The U.S. as the New Saudi Arabia: An Environmentalist’s Nightmare?
A flame from a Saudi Aramco (the national oil company) oil installation known as ‘Pump 3’ burns brightly during sunset in the Saudi Arabian desert. According to Forbes, Saudi Aramco generates more than $1 billion a day in revenues and is the biggest energy company in the world. Photo by Marwan Naamani/AFP/Getty Images.
Editor’s Note | This post was updated 2:57 p.m. on July 19 to better reflect the anonymous oil expert’s comments.
It’s called “The Bull Case for America in a Future of Energy Abundance” and it is certainly provocative, so much so that I sent it to an energy expert of my acquaintance for a reality check. Can this really be “a brave new world in which the United States is the new Saudi Arabia”? Can we really be “on track to surpass both the Russians and the Saudis in oil production by around 2020”? Is this “an environmentalist’s nightmare,” as Whalen put it? And finally, can Lucier’s conclusion be true?
“I have always been struck by a quote from Otto von Bismarck: ‘God has special providence for drunkards, fools, and the United States of America.’ Walter Russell Meade wrote a whole book on this theme. It’s ironic that by all reasonable metrics, the United States should be heading for an epic debt crisis similar to what European countries are already experiencing. We have had far too much easy money far too long. Our spending is profligate and our entitlements are out of control. Washington’s only answer to the entitlements crisis has been to create new entitlements on top of the old ones. But oil and gas may be the Get Out of Jail Free Card that gives us one last chance to mend our ways.”
Chris Whalen is a conservative who supported Newt Gingrich in the Republican primaries. James Lucier once worked for Jesse Helms. My oil expert, an academic who prefers to remain anonymous, is a hyper-liberal. His take on Lucier’s take:
“That is a very astute analysis. One can quibble with various aspects of what he’s saying. For example, it is possible that to ‘ramp down’ production, while producing “flat out” actually reduces long term extraction rates. But overall, the analysis is very sound, except in one regard.
You can dump on environmentalists all you want, but last time I checked, it was pretty hot outside. It is misleading to talk about oil prices solely by referring to average prices at the pump while neglecting any mention of externalities [side effects or “spillovers” that aren’t captured in the price of an economic transaction]. One is our militarized foreign policy, which we will still need in order to defend access to production in the Middle East and Latin America, if only for our allies. But the most important externality remains climate change. The question of how the United States copes with these externalities is important, since we sure don’t seem to be doing anything to limit carbon emissions.
One other small point. The question is not, ‘Are we running out of oil?’ but ‘Are we consuming too much?’ U.S. production, even of crude oil, is higher than it’s been in several years, but Americans have a nasty habit of increasing consumption faster than they can raise production. We are in this relatively good position today because, hey, we’re still in the midst of the Great Recession which shows no signs of abating. Eventually, prosperity will return, along with higher consumption rates. Let us not forget that the price of oil will continue to be set globally, which means that our prosperity will depend on controlling prices, no matter where the oil is actually produced.
All in all, we get to balance $3.00 gasoline against climate change. It’s really a package deal.”
Name: Patrick Machniak
Question: I enjoy very much your work. A few years back I read a book, “Just Capital” by Adair Turner. Ten years later I would love your opinion on a book I can take to the beach this summer and catch up on where we are in the world today.
Paul Solman: Just one book? How about “This Time is Different” by Carmine Reinhardt and Ken Rogoff? What it does is put the current state of global finance in historical perspective.
This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions