New York Times quoted oil economist Deborah White voicing the sense that we are wandering in economic never-never land: "The market is showing us very clearly that it has no idea where the top is, absolutely none." Oil prices retreated yesterday, but many expect that they will be back above $60 before long.

It doesn't have to be this way. Some problems are genuinely difficult to solve, because they involve painful moral choices. Iraq is such an issue; so are abortion and global poverty. But addressing the energy crunch isn't complicated. It just requires facing up squarely to the problem, summoning the necessary political determination and then taking rational action.

The right starting point is to understand that supplies of oil are tight and will become even more so over the next 15 years as demand grows in China, India and other rising powers. Because supply is constrained, that means adjustment will have to come mainly on the demand side. And, inescapably, that means more conservation, better fuel efficiency and new approaches to transportation.

In a rational world, President Bush would call for a meeting of all the stakeholders in America's energy future. That doesn't mean the usual convocation of oil companies and environmental groups. It means tapping the political clout of retirees in AARP, of farmers, of big retailers such as Wal-Mart whose customers must travel long distances, and of state and local governments.

The president would tell these stakeholders the blunt truth: Sometime in the next 15 years, the world's demand for oil is going to be greater than its supply. So now is the time to begin reducing demand -- and thereby regain control of our destiny. If Bush won't call for such a national commitment, then the Democrats should do it. (I'd like to imagine that both parties could actually agree on such a course, but in a Karl Rove/Howard Dean world, maybe that's impossible.) In assessing the energy squeeze, I am borrowing the ideas of my friend J. Robinson West, chairman of the consulting group PFC Energy. He has floated with administration officials his idea of a sustained national dialogue on energy that includes all stakeholders. And his group has gathered what may be the best statistics available on the seriousness of the supply-demand crunch.

West argues that the oil market squeeze will only get worse -- and more vulnerable to political disruptions. By his estimate, about 77 percent of proven oil reserves are controlled by nationalized oil companies rather than by the international majors such as Exxon Mobil. Meanwhile, non-OPEC sources of supply are slowly declining. North Sea production by Britain, Norway and Denmark is already falling. So is U.S. production, and that decline will continue even if the Alaskan wilderness is opened for drilling.

Against these tight supplies of oil, demand is rising sharply, especially in Asia. Consumption in China increased 11 percent in 2003, 18 percent in 2004 and is likely to increase by 11 percent this year. Even if more crude were suddenly discovered, there's a worldwide refining squeeze, with almost no spare capacity left.

The day of reckoning is less than 15 years away, by West's calculation. Assuming fairly slow growth in demand of about 1.8 percent annually, he reckons that by 2020 demand will total well over 100 million barrels per day, and OPEC will be unable to fill the supply gap. Unless the United States and other consuming countries have taken steps to reduce consumption, the supply-demand imbalance will throw the world into economic chaos -- a fever dream in which every whisper from Tehran or Riyadh will send the markets into panic.

West hopes that high prices will drive new exploration and that new techniques will increase recovery from existing fields. But he cautions that there's no sign of any such easy fix. Since 1990 production has outpaced new discoveries in Latin America, Asia, Europe and the former Soviet Union.

Nobody likes living in a world shaped by powerful forces beyond our control. It's the kind of situation that makes investors unhappy and leads eventually to economic stagnation. And it can lead political leaders to make rash decisions in an effort to break free from constraints. But it needn't be so. This is a prison we can all walk out of at will, once we take the first steps.

davidignatius@washpost.com


More Washington Post Opinions

PostPartisan

Post Partisan

Quick takes from The Post's opinion writers.

Washington Sketch

Washington Sketch

Dana Milbank writes about political theater in the capital.

Tom Toles

Tom Toles

See his latest editorial cartoon.

© 2005 The Washington Post Company

Network News

X My Profile
View More Activity