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What obstacles stand in the way of Western nations, particularly the United States, reducing their dependency on foreign oil?

James Woolsey

If you remember, we got interested in alternative fuel firms like the Synfuels Corporation in the late seventies and then in 1985, the Saudi’s dropped the oil down to $5 a barrel and bankrupted the Synfuels Corporation. The good news is that they bankrupted the Soviet Union, too, but they certainly undercut alternative fuel efforts. People got interested in alternative fuels again in the early nineties, then in the late nineties, oil dropped down to $10 a barrel and people lost interest, again. One of the things that we have to do is make sure that this rollercoaster effect can’t happen again.

Some people think it will be much more difficult in the future because the Saudi Arabian oil fields could be peaking, if not now then soon. We will also have huge demand, not only from the West but from India and China as they start to produce middle classes that drive cars. So the Saudis might not be able to drop the price to five or ten dollars a barrel by turning on their excess capacity, but they might be able to drop it to $20 per barrel. Most of the better of these alternative fuels are only really viable, (as far as we can see) if oil is say $35 per barrel or more. The one that’s viable even below that is electricity, because off peak, overnight electricity in many parts of the United States sells for between two to four cents per kilowatt hour. That is the equivalent to about a penny a mile driving where as gasoline is in the range of ten to 20 cents a mile at today’s price. However much the Saudis might be able to drop the price of oil by turning on excess capacity, I doubt if they would be able to undercut off peak electricity in price.

But one way to ensure that is to make sure some of these other fuels, such as diesel from waste and cellulosic ethanol or butanol, have a chance to develop without the Saudis bankrupting them. We also need a different structure for subsidies. Today, ethanol is being subsidized even though it doesn’t need to be with oil that’s $60-$70 per barrel. What we might do is say, no subsidies unless oil drops to say $40 dollars a barrel. You start with small subsidies and then the subsidies get larger as the price of oil goes down. Now, most people are not forecasting oil to go below $40 a barrel now, so this might be an easier thing to implement. It would essentially be an insurance policy against the Saudis doing what they did in ‘85 and what happened again in the late 1990s.

Let me return to the potential for hybrid technology in cars, particularly plug-in hybrids. There’s nothing to keep a car from being both a hybrid and a flexible-fuel vehicle, sometimes it’s driving all electric, sometimes it’s driving as a hybrid, and it may be that instead of the liquid fuel part of its energy being supplied by gasoline, it might be supplied by e-85 ethanol whether it’s butanol or renewable diesel. My Prius today gets just under 50 miles per gallon, but if that were to become a plug-in Prius, with six times the capacity battery, and I could drive it about twenty miles before it goes into its regular hybrid mode, then I could get a little over 100 miles per gallon.

Now, if the liquid fuel that I’m using were e-85, because the hybrid is also a flexible fuel vehicle, I would getting over 500 miles per gallon of petroleum product. That is not all that far off because we know how to make e-85. It’s on sale at several hundred stations in the United States. We know how to make flexible fuel vehicles; we’ve got millions on the road. We know how to make hybrids, and, at least in California, people are already upgrading hybrids to be plug-in hybrids, so none of this requires a Manhattan project to invent something entirely new; it’s a matter of getting things into production that we already essentially understand how to do.