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The Gas Price Hike

Gas prices are on the rise -- and the Bush administration has declared access to oil a priority -- but absent is an obvious solution: sustained reduction in overall demand.
 
 
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Americans are discovering to their dismay that the price of gasoline is rising all over the country, foreshadowing a summer of costly fuel use. Some experts predict gas prices will rise to $2.50 or even $3.00 per gallon in some areas of the country -- a level that will put many American businesses, and American family budgets, into trouble. Typically, politicians and the media are blaming the rise in prices on refinery overload and stiff environmental regulations. But it is clear that the dramatic spurt in prices is due as much to deep structural problems in the U.S. energy supply system.

Americans use more petroleum products than any other population on earth. According to the U.S. Department of Energy (DoE), the United States consumed about 7.1 billion barrels of oil in 1999, or one-fourth of the world’s total consumption. Much of our oil intake is devoted to transportation -- especially to road (automobile and truck) transportation. To produce sufficient gasoline for this purpose, U.S. refineries are now operating at near-capacity levels.

In the first instance, then, the current hike in gasoline prices is caused by increased pressures on America's overburdened refineries. With summer coming on, Americans are driving more, and this, in turn, is pushing demand ahead of supply -- an automatic impetus for price increases. Environmental regulations also mandate a switch to cleaner-burning fuels in the summer (so as to reduce the risk of smog), and this, too, is contributing to the imbalance between supply and demand.

One can conclude the easy solution to our gas price problem is to quickly expand U.S. refinery capacity and to soften or eliminate existing environmental regulations. In fact, this is the solution favored by many in the Bush Administration. But it will not be possible to expedite the construction or expansion of refineries without trampling upon many state and local land-use restrictions, and a weakening of environmental standards will increase the risk of severe pollution. Clearly, this is not the easy solution it might appear.

Furthermore, the construction of new refineries (assuming that all regulatory obstacles can be overcome) will only lead to another, more complex problem: how to obtain sufficient crude oil to satisfy the growing U.S. demand for gasoline and other petroleum products.

The United States was once self-sufficient in the production of oil, but rising demand and declining reserves have long since obliterated that happy condition. According to BP Amoco, U.S. oil production dropped from 9.2 million barrels per day (mbd) in 1989 to 7.8 mbd in 1999, a drop of 15 percent. At the same time, U.S. consumption rose by 11 percent, from 16.7 to 18.5 mbd. This means the United States has had to import an ever increasing share of its petroleum from abroad -- jumping from about 45 percent of total consumption in 1989 to 58 percent in 1999.

It is likely, moreover, that the share of U.S. oil coming from abroad will continue to rise in the years ahead. Although increased drilling in Alaska and the Gulf of Mexico may help to slow the decline in U.S. production, it will not be possible to prevent a long-term slide as most major fields in the United States have already been fully or substantially depleted. Like it or not, we will have to import more petroleum from Latin America, Africa and the Middle East.

The problem, of course, is that these areas are subject to recurring bouts of instability, thereby jeopardizing the steady flow of oil to the United States. President Bush's solution to this dilemma is to open Alaskan wilderness areas to oil drilling. While tapping into these areas "won't make us energy independent," Secretary of Energy Spencer Abraham asserted in March, it "will help increase America's energy security by ensuring a more diverse supply of oil."

But this is somewhat misleading. Even if the Alaska wildlife refuge holds as much oil as some geologists believe (up to 10 billion barrels), its total contribution to U.S. petroleum requirements (at, say, 1 mbd over a 30 year period) will amount to less than 4 percent of anticipated consumption in 2020; most of U.S. demand -- about two-thirds of it -- will have to be satisfied from abroad.

Clearly, if Americans continue to consume more and more oil every year, we will become increasingly dependent on foreign sources whose reliability can never be assured. Yes, we can send more troops to these places (we already have about 25,000 military personnel in the Persian Gulf area) and risk becoming involved in future oil wars. This may, for some Americans, represent an acceptable price to pay for a reliable supply of petroleum. For those who reject this solution, however, there is only one viable option: a sustained reduction in overall demand.

To reduce the pressure on American refineries and curb our dependence on foreign sources of supply, we must learn to drive fewer miles per day or to employ more fuel-efficient vehicles. We should also build high-speed trains connecting our major cities, as the Europeans and Japanese are doing. These steps may prove irksome to some in the short run, but no other solution promises as many benefits over the long run.

It is unrealistic to expect U.S. leaders to provide immediate relief from the current hike in gasoline prices -- the problems are too deep to permit a rapid solution. But we can act now to prevent higher costs and bigger problems in the future. This does not mean digging on the Arctic wildlife refuge -- it means changing our basic consumption patterns in ways that reduce long-term demand.

Michael T. Klare is a professor of peace and world security studies at Hampshire College in Amherst, Mass., and the author of Resource Wars: The New Landscape of Global Conflict (Metropolitan Books).