Record high crude prices, combined with the declining value of the US dollar and growing signs of a recession, make increased US oil and gas production necessary not only for the nation’s energy security but also for its economic survival, a leading advocacy group told reporters Apr. 17.
“Energy security can’t be subjugated to climate change. If we don’t address both, we’ll have neither,” said Robbie Diamond, president and chief executive of Securing America’s Future Energy (SAFE), as the organization released a new report, A Different Type of Price Spike.
“While we pursue the health of our planet, we need to protect the health of our economy,” added David P. Steiner, chief executive of Waste Management Inc. and one of four members of SAFE’s Energy Security Leadership Council who joined Diamond at the briefing. Adam M. Goldstein, president and chief executive of Royal Caribbean International; Eric S. Schwartz, a senior director at Goldman Sachs; and retired US Air Force Gen. Charles F. Wald also participated. The latest oil price escalation differs greatly from its predecessors, which could be traced to constrained supplies, Schwartz observed. “Starting a few years ago, we had a demand-side shock from emerging economics, and not just for oil. There also was a shift in financial markets as economically rational investors moved into commodities to diversify their portfolios and diversify their returns,” he said.
Emphasizing that it was his personal opinion, Schwartz conceded that derivative markets can have a marginal impact on prices but added that growing demand amid limited supplies is a much greater force. Government has a role in constraining participants who try to move prices, but placing the blame for higher prices entirely on speculators is a mistake, he continued.
Impact delayed
“It’s pretty clear to American families that oil prices are going up and that it’s regressive,” said Goldstein. The impact was delayed because growing home equity served as a buffer against rising energy costs as long as real estate boomed, he explained. That changed when the subprime mortgage crisis undermined the market and slowing discretionary purchases began to accelerate economic uncertainty, he said.
Soaring crude oil prices pose serious implications for US military forces, according to Wald. “Even though instability and insurgencies pose threats, I believe limited resources, whether oil or water, are a greater problem,” he said, adding that 85% of what a soldier, airman, or sailor carries into the field is either water or petroleum products.
He also said that US military services generally provide the only protection for global oil shipments, whether in the area of the Strait of Hormuz or off West Africa, where multinational oil companies are committing $100 billion to develop new fields. Diamond said that Congress took a good first step at reducing demand by including tougher automotive efficiency requirements in the 2007 Energy Independence and Security Act. Now it needs to take similarly decisive actions to increase domestic oil and gas production, he maintained.
Participants agreed that it would take time for additional US oil and gas production to have an impact, but they added that it would be worthwhile because it would keep in the US more of the money consumers spend on energy. “Think of the investment that could be made in future energy technologies’ research and development with $357 billion if you don’t send that money overseas,” Steiner said.
