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Who to Blame When the Next Energy Crisis Hits

by | published February 24th, 2012

As Marina and I prepare to leave for London, I am already mentally sketching out the policy situation I will face upon arrival.

At center stage, during my next two weeks of media appearances, is the European Union embargo of Iranian oil.

The embargo won’t take effect until July 1.

Still, it has spurred preemptive moves by Iran to cut exports to the U.K. and France. Additional countries could soon find themselves on that list.

Now, obviously, much of this is just for show.

Neither British nor French monthly imports from Iran are large enough that they cannot easily be replaced with volume sourced elsewhere. Aside from the show of bravado, Iran achieves very little from this decision.

The developing situation (and part of my role), however, is to help the EU develop a more concerted energy policy, especially for countries like Greece, Italy, and Spain. These three nations are more heavily dependent on Iran for their crude imports.

But no matter what happens on my trip, two things are for sure…

First, prices will appreciate for both crude and oil products such as gasoline and diesel.

Second, the price increases will be steeper in Europe than in the U.S.

Americans will still be seeing higher gasoline prices this summer than at any time in our history. West Texas Intermediate (WTI) benchmark futures contracts trading on the NYMEX could easily surpass $120 a barrel before Memorial Day.

Nonetheless, those increases will be even more acute in Europe.

Once again, too, we are witnessing a widening of the spread between WTI in New York and Brent in London.

For the past month, WTI is up 8.9%, while Brent has spiked 13.8%.

But how the United States and Europe handle rising fuel prices is another matter.

When I sit down in front of cameras for a European audience next week, the EU will already be discussing a concrete energy policy.

That is not the case here in the States.

American Energy Policy Has Stalled Out

I managed to catch what may be the last debate before the summer nominating conventions. Up there on stage were four Republicans slugging it out (at least, I think Ron Paul is now more a Republican than a Libertarian, but I’m still not sure).

Yet I realized, compared to what is going on in European energy, there was another elephant in the room. And it’s far more important than who will take the Republican nomination.

After more than three decades of working with both parties inside the Beltway, I have concluded we are no closer to a genuine national energy policy than we were when the Department of Energy was founded in the mid-1970s.

Of course, Europe traditionally holds less leverage than the U.S. when it comes to global energy decisions. Geopolitics almost always hits the European continent harder and first; the Iranian crisis is only the latest episode.

Necessity, it seems, does become the mother of invention. But it sometimes makes for a very cruel parent.

There is no guarantee that whatever they come up with at the EU headquarters in Brussels will be successful. In fact, there is little optimism back in London that the decision to stop importing oil from Iran will avoid nasty consequences at home.

The U.K. may not be in the euro zone – despite being a member of the EU – but its widening credit problems testify to how the rest of Europe impacts the British economy. That simply means the problems on the other side of the Channel will hit the English market.

Meanwhile, in the States, we move toward another election without a national energy policy and little likelihood that either party will chance one, for fear of losing votes. The decisions we have to make are very difficult, and these types of grownup conversations aren’t usually the favored pastimes of politicians.

What a Real Energy Policy Looks Like

Forget the 20-second sound blips or the cosmetic (largely both useless and insulting) campaign rhetoric. A real policy means multi-year planning, clear objectives, and sober calculations about costs and consequences.

A real energy policy requires that we bite the bullet and change more than just the types of cars that we drive. Or conversations about our tire pressure.

A real energy policy carries the absolute guarantee that some people and some interests will be hurt in the process.

Not all parts of the country will benefit the same way. Neither will they suffer to the same degree. None of this is possible in the current ideological division permeating American politics. That environment obliges culprits (almost always on the other side of the aisle) be blamed.

The wrangling will continue, and another tin can will be kicked down yet another street.

Nothing of consequence will be done until we reach our own energy crisis. Ours is likely to begin showing its face in what I have long considered the “other” national security issue.

This is not the one about defending borders from invasion.

This is about defending a way of life.

The real casualty from the coming energy crunch addresses individual expectations and uncomfortable lifestyle shifts. Keeping the house or the farm, sending the kids to college, pursuing one’s dreams, and setting aside enough to retire are about as important national security objectives as defending our territory.

Usually, we have played these goals out in our individual views of the future. Until recently, Americans were probably the most optimistic people ever to work the earth as a result.

But that is ending.

It’s time to face up to what the next oil cycle is telling us.

This will be worse than 2008. The prices will be higher, and the adverse impact on some parts of the economy more pronounced.

Nothing of consequence in the market can take place without energy.

But we have no plan moving forward on what to do about it.

And so long as we spend our time trying to convince others that the Democrats or the Republicans are responsible, that plan will never emerge.

In the end, we will have somebody to blame when the energy balance become unsustainable .

Us.

Sincerely,

Kent

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  1. February 24th, 2012 at 14:28 | #1

    Like every other reform that has been proposed in recent years, the focus has been on some cosmetic changes with no consideration of long term effects. Nobody is willing to make a commitment to anything for fear somebody won’t like it..

  2. Ron Miller
    February 24th, 2012 at 14:36 | #2

    What do we do to solve the oil Glut here in west Texas. All the pipe lines & tanks are full. The wells are being shut down. Can’t we export some oil too.

  3. February 24th, 2012 at 14:39 | #3

    The U.S. has plenty of energy. All we have to do is harness the hot air and gas emanating from politicians.

  4. Chuck S
    February 24th, 2012 at 15:15 | #4

    America’s prosperity has come from no plan – that is no plan by the government. Let the free market determine what energy we have, with restrictions for safety and the environment. Our plan should be to end excessive restrictions. Our no plan has given us much better energy prices than Europe’s planning. Obama’s plan seems to be to stop all our energy production. Democrats want to restrict energy and republicans want to allow more energy, so there is a big difference.

  5. Chuck S
    February 24th, 2012 at 15:26 | #5

    @Chuck S
    I should note that the democrats want alternative energy, but that’s mostly very expensive and inefficient. Geothermal may be practical in some parts of the country, where it’s hot a fairly short distance underground.

    To make a wind farm, you need to burn energy to dig the copper, iron, etc. ore out of the ground, ship it, refine it, and form it into the generators, towers, transmission lines, and back up power plants. It may take more energy to make the farm than you’ll ever get out of it.

  6. Allen Novotny
    February 24th, 2012 at 16:27 | #6

    Kent, with all your knowledge of the energy situation, why aren’t you talking to Obama about what needs to be done in this country? All I here(not you)is complaining around the country and nothing gets done. Also, why do we need the government to endorse getting natural gas into motor vehicles?

    Al

  7. neil braddy
    February 24th, 2012 at 17:03 | #7

    I don’t think the energy belongs to oil or gas companies. It is a natural resource that belongs to the nation. Oil companies are not entitled to charge what ever the market would support, but only the cost of production plus a reasonable profit. And profitering should be dealt with as it was during well and in China. It’s a national crime that admin longer have leaders that stand up to corporate America like pres. Kennedy did to the steel industry in the 1960s

  8. Ed Nichol
    February 24th, 2012 at 21:41 | #8

    The US energy policy has been based on whichever fool will take piles of paper in exchange for oil. Throw in some weapons to make you the tough guy on the block and voila! US energy policy. Problem is that the money seems to degrading and the weapons end up killing your own people. The other problem is that the American society has been built around the suburban landscape and there is no cure for the need for individual transportation or the trucking culture. It will end badly. Correction, it is ending badly.

  9. George
    February 24th, 2012 at 22:00 | #9

    Kent, I agree with your comments, but can not help to think that I heard something akin to them before. Then, it hit me. A former President in the 70′s said much the same thing. (Sort of tells you how long I have been around.)

  10. Dick
    February 25th, 2012 at 00:26 | #10

    Kent: The bottom line is that our country is killing itself from within; with more & more regulations from our government,crazy social issues & on & on. Just imagine, where this country would be today if the current epa regs were in effect 150 yrs ago (e.g. when the railroads were built). The people of this country better get their heads out of the sand & take notice as to who is taking our resources… the Chinese for 1, who these days are more capitalist than we are. What slays me, is back in the ’70s there was a big fear of over population, we did nothing, however the Chinese did do something & see how their economy is doing these days. They’re taking our coal, drilling off the Cuban coast, signed agreements w/CHK, LNG, etc. By the time U. Sam wakes up & tries to do something about our energy policy, it will be too late. Maybe the end will occur on 12/21/12? In the meantime, I think I’ll learn some Chinese. We need some true visionary to step forward, put self greed aside, & lead us out of the mess we’re currently in… I don’t care what color the person is,even green would do, as long as our nations security, independence, & existence is his #1 priority. Kent R U interested?

  11. eric taylor
    February 25th, 2012 at 01:04 | #11

    We seemed to have burned most of our credit necessary to finance a
    serious, and well balanced energy policy! Jeremy Rifkin’s (2011)
    book, “The Third Industrial Revolution,” which I have just read
    is a good example of merging our new communications technology
    with new green energy in a more decentralized energy internet
    that would surely leave grand portions of our energy economy in chaos.
    However, Greater Europe, Africa and Asian are well down the road
    to building a green infrastructure. Europe is targeting 1/3rd of its
    electricity for green energy by 2020. Who says green will not work?

  12. February 25th, 2012 at 02:12 | #12

    Green energy will work but only in expensive euphorian books. In reality it won’t be available soon enough and at a reasonable price.
    Common sense tells us loud and clear that this may now work to a degree in Germany but the world isn’t Germany and most of it doesn’t want to be either. Ask the Greeks what they think of the Vaterland II. Of course German culture does have many things to recommend it. Arbeit Macht Frei!

  13. richard johnson
    February 25th, 2012 at 06:08 | #13

    This is such an inane comment, typical of Limbaugh fans. We are producing more energy than during the Bush years. We are actually exporting gasoline. Why? Because it is a world market, and China, India, et. al. are increaing world demand rapidly. American Oil Companies have no patriotic allegiance to sell preferentially to US Consumers. They sell to whomever pays the most. That’s what is called a Free Market, a concept the aauthor likely embraces. You can’t have it both ways!

  14. Wilson barrera
    February 25th, 2012 at 14:44 | #14

    What kind of investment we should be thinking on doing at these moment

  15. Julian
    February 26th, 2012 at 07:59 | #15

    Why do we continue to slight Green Energies for being expensive and unproductive, yet we happily auditors nuclear energy by a phenomenal amount. Solar, Wind and Wave energies have to be invested in to work. But I remember this lack of foresight 30 years ago. Why are we not using Thorium for nuclear power? Less needed, more available, far far safer than plutonium etc. What about magnetic energy. Of course the oil lobby will always suppress such ideas, until ultimately it’s too late. We are pretty much there sadly.

  16. Julian
    February 26th, 2012 at 08:23 | #16

    Should say ‘we happily susidise’

  17. Todd J. Smith
    February 26th, 2012 at 23:01 | #17

    The first priority of a national energy policy should be to get us off of foreign oil through both efficiency gains and alternatives to oil. This would bring back into our economy the 200 billion dollars(I’m not sure this is a current figure anymore)flowing out of our economy each year from the purchase of foreign oil.

    Here are the best ideas I have heard of but they need a national plan (smart government vs no government).

    1 Build battery swapping stations for electric vehicles all across the country. (see the “Better Place” model- they are already doing it in several countries). In this scenario you can buy an inexpensive electric car (without the battery) and another company supplies the batter and charge. In effect you lease the battery as you pay for the recharge. You can recharge at your home or when you are out, drive through a battery swapping station and get a fully charged battery- all cheaper than gas. The cost to build the entire nationwide network is equal to one weeks purchase of oil. So for 1/52 tax on oil for one year (this would be equivalent to 7cents on a gallon of gas for a year. the US governement can put people to work, build out the swapping stations and give people a choice of gas or electric. Our government could then get our money back by leasing out the stations to private battery/charge providers.

    The same could happen for liquified natural gas (LNG) or compressed natural gas (CNG) for both big rigs (Pickens Plan) and light vehicles.
    The Same battery swapping stations chould also provide the (LNG) (CNG).
    Its all about having choices that are American made that replace foreign oil and add jobs and GDP to our economy.

    2. Electrify our railroad. Our military already wants this done for national security. This would get our railroad off of diesel and onto electricity which could be from green energy. See, if we electrify the railroad we create a much needed electric grid that pass through some of our best wind and solar corridors like the southwest, central plains, and coastal areas. When you tie together many intermitent sources you get a certain amount of base load because it is always windy somewhere and concentrated solar plants can store energy in the form of heat to produce power at night.

    If you create several high speed electric rail lines coast to coast you can do away with much shipping through the panama canal, much interstate trucking and some air freight.

    Our government can do these things, creating millions of new jobs creating assets for our country that give us transportation choices that don’t use oil. The government could then lease them out to make back the investment. 200 billion dollars start returning to our country by substituting foreign oil for homemade energy. The country is more secure, more prosperous, more efficient and healthier.

  18. Sailor Jo
    February 27th, 2012 at 01:17 | #18

    @Chuck S
    Sorry, it seems you do not know a thing about Europe. France was well aware of the cost of importing oil and/or using domestic coal. So they decided to use nuclear energy as the main source. They have all the knowledge and the facilities. The Frech recondition the nuclear fuel for reactors in various countries including Germany.

    The Germans on the other hand realised at one time that they do not know where to put the nuclear waste. By the way, the US does not know either. So Germany decided to get out of nuclear energy. Lots of power plants incinerate trash and produce local electricity. Germany still uses some coal despite huge supplies, but also uses NG and oil, both imported.

    So, having a plan is not bad. It just needs to be tuned every year or every few years.

  19. Sailor Jo
    February 27th, 2012 at 01:25 | #19

    @Todd J. Smith
    The electric grid is of utmost importance. Europe has barely a Diesel locomotive left. They went the way of the steam engine. GE is proud of having Diesel-electric engines with 4000 hp. Makes me smile. A simple Siemens electric locomotive has 12,000 hp. It does not need to carry fuel and one locomotive is enough to pull a train. No need to talk about pollution and molestations like smell and noise. Besides, the high speed trains go easily 200 mph and on many connections they are faster than air planes, especially if you take all the travel to/from an airport into account and the time waste with TSA.

  20. Gary Himes
    February 27th, 2012 at 14:11 | #20

    HI Kent
    Appreciate tour energy articles and Energy Advantage newsletter.
    The first waving red flag energy warning that I recall happened with long lines of cars waiting for some gasoline. Believe it was in the late 1960′s /early 1970′s. Almost fifty (50) years have passed and the US still does NOT have a viable energy policy — both Democrats and Republicans have seriously failed in providing leadership. As you state, the US has a Department of Energy (located in Washington) but little of lasting value has been done by this Department toward developing an effective energy policy — for the principle forms of energy: coal, oil, natural gas, nuclear. Other forms of energy – wind, water, solar — still require significant development before they are major sources of energy for the country.

  21. Don Merriman
    February 28th, 2012 at 19:34 | #21

    Of all the comments on this subject it seems (in my opinion)that you have the best suggestions. The airline industry is in big trouble financially. High speed rail could compete,especially if we used electric powered engines.The state of South Dakota lost all passenger service many years ago.Our mail service is in trouble with the closing of many postoffices. Wind energy could furnish the power for the electric engines with a grid that follows the railroads.Of course a lot of the railroad beds of yester year are gone. The real problem is (All of us have become spoiled brats,we want to go whereever we want to go on the spur of the moment)I’ve lived 89 years on this planet,traveled aboard ship’s,railroads,and air during my years in service during WW2. Yes, I’ve even traveled by horse and buggy and saddle horse without the saddle. I would hate to see us revert to that but unless we soon have a national energy policy that becomes serious about the effects of global warming our children and granchildren will blame us for health problems caused by pollution. Is it possiable that we have already forgotten the disaster in Japan just a few months ago.Atomic energy stocks are down,Mining companies that have mined for uranium are struggling to stay alive. Scares the dickens out of me to know that most of our newest Navel ships are powered by Atomic energy. We need leaders who have a full grasp of the gravity of the situation,rather than spending all their time cowtowing to the people who gave big money to get them elected.

  22. March 5th, 2012 at 14:32 | #22

    A sound energy policy is needed not only at the federal level but also at the local one. City/municipality policies need to encourage growth that favors short commutes. Where I grew up in Germany, my father walked to his office, though we still needed to use a car or public transportation to go shopping. Here in the U.S., after my office relocated to a different campus last fall, more than doubling my auto commute, I moved closer to work. I now bicycle a mile to work, and less than that to buy groceries.
    While my personal OPEC-dependence has dropped, I fully realize that many of the goods I buy are transported long distances using petroleum products. Getting the trucking/shipping fleets onto natural gas and the railroads onto cheap electricity or other alternatives (I’ve read that coal’s price rises with oil’s due to the volume of diesel used to carry coal to power plants by rail), ought to be part of our national energy policy.

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