COMPETING FOR ENERGY RESOURCES

BY

F. MACK SHELOR

Introduction:

Both electricity and liquid fuel supplies appear to be increasing in costs in the United States. The U.S. appetite for liquid fuels in the forms of gasoline and diesel fuels has very nearly reached the capacity maximum of the existing U.S. refineries. This demand for fuel continues to increase as more and more people convert to SUVs and larger automobiles. The trucking industry demand for fuel increases with improvements in the economy.

OPEC has indicated that it believes an oil price between $25/bbl and$28/bbl is an appropriate guideline. Currently the market price is closer to $40/bbl and doesn’t appear to be softening. As the economies in Europe grow with the addition of 14 nations to the EU, and with the continued expansion of the economy in China, it would appear that the increased competition for oil and natural gas will not move their prices in a downward direction.

The U.S. independent power companies and Investor Owned Utilities have installed more than 200,000 MW of natural gas fired electricity generating facilities. While some of these facilities were designed for providing “peaking” power supplies, many of them were designed for continuous operation. Using premium fuels for short duration operations is generally considered necessary, but using premium fuels for continuous operations is simply adding to the nation’s energy problems.

The oil companies want to build more refineries as a solution to the supply side of the equation. More refineries mean more imports and more imports mean an increasing trade deficit. The same oil companies want to build LNG ports to supplement the existing natural gas supplies. Again, this direction simply increases the balance of trade problems. Both of these actions will further increase the competition for fuels and place additional upward pressure on pricing.

The nation is debating the issue of “outsourcing” U.S. jobs. In fact, the oil industry may be the largest exporter of U.S. jobs. The U.S. spends billions of dollars on fuel each year. More than 60% of our fuel is imported to the U.S. from various nations. All of these dollars are providing jobs in other countries and not in the U.S. The argument can clearly be made that the fuel imports are necessary to meet demands and that there are no viable alternatives.

The question must be asked, is it possible to produce additional domestic natural gas and crude oil? Or, is it possible to find a viable substitute for imported oil and natural gas that can substitute domestic jobs and production for dollars that are being sent off-shore. Part of the solution may be created by the production of ethanol and bio-diesel, providing a direct substitution for imported oil. Part of the solution may involve development of more remote oil reserves such as those in Alaska, along the east and west coastal areas and in the Gulf of Mexico. These opportunities represent a possible way to reverse the “Outsourcing” of U.S. jobs through substitution for U.S. based employment.

Finally, the Nation is within 5 years of the beginning retirement of the “Baby Boomer” generation. Social Security, Medicare and Medicaid are already under severe pressures and will become bankrupt in the next 30 years unless something is done to make them viable – an indirect relation to energy. There are only three ways to make these programs viable:

1. Cut the benefits to a level that can be supported. This means that we will need to tell millions of retirees that they are not going to get what they were promised.
2. Increase the taxes that support these programs. To support these programs will require a doubling of the Social Security/Medicare/Medicaid tax. This action would create total economic stagnation of the U.S. economy.
3. Increase U.S. jobs sufficiently to support the programs. Exporting U.S. jobs for any purpose is problematic. If living up to the existing “social contract” is going to be possible, it will be necessary to create more than 400,000 jobs each month in the U.S. This will mean that the economy will need to grow at a fairly rapid rate and that immigration will need to also increase to fill the jobs that will need to be created.

All of the issues indicated above are not only connected, but they provide a basis for the expansion and improvement of the U.S. economy. This is not to insinuate that solving the Nation’s energy issues is a complete solution for economic growth, but it is certainly part of the solution and may provide the best short term fix that is available.

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