MR. BUSH AND THE TRUTH ABOUT OIL

U.S. Oil Market Fundamentals and Public Opinion: Consistent Concerns and Support for Policies to Reduce Consumption Despite Wild Price Swings
Mark Cooper, May 2010 (Consumer Federation of America)

THE POINT
(A shorter version of this originally appeared at Greentech Media.)

When people are given accurate information about the costs of oil dependence, according to the latest survey from the Consumer Federation of America (CFA), they make better decisions, like choosing higher vehicle fuel standards that will lead to less oil consumption.

Which is what makes the keynote address by former oil man and former President George W. Bush at the WindPower 2010 conference so troubling. It was filled with deception, misdirection and untruth. The crowd enjoyed and applauded the folksy, funny anecdotal presentation, which means it absorbed the former President's inaccuracies along with his stories. And, as U.S. Oil Market Fundamentals and Public Opinion (completed just before the Gulf oil castastrophe) shows, when people have inaccurate information they make decisions like “drill, baby, drill.”

Fortunately, Mr. Bush also delivered some entirely accurate and sound messages in his talk. He emphasized that wind energy is one of the ideas that will deliver the nation from its oil addiction. He is certainly to be applauded for having the integrity, as a self-proclaimed son of Texas, to have declared the U.S an oil addict during his presidency and having done what he did for the Texas wind industry in the 1990s.

Yet even in recounting how he, as Governor of Texas, helped make the state into the nation’s wind energy leader, he disappointed. In listing the policies he instituted as Governor in support of wind, there was a glaring omission. He listed first and foremost “good sound law” that allows entrepreneurs to get a “reasonable return” for investment risks. He also called for low taxes, streamlined permitting and expanded access to transmission.

What President Bush omitted was the one thing the American Wind Energy Association (AWEA) and every other speaker at the convention, including North Dakota Senator Byron Dorgan, Colorado Governor Bill Ritter, Iowa Governor Chet Culver, Ohio Governor Ted Strickland, CEOs from major wind companies across the country and around the world and the AWEA CEO Denise Bode, were clamoring for: A national Renewable Electricity Standard (RES).

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An RES is a mandate requiring regulated utilities to obtain a specific portion of their power from New Energy sources by a date certain. The wind industry wants an RES requiring 20% New Energy by 2020 or 2025. Under then-Governor Bush, the Texas legislature instituted a 2,000-megawatt mandate. An endorsement of a national RES from the former President would surely carry weight with enough Senate Republicans to push it through but no such endorsement was rendered.

The most difficult parts of Mr. Bush’s keynote were things that seemed either sadly ignorant or intentionally subversive. That there was a strong sense of deep anger beneath the folksy presentation suggested intentional subversion. But, as usual, the former president’s social leveling act allowed some observers, like New York Times blogger Kate Galbraith, to dismiss the inaccuracies as casual ignorance and verbal clumsiness.

What was below the surface of the President’s presentation was surely the most interesting aspect of the former President’s appearance. It is a shame that other observers failed to comment on how clearly he demonstrated the Freudian link between humor and anger. His self-effacing, good-old-boy, folksy persona remains intact. But being in the room, up close to the act, it was possible to see and sense in the President’s presence something very intense, something seething, something defiant. Beyond reporting the observation and noting that it is a psycho-emotional mindset typical of the alcohol addicts he once again admitted to being at the end of the session, it is a subject best left to others.

He said he did not want to generate news or criticize his successor because “…I didn’t like it when a former President was unbelievably critical during my presidency…” This was a clear swipe at former President Carter’s principled opposition to the Iraq war and, as Mr. Bush wished, it did not generate news. Enmity, yes, but news, no, because the mainstream press bought his folksy act.

He told a charming story about what it is like to be out of the White House and free to take Barney, the former First Dog, for a walk in his Dallas neighborhood. When Barney chose to do his business on a neighbor’s lawn, Mr. Bush realized he wasn’t in D.C. anymore.

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“So there I was, the former President of the United States, with a plastic baggie…” Mr. Bush joked to the crowd’s hilarity. “Picking up that which I had been dodging for 8 solid years.” In one subversive slash, he jokingly dismissed all the illegitimate and legitimate criticisms of him as dog poop.

Undoubtedly the most disturbing point in Mr. Bush’s talk came near the end of his prepared remarks. We are in a transitional period, he said. A comprehensive energy policy is necessary. But his grandchildren, he envisioned, “...will be driving electric cars powered primarily by renewable sources of energy, be it natural gas – which now as the result of a technological breakthrough we have 200 years of supply – whether it be nuclear power or whether it be solar and wind energy…”

The first correction to this misinformation is that battery electric vehicles (BEVs) will be widely available in late 2010 and early 2011 so there is no need to plan on waiting out another generation of oil dependence before driving one. Though nearly half of the grid electricity that will power those BEVs is still supplied by coal, the other half comes from natural gas, nuclear energy and renewables.

More importantly, Mr. Bush’s own observation that there is a time limit on the supply of natural gas proves it is not a renewable source of power generation. And many doubt the very optimistic predictions about the extent of the shale gas reserves to which he referred. They are optimistic predictions that echo BP’s promises that they could control Gulf of Mexico deepwater drilling spills.

Natural gas is cleaner than coal but it is a fossil fuel. Some theories suggest that the 200-year supply to which Mr. Bush referred, which will be obtained only through the energy-intensive and environmentally questionable "technological breakthrough” process of hydrofracking the shale holding the reserves, could produce more greenhouse gas emissions (GhGs) than burning coal.

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It has been a difficult spring for fossil fuels. 29 coal miners were crushed, 11 oil platform workers were incinerated and the U.S. is facing the worst human-induced environmental disaster in history.

The nation is, by virtually every commentator’s report, at a crucial crossroads in its energy life. It can move ahead into a New Energy future or it can remain mired in the deadly and disastrous Old Energies. It can level its mountains for coal and live with black tarry beaches and oil-shiny oceans or it can build the infrastructure to draw on the clean, free power of sun and wind, flowing waters, deep earth heat and its own waste.

The people of this nation will choose the leaders who will control the decision-making process that takes place at the crossroads. At the very least, they deserve to have accurate information when they make the call.

Some facts: The U.S. imports 60%+ of its oil. Gulf oil is about 15% of U.S. production but U.S. oil provides only about 3% of what is consumed and Gulf oil is therefore only 0.3% of world oil reserves.

Generally, the people of the U.S. believe the nation has as much as 45% or more of the world’s oil. When they are given accurate information about how little is held domestically, support for policies that reduce oil dependency in general goes from 54% to 68% and support for a strong auto fuel efficiency standard goes from 66% to 72%.

They say the truth hurts. It most hurts those who profit from untruth.

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THE DETAILS
The 2010 CFA survey follows on previous ones done in 2005 and 2008. It was concluded a month before the Gulf oil catastrophe.

It observes that the 2008-09 recession reduced oil consumption and with the economy’s rebound, oil consumption has begun to increase.

The recession’s impact on oil consumption was disproportionately small compared to the overall impact on economic growth because the nation’s addiction makes the use of oil "inelastic." (Addicts give up everything else before they give up their addiction.)

Imports declined more than consumption. Two factors are thought to be involved: (1) Ethanol increased market share, accounting for two-thirds of the decrease in imports; and (2) domestic production increased, accounting for the other one-third, possibly because the high-profits period preceding the recession allowed for more exploration and development and gave suppliers the choice to use a little more domestic, foreign-royalty-free crude.

Gasoline is half of all U.S. petroleum use. Diesel is another 20%.

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Since 2000, the gas price was lowest in 2002 ($1.00/gal) and highest in mid-2008 ($4+). In May 2008, it was $1.67; In May 2010 it was $2.80+.

Since 2000, household expenditures for gasoline went from ~$1300 per year to $2700+ per year and are estimated to be $2200+ in 2010.

For all U.S. households, gas is ~3.5% of income. For the lowest-earning 20% of households, gas is 10% of income (~$1,000). For the second-lowest-earning 20% of households, gas is 6% of income (~$1,600).

New higher fuel efficiency requirements have been established by the Obama administration. The 2010 CFA examines whether consumers will support such requirements. It also examined the level of consumer concerns about (1) gas prices, U.S. dependence on Middle East oil and (3) global climate change.

Concerns remain as high as in previous surveys. 75% express “concern” and 51% express “great concern.” 69% express “concern” about imports and 48% express “great concern.” Concern about climate change is slightly lower, ranging between 45%-to-60%. In the 2010 survey, concerns were in the lower end of their ranges. Over the surveys, price concerns have fluctuated 25 percentage points, Middle East import concerns have fluctuated 15% and climate change concerns have fluctuated 12%.

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Lower income and less educated consumers had the highest level of concerns about price.

The average consumer in all the CFA surveys has tended to have a pretty clear understanding that the U.S. imports the majority of its oil. In the 2010 survey, consumers accurately said the U.S. imports 60%-to-70% of its oil and, in fact, the U.S. imports ~60% of the oil it uses.

On the other hand, there is a great misunderstanding about how much oil the U.S. actually has. In the 2010 survey, the average consumer said the U.S. owns 45% of world oil reserves and over two-thirds of consumers put U.S. reserves at over 25% of the world’s oil. In fact, the U.S. holds ~3% of the world’s reserves.

Over the years of the CFA survey, consumers have remained concerned with oil prices and dependence on imports from the Mid-East. An “overwhelming” majority (87%) think it is important to reduce dependence on oil and a “large” majority (54%) consider it “very” important.

65% think there should be a federal fuel economy standard of 50 miles per gallon (mpg) by 2025. Income affects that decision: 74% of consumers with incomes of less than $50,000 per year want the 50 mpg standard by 2025 but only 61% of those with incomes above that mark support it.

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The support for general action to reduce dependence on oil is impressive. 90% of consumers say such action is “very” or “somewhat” important. When the specific action of a stronger fuel economy standard is raised, support falls off somewhat but is still strong.

When left to their somewhat incorrect assumptions about how much oil the U.S. imports and their largely incorrect assumptions about how much oil the U.S. actually has, 54% of consumers favor more demanding action to reduce oil dependency. When given accurate information, the percentage of consumers that support stronger action to reduce oil dependency jumps from 54% to 68%.

When left to their somewhat incorrect assumptions about how much oil the U.S. imports and their largely incorrect assumptions about how much oil the U.S. actually has, 66% of consumers favor more demanding vehicle fuel economy standards. When given accurate information, the percentage of consumers that support stronger vehicle fuel economy standards jumps from 66% to 72%.

These trends remain consistent despite variations in income, age and education. Consumers with greater concerns about global climate change (“global warming”) had stronger inclinations for action to reduce oil dependence and for stronger vehicle fuel economy standards. Consumers with greater concerns about Mid-East imports also had stronger inclinations for action to reduce oil dependence and for stronger vehicle fuel economy standards.

Party affiliation impacts the strength of consumer concerns and support for general and specific actions. Democrats are most likely to support general action and fuel standards, Independents are next most likely and Republicans are least likely.

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QUOTES
- From the CFA paper: “With the recent oil spill in the Gulf of Mexico focusing attention on the oil industry and changing public opinion about offshore drilling, a close look at market fundamentals and long term consumer attitudes toward oil policy is in order. A month before the oil spill, CFA conducted its eleventh survey in the series. This study reports the results of that recent survey, puts those results into long-term perspective, and introduces a new approach to assessing the importance of consumer knowledge about the oil market. We find that, although oil prices have gone on a wild ride in recent years, consumer attitudes have been more consistent, reflecting the fact that market fundamentals have not changed all that much…

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- From the CFA paper: “…[Oil] imports declined much more than consumption. Two factors account for this. Ethanol, which affects gasoline and not other products, continued its dramatic increase in share of product supplied. The increase in ethanol equals two thirds of the difference between the decrease in import and the decrease in consumption. Domestic production also increased, accounting for the other one-third of the difference between the change in imports and consumption. This may reflect the playing out of exploration and development activities during the period of high prices prior to the recession or the structure of payments for crude oil. When prices are low, it may make more sense to produce domestically to avoid royalty payments to foreign crude owners…”

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- From the CFA paper: “Notwithstanding the tendency to overestimate the U.S. share of world oil reserves, the consistent concerns expresses by the public about oil consumption and their support for reduction in consumption and increases in fuel economy indicate a fundamental recognition of the problem of “oil addiction.” The fact that providing respondents with accurate information about the U.S. oil situation increases support for policies to reduce consumption could interact with the focus on the U.S. problem situation resulting from the oil spill in the Gulf of Mexico to reinforce support for further reduction in consumption.”