Out in the bays of Maine, in addition to all the continuing annual worries that accompany each new season of fishing, the 35 percent increase in fuel prices during the past six months will surely squeeze every fishing family’s annual income. Whether it is diesel fuel for the boat, heating oil for the furnace or gasoline for the 4-wheel pick up or family car, our national “addiction to oil,” to use the president’s recently coined phrase, is acutely felt on islands because you literally can’t get there from here or vice versa without lots of it.
What does a rational energy policy look like, from both a national and a Maine perspective? (Hint: they are connected but not the same.)
First, it is useful to disabuse ourselves of the notion that the oil companies are just manipulating the markets to produce excessive corporate profits and executive salaries (although both profits and salaries make most second and third world governments look small by comparison). Understanding what is driving the 35 percent runup in oil prices is about understanding oil demand and supply.
Global demand for oil is rising and will not stop anytime soon unless the several hundred million people now affording a middle class life and the energy to support it for the first time ever in places like India and China can be convinced that our energy-intensive lifestyles in America are inherently more worthy than theirs. You can judge how likely that is.
If demand continues to increase globally and prices are sky high, my teen-aged sons recently asked, me why don’t the oil companies simply pump more oil to create a bigger bonanza for themselves and lower prices for us? So we talked about Saudi Arabia. As the supplier of between a third and a half of the world’s oil, Saudi Arabia has always bragged that they are the world’s “swing producer.” Saudi policy has long been to decrease supplies when prices sink beneath a target range and increase supplies if they rise too steeply above that target. As recently as a year ago, this target range was $30 a barrel. Because Saudi Arabia’s monarchy depends on American military support, and a barrel of oil now hovers around $70, we might ask why our good friends in the desert kingdom do not pump more oil as they have long promised. For an answer, turn to Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy by Matt Simmons, an energy sector investment banker or Peak Oil by Ken Deffeyes both of which were reviewed in these pages in July 2005.
The short answer is the Saudis will never again be able to just turn up their oil spigots again — at least for very long without damaging their oil fields’ capacity to produce in the future. If they could have, they would have. They can pump more oil and will, but not enough to drive prices to any predetermined lower target. The days of Saudi oil supply control are over.
On the supply side, the news could be even worse. If the distinguished American oil geologists King Hubbert and his disciple Ken Deffeyes are right, and their method of predicting the approximate point of “peak oil,” when half of the world’s recoverable oil supplies have been pumped from the ground proves accurate, we are in for even rougher times ahead. They both concluded that the world would reach peak oil early in the first decade of the 21st century. Whether you believe their prediction or not, peak oil is an enormously powerful psychological threshold that we will cross sooner or later — probably sooner. And when we do, everything will change. Almost overnight the world’s remaining oil will become increasingly valuable — a truly precious commodity that will be priced accordingly.
Can we control our demand for oil? It is useful to note that even after the huge run up in gas prices since Katrina, American demand for gasoline actually increased in March of this year compared to March of a year ago. So the high prices have yet to cause any changes in our driving or our behavior. So far, we are simply willing to pay the price. Until demand goes down, prices will continue to increase.
Oil demand decreases with increased energy conservation, even though this notion is usually dismissed by “real” oil men as fuzzy-headed wish fulfillment. But conservation matters. Over 70 percent of the oil we Americans use is for transportation for moving ourselves and the products we consume back and forth from one end of the country to the other. In 1986 CAFÉ regulations mandated that new cars and light trucks maintain an average of 26.5 miles per gallon for an auto-maker’s fleet. Over the last 20 years, the average mandated by Washington has decreased to 24.6 miles per gallon. That reduction means that we have burned hundreds of millions more gallons of oil than we would have, had energy conservation been a priority.
What does all this mean for the Maine coast and islands? First, we should enjoy Granny Smith apples from New Zealand and tomatoes from Mexico while we can. Our expectation that we will be able to eat fresh fruits and vegetables from anywhere in any season of the year is going to experience a big readjustment. When we pay the true cost of getting apples and broccoli to Maine in a few days on giant airplanes to Miami or San Diego and truck them across a thousand miles of interstate highway, we will rethink what it means to buy locally.
What about Maine lobsters that are now shipped all over the world? Will lobsters be priced out of the global market? I doubt it. Lobsters are a classic example of “inelastic demand,” which means that because lobsters are already a luxury item for most people, their price does not affect demand — or at least as much as it does for other products that have obvious substitutes. Fuel for lobster boats will be an enormous cost of doing business, but the cost will be passed along to the consumer.
What about winter heat? Should we build that LNG plant after all? If you look carefully at the projected supply and demand calculations for the region for the next two decades, New England (and Maine) needs the additional gas energy that can be supplied by two new LNG terminals. One of these is currently being built in St John, New Brunswick, by the Irvings and will be pumped through Maine on an existing pipeline that will be upgraded. You can argue whether this facility should have been built in eastern Washington County; the point is the Irvings will do it first while we are still debating the issue. The other LNG facility needs to be built near the Boston and Southern New England markets to be economically efficient. I predict that all the ink and passion that is currently being spent in eastern Maine will ultimately be beside the point because the market is already determining the outcome.
What about alternate sources of energy from two of our local natural resources — wind and tidal power? If you look at wind maps for Maine that show where commercial wind farms have real economic potential, the Maine coast is even more viable than the mountains of western Maine. I shudder to think about the debate, surely coming our way, when a wind farm, like the one currently proposed for Nantucket Shoals, is proposed for outer Casco or Penobscot Bay. Summer people who return year after year to the Maine coast because they deeply value the scenes here that do not change will band together with fishermen to oppose siting these farms. Ditto with submerged tidally powered turbines several companies are now testing for the applicability to Maine waters. But I believe are going to have to think through our “backyard” priorities along the Maine coast very carefully as the realities of our new energy future come into focus.
I have five boys aged 18 to 24 and I keep telling them, don’t get too attached to your current lifestyle, because it will have to change. Anyone who seriously thinks we will see $10 a barrel oil again is living in an alternate reality.
Philip Conkling is president of the Island Institute.