Alaska editorial: It's time to treat oil as a finite resource

Posted: Friday, June 20, 2008

The following editorial first appeared in the Alaska Journal of Commerce:

I t's past time for America to get over herself. We're no different in Alaska, as our extravagant ways and gluttonous approach toward energy consumption leads to political payouts, and not only from Washington.

Now our own governor has pledged to give every single man, woman and child $100 a month to offset the suffering.

No doubt many are suffering. But if it is the result of high energy prices, government relief may be delaying the pain as the days of cheap energy might be gone. If the upward trend in commodity prices, especially energy, continues, the price of gas may become the least of our worries.

Our world will change as dramatically as the price of oil. Ten years ago the price of oil was around $10 a barrel. Last week, the price of a barrel jumped more than $10 in a single day. A year ago we blazed unblinkingly past $80 oil, but with gas past the $4 mark, we are beginning to get the picture, and it isn't a pretty one.

Americans have always felt they were special and are sure they don't deserve this treatment. Now we have embellished our Manifest Destiny of days gone by to the surety that we have a divine right to cheap energy for . . . well, forever. Who cares if Europe is stupid enough to pay higher prices? We sure won't.

But we are, and we will continue to.

Congress grills the world's oil giants, all while oblivious to the truth. Around 75 percent of all the worlds' oil reserves are controlled by governments. As for retail gasoline sales, the major producers own less than 5 percent of all the gas stations in this country.

If you look at the profit margins of refineries, it's in the pennies. This pushes to the logical conclusion that most of the oil companies' profits are more likely realized by their production efforts. Last time we checked, oil was a commodity traded freely on the mercantile exchange; hardly a bastion of price fixing by oil companies.

As for commodities traders, they don't deal in real barrels, only paper, and those they sell in the future. Nobody is hoarding oil.

This chatter completely sidesteps the real issue of cheap energy for America, a remnant only viewed in the rearview mirror. We, as well as the rest of the world, face something never seen before: A full-fledged global dependence on a single commodity that is finite, in high demand and at the same time getting harder and more costlier to obtain.

The notion of government doling out money is foolish; the easiest way to reduce energy costs is through conservation. By some estimates we could reduce our consumption of energy 25 percent simply by turning out lights, better insulating homes and trading in a gas-guzzling SUV for a Toyota Camry. Do we really need to go to Fred Meyer four times a week?

Instead we focus our verbal energies on blaming oil companies and then absurdly looking to government for solutions. The price of gas is the bell ringer, but everything is going to go up and up as the cost of business gets costlier. Nobody will be spared and as the costs of food and all other durable goods increase. We will have to decrease our spending on other discretionary items.

While higher prices are already driving down energy consumption in rich nations, this is yet to dampen demand in the booming emerging markets. Right now, Americans are careening their SUVs toward their local Wal-Mart to offset the pinch at the pump, but as inflation begins to rear its ugly head, the perpetual yellow smiley face that has beckoned us for decades may turn to a sour frown as prices inch higher.

The world is changing. We should stop whining and start treating oil and energy as the finite resource that it has always been and always will be.

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