Ending the Oil Era

[from THE FUTURIST, July-August 2007]

Reliance on oil is a major environmental concern among industrialized nations, particularly the United States, which uses and imports more oil than any other country. Oil dependency is emerging as a major national security issue as well. Last fall, we asked former CIA director James Woolsey for his take on ending the oil era. The interview is one of the highlights of THE FUTURIST’s  July-August issue, which features two fuel-focused special reports: "Biodiesel’s Bright Future" by business futurist Will Thurmond and "The Hybrid Phenomenon" by Norma Carr-Ruffino and John Acheson. The section also features commentaries by GM Vice President for environment and energy Beth Lowery and Union of Concerned Scientists field organizer Scott Nathanson.

Futurist: Why is U.S. dependency on foreign oil so dangerous right now?

James Woolsey

There are several reasons; it’s really overall dependency on oil, and the fact that much of the infrastructure for oil production and distribution in the world is outside of the United States. For example, natural gas is usually distributed within a continent. We get most of ours from either U.S. or Canadian wells via pipeline. Most other energy is local. There’s some international shipment of coal, but not a great deal, which is more cost-effective.

Oil is different because it has a lot of energy in it per unit volume. The oil infrastructure that we rely on is in the U.S. but in a lot of other countries as well, particularly the very volatile Middle East. So if you have Ahmadinejad deciding to pull 1 million barrels a day off line because he’s unhappy with us pressing him not to develop nuclear weapons, you can have oil go up to $100 per barrel or so. In Saudi Arabia, if for example Prince Nayef, the interior minister, should succeed king Abdullah someday, you’d have a Saudi king who is very close to the Wahhabi and might adopt policies that would be difficult for the United States. If you look back to February '06 when al Qaeda attacked the Abqaiq production facility in Northeastern Saudi Arabia, one has to realize that had they gotten within mortar range of that facility, they could have taken out the sulfur clearing towers. Robert McFarlane, President Reagan’s National Security advisor, tells us that would take six or seven million barrels of oil a day off line for probably over a year and quite likely send oil up to $200 per barrel.

So we don’t have control over the security either of the supply or the stability of the infrastructure they way we do over our electricity grid. Now, we have some things we need to fix about our electricity grid, some vulnerabilities, but it’s within our ability to do it. We cannot re-design the Abqaiq production facility in Saudi Arabia. So that is one major reason our dependence on foreign oil is a problem.

I think there’s another aspect to this that is difficult; Saudi Arabia made $160 billion last year [2005] exporting oil; they give several billion per year to the Wahhabis, an Islamist sect that controls religion and education in Saudi Arabia, and other Wahhabi institutions in other parts of the world such as Pakistan. Those madrassas, for instance in Pakistan, teach Pakistani children to hate Shiites, Jews, Christians, anyone who can be counted as an infidel. Depending on the Imam, some of the things they say, particularly about Shites, Jews, and homosexuals and apostates are essentially genocidal. That is really al Qaeda’s ideology as well. The Wahhabis and al Qaeda disagree about the legitimacy of the Saudi regime so they’re bitter enemies. But the underlying beliefs that are being taught around the world in those Wahhabi institutions are essentially al Qaeda beliefs. The result of is that the war on terror is the only war the United States has fought, with the obvious exception of the civil war, in which we pay for both sides. This is not a good plan. This current year we will borrow something on the order of $320 billion dollars, nearly a billion dollars a day, to import oil. Because a share of that does go to Wahhabi institutions around the world, I think it’s fair to say we are in a situation similar to the stated in the old comic strip Pogo, "I’ve met the enemy, and he is us."

Borrowing $320 billion dollars a year, more or less, is not good for the stability of the dollar. At some point, people are going to start balking at paying our IOUs, unless we start paying higher interest rates. And if interest rates go up, that can affect our economic health. And we haven’t gotten to global warming yet and oil’s contribution to that. So when you look at all of these factors together. I think you have to conclude that we have a serious problem with our oil reliance.

Now, we would not do anything at all useful by stifling our purchases from Saudi Arabia and buying from Mexico and Canada. That would just mean somebody else would buy more from Saudi Arabia or the Persian Gulf and our boycott would have no effect. So you don’t do anything by shifting trade patterns. What you have to do is reduce reliance on oil. I think alternative liquid fuels such as ethanol and butanol and diesel from waste products and with electricity, particularly in the form of plug-in hybrid automobiles, which you charge overnight and then drive for miles on cheap off-peak electricity, those are all positive steps that can help substantially.

Futurist: What obstacles stand in the way of Western nations, particularly the United States, reducing their dependency on foreign oil?

James Woolsey

If you remember, we got interested in alternative fuel firms like the Synfuels Corporation in the late seventies and then in 1985, the Saudi’s dropped the oil down to $5 a barrel and bankrupted the Synfuels Corporation. The good news is that they bankrupted the Soviet Union, too, but they certainly undercut alternative fuel efforts. People got interested in alternative fuels again in the early nineties, then in the late nineties, oil dropped down to $10 a barrel and people lost interest, again. One of the things that we have to do is make sure that this rollercoaster effect can’t happen again.

Some people think it will be much more difficult in the future because the Saudi Arabian oil fields could be peaking, if not now then soon. We will also have huge demand, not only from the West but from India and China as they start to produce middle classes that drive cars. So the Saudis might not be able to drop the price to five or ten dollars a barrel by turning on their excess capacity, but they might be able to drop it to $20 per barrel. Most of the better of these alternative fuels are only really viable, (as far as we can see) if oil is say $35 per barrel or more. The one that’s viable even below that is electricity, because off peak, overnight electricity in many parts of the United States sells for between two to four cents per kilowatt hour. That is the equivalent to about a penny a mile driving where as gasoline is in the range of ten to 20 cents a mile at today's price. However much the Saudis might be able to drop the price of oil by turning on excess capacity, I doubt if they would be able to undercut off peak electricity in price.

But one way to ensure that is to make sure some of these other fuels, such as diesel from waste and cellulosic ethanol or butanol, have a chance to develop without the Saudis bankrupting them. We also need a different structure for subsidies. Today, ethanol is being subsidized even though it doesn’t need to be with oil that’s $60-$70 per barrel. What we might do is say, no subsidies unless oil drops to say $40 dollars a barrel. You start with small subsidies and then the subsidies get larger as the price of oil goes down. Now, most people are not forecasting oil to go below $40 a barrel now, so this might be an easier thing to implement. It would essentially be an insurance policy against the Saudis doing what they did in ‘85 and what happened again in the late 1990s.

Let me return to the potential for hybrid technology in cars, particularly plug-in hybrids. There’s nothing to keep a car from being both a hybrid and a flexible-fuel vehicle, sometimes it's driving all electric, sometimes it’s driving as a hybrid, and it may be that instead of the liquid fuel part of its energy being supplied by gasoline, it might be supplied by e-85 ethanol whether it’s butanol or renewable diesel. My Prius today gets just under 50 miles per gallon, but if that were to become a plug-in Prius, with six times the capacity battery, and I could drive it about twenty miles before it goes into its regular hybrid mode, then I could get a little over 100 miles per gallon.

Now, if the liquid fuel that I’m using were e-85, because the hybrid is also a flexible fuel vehicle, I would getting over 500 miles per gallon of petroleum product. That is not all that far off because we know how to make e-85. It’s on sale at several hundred stations in the United States. We know how to make flexible fuel vehicles; we’ve got millions on the road. We know how to make hybrids, and, at least in California, people are already upgrading hybrids to be plug-in hybrids, so none of this requires a Manhattan project to invent something entirely new; it’s a matter of getting things into production that we already essentially understand how to do.

Futurist: What effect do you think energy independence might have on other nations, particularly nations that export a great deal of oil, most specifically Iran and Nigeria?

James Woolsey

Well, they will have to get work. The first thing I would do with any country that says, ‘Oh my goodness, our economy is going to be ruined if we can’t sell oil,' is I would take them to visit Israel. Israel now has a GNP per capita of $18,000 a year even though Israel is on some of the poorest land in the Middle East and has essentially no oil or gas whatever. What they do, unlike a lot of these other countries, is allow women to educate themselves; they pay attention to technology; they invest. It may well be the case that Iran or Saudi Arabia, or even countries in other parts of the world like Russia who depend heavily on exporting expensive oil, would have to get to work the way the Israelis have, the Japanese have, and other countries with minimal natural resources have who have built modern societies with highly educated and industrious people.

Futurist: In his testimony before the Senate Foreign Relations Committee (March 30, 2006), Milton Copulos remarked, "Without Oil, our economy could not function, and therefore protecting our sources of oil is a legitimate defense mission, and the current military operation in Iraq is part of that mission." To what extent do you agree with that statement, and to what extent do you think protecting our energy sources factors into foreign and military policy?

James Woolsey

I agree with it a little bit, but if all we needed was the oil the simple thing to do would have been to buy it from Saddam Hussein, he was perfectly willing to sell it. If he hadn’t been an absolutely terrible dictator who was responsible for the deaths of close to two million people over the last two decades, this war would never have been contemplated. We’ll always have to have substantial armed forces, we would still need them if the majority of our oil came from domestic sources. Up until the 1970s, world oil prices were effectively set by the Texas railroad commission but the United States had a very substantial armed forces. We didn’t start having armed forces when we started importing a lot of oil.

Futurist: How high should energy independence rank as a national security priority?

James Woolsey

I don’t call it energy independence because there’s nothing wrong with our importing natural gas from Canada, and we don’t import coal, or hydroelectric power or solar or wind or whatever. It's really an oil problem. It’s a natural gas problem for Europe because they’re not getting their natural gas from a good neighbor like Canada; they’re getting it from Russia. Russia’s playing games by giving better deals on natural gas to dictatorships than to budding democracies like Georgia and Ukraine. So Europe has an oil and gas dependence problem. For us, it’s pretty much entirely an oil problem. I think this ought to rank very high on our needs because it constrains other things we can do, for example, we really would like, as would some other countries, to use the UN Security Council to authorize us to stop the genocide by Sudan in Darfur. The reason we can’t do that is because China will veto it, the reason China will veto it is because China has a major oil deal with Sudan. It would be nice to have the Security Council lean on Iran to stop the enrichment of uranium, leading to nuclear weapons capability. But Russia and China are both balking at that, and the reason China is balking again is principally oil.

Oil tends to concentrate power in a small number of hands, unless it comes into a democracy such as Canada and Norway. Canada and Norway are the only two oil exporters in the top dozen or so in the world that are not dictatorships or autocratic kingdoms. More than 60% of the governments in the world are democracies, but very few of those actually export oil. So OPEC is largely composed of dictatorships and kingdoms and a number of the other big exporters that aren’t OPEC like Russia are increasingly dictatorial as well. This is a foreign policy problem.

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