Friday, July 11, 2008

Energy Independence (Part One)

Imagine if the next time you went to fill up your car, the gas pump had two nozzles: a blue one and a red one. Let's suppose that the blue nozzle pumped gas from the normal gasoline supply which is usually 60-70% imported from foreign oil producing countries. Suppose the red nozzle pumped another product which was produced domestically, 100% made in the USA. Now, let’s say that they both cost the same, both gave you the same gas mileage and neither was any more polluting than the other. Which nozzle would you use? That’s a pretty easy answer for most Americans.

Now, what if the red “domestic” nozzle was a few cents more expensive than the blue one? Would you penny-pinch and use the “blue” gas or would you be “patriotic” and buy American? If not, how much more would you be willing to spend? There is probably some price difference where most people would leave the patriotic red nozzle to rust and choose the less expensive brand to save money. That price difference may be smaller than you would expect. But what does it really cost us?

America imports about 5 billion barrels of crude oil and petroleum products EVERY YEAR. If oil prices hold steady for the remainder of this year ($147/barrel, July 11, 2008), the U.S. will spend about $630 billion in 2008 for imported oil. That’s billion with a huge capital “B”. $630,000,000,000.00! That’s more than the total, 6-year cost of the Iraq war, with enough left over to start a few new ones. Most people can’t comprehend just how much money that is. We’ve become de-sensitized to numbers like this with today’s gigabyte storage, 24-hour news channels, and balance sheets of the likes of Bill Gates and Oprah.

Let’s put it into perspective. If we paid the bill in cash, it would take a pretty fast bank teller 66 years to count out the Benjamins ($100 bills). (That’s counting 3 bills per second.) If you stacked up those $100 bills it would be 400 MILES high. (I’m not talking about worn and crumpled bills, I mean brand new, crisp, banded, money bricks stacked face-to-face, not end-to-end ($25K per inch) . That’s over 3,600 pallets (4ft x 4ft x 4ft) of moolah. Next time you are watching a football game, imagine the field covered in $100 bills, 5 feet deep!

Of course, we don't actually pay for it in cash. One reason is that there isn't enough cash in circulation. I am talking about every single $100 bill in this country and all of the $50's and $20's for that matter. (There is estimated to be less than $700 billion of US currency in circulation worldwide.) We don't even print it fast enough. We print about $750 million dollars a day. We spend over twice that every day on foreign oil.

We are spending $1.2 million dollars every minute, 24/7/365, for imported oil. That’s not counting the stuff we pump out of our own wells (1.8 billion barrels per year). This is a tremendous transfer of wealth.

About 30% of that money goes to Canada and Mexico, our biggest crude oil suppliers. Disturbingly, almost half goes to the dozen OPEC-member nations. These are people who don’t like us very much.

So, how much more would you be willing to pay to pick up that red nozzle and keep all of that money where it belongs – in America?

Now the premise of this little hypothetical may not be a reality today. And, there is much debate over how we can ever realize the All-American gas pump. If we were to stop importing oil altogether, the domestic price would quickly rise to an unaffordable level for most of us. That is, unless we have something else to take its place. The answer could be more drilling and refining capacity, increased ethanol production (from corn, barley, and switch grass), or alternatively powering cars using electricity or hydrogen (derived from nuclear, coal or solar energy). But, I'll explore that topic in another post, as it is likely going to be a multi-part answer. I don’t see any one single alternative breaking our addiction to foreign oil. There’s no magic bullet.

The point is simple. We cannot continue to give away our wealth at this rate and to be forever beholden to foreign nations for energy. All other arguments (global warming, peak oil, environment) aside, we need a domestic solution to our energy needs, now!

Sources:
http://www.eia.doe.gov/
http://www.ustreas.gov/education/faq/currency/production.shtml

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