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Get busy with oil alternatives

Posted: May 4, 2011 - 8:27pm

It’s time to rebalance our transportation portfolio.

Headlines from the world of oil are not encouraging for countries stuck in the past: Americans are seeing prices soar at the gasoline pump, which reflects soaring prices for oil around the world.

China, India and others are riding unstoppable growth curves that put millions more cars on the road annually. This trend and other forces mean that demand for oil is increasing and will outstrip global supply, putting even more pressure on prices.

The United States imports about half its oil today. To pay for that, we send $300 billion to $400 billion overseas to the oil countries every year. This is — in a word — ruinous.

The Republicans say “drill, baby, drill,” meaning tap our own domestic reserves. It’s a seductive thought, but U.S. reserves are roughly 3 percent of proven world oil reserves, while OPEC countries control about 70 percent. So while this quaint slogan plays into the American desire for self-reliance, in reality it’s a dangerous dead end — we’d spend a lot of time and money and still get caught in the global oil squeeze.

The Saudis, because of their large reserves and enormous production capacity, were once able to manage oil prices downward whenever they judged that they had “gotten out of hand.” But there’s a new factor at work here, and it’s called Arab Spring. One largely unnoticed Saudi response to the political uprisings in the Middle East and North Africa was to roll out a whole new layer of subsidies, benefits and services for their own population in an effort to keep them glutted with privilege rather than hungering for more freedom. People smarter than I am estimate that the additional cost of this new layer of benefits and services means oil will never again go below $90 or $95 per barrel. Coupled with relentless demand from the fast-growing economies, a far more likely scenario is that the price of oil will just keep going up.

There is another unseen force driving the price of oil up against the dollar specifically. Lack of U.S. fiscal discipline makes many investors worry that the dollar will no longer be the world’s ultimate “safe haven.” To global financial types, oil looks like a universal commodity for which there will always be a market, and whose value will go up, but not down, against the dollar. In today’s sophisticated financial markets, you can bet on anything against anything else you want — and some players have started to put their money in oil and bet against the dollar.

The U.S. electricity generation sector is diversified: We use coal, natural gas, hydro, nuclear, and wind and solar in small amounts.

And we are slowly learning to use the biggest source of all, which is energy efficiency. But in our transportation sector we have only one big needle stuck into our arm, and that needle carries oil, which we refine into gasoline and diesel fuels. It’s time to diversify our transportation sector and make room for every alternative to imported oil: ethanol (but without subsidies), methanol, compressed natural gas, and, yes, gasoline from domestic sources (since the strategic danger here is not oil per se, it’s imported oil).

It means more hybrids, and making way for electric cars that charge at night when the electric grid has surplus capacity. It probably means a federal mandate to require auto manufacturers to produce flex-fuel vehicles, which can accept all the fuels mentioned above. Basically we need to open up the system, make sure minimum environmental standards stay in place, and let all these different approaches compete on price. A lot of them will come in under present import-driven gasoline prices. Some of them will come in way under.

Some people are going to have to pay $5 per gallon and higher for motor fuel and dance to the tune of the foreign oil producers. But I don’t see why it should be us.

• Goldmark, a former publisher of the International Herald Tribune, headed the climate program at the Environmental Defense Fund. He wrote this for Newsday.

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