Can We Do Without Saudi Oil?

SO NOW WE KNOW: The Saudi Arabian regime is no friend of ours. Sure, they sell us oil and tell us that they keep the OPEC cartel from pushing prices through the roof. But their refusal to go along with OPEC price hawks is self-serving. They have huge wealth stashed away in investments here and in other Western countries, which means that they don't want oil prices to go so high as to trigger a serious recession that would depreciate the value of those investments.

So the Saudis grumble when oil prices hit a "low" of $20 but keep selling the oil that costs them somewhere between $2 and $5 per barrel to find and produce. And they worry that even that level of exploitation of the world's consumers--a profit of $15 per barrel isn't exactly chopped liver--is not enough to support the lifestyles of thousands of indolent princes, while at the same time continuing to bribe the country's work-averse young masses with the free telephones, water, almost-free gasoline, and other goodies that keep them from overthrowing the monarchy. Saudi Arabia's budget, which counts on oil exports for 70 percent of its revenues, will be in deficit this year, in good part because of princely payments to the royal family and handouts to the restless and unemployable Ph.D.s in Islamic studies being churned out by the nation's religious schools.

As Prince Bandar, the kingdom's ambassador to the United States, pointed out in an unguarded moment--of which he has very few--when a democracy's leaders lose touch with the people, they lose their jobs; when a monarchy's leaders lose touch with their subjects, they lose their heads. Which is why the royal family (numbering by some estimates as few as 7,000, by others as many as 30,000) got so nervous when Sheikh Hamoud al-Shuaibi, a Saudi cleric, seemed to include the royals in his recent declaration of a holy war against "whoever supports the infidel"--a category that might well include a regime that allows American soldiers to be stationed in Saudi Arabia, even if they are there to protect the country from being overrun by Iraq.

And which is why, as a number of devastating articles in the weeks since September 11 have made clear, the rulers of this land that sits atop 25 percent of the world's proven reserves of oil have been playing a double game. Even as the Saudi regime has accepted American protection and nurtured its longstanding relationship with Washington, it has also been playing footsie with the organization that murdered thousands of Americans in the World Trade Center and the Pentagon.

This means that when we finish with our work in Afghanistan, if we take seriously George W. Bush's pledge to root out those who harbor terrorists or support them in any way, we will eventually have to decide what to do about Saudi Arabia. We will have to take seriously Crown Prince Abdullah's August letter to President Bush, in which the Saudi ruler wrote that "a time comes when peoples and nations part. . . . It is time for the U.S. and Saudi Arabia to look at their separate interests." Great idea.

BUT WHAT ABOUT that oil? If push comes to shove can we do without it? Not a chance. America consumes almost 19 million barrels of oil every day, and produces fewer than 8 million. The balance comes from overseas suppliers, with Canada and Saudi Arabia each providing some 15 percent of our imports, Venezuela 14 percent, Mexico 11 percent, Nigeria about 8 percent, and Iraq about 6 percent.

We are, it should be noted, dependent not only on those countries from which we buy oil directly. Oil is a fungible product, and a shutdown of production in any country, even one from which we buy little oil, will affect the price we pay our own suppliers.

To say that not all of the nations on which we rely are exactly friendly to the United States is an understatement. The Saudis can be counted on so long as the regime in place is one that needs the money from oil sales. But it is not clear that the valves would remain open were bin Laden's crowd, or its equivalent, to take over. To those folks, cash would be less attractive than injuring the United States: They seem, for instance, to prefer caves to palaces. We know that Iraq, second to Saudi Arabia with almost 11 percent of the world's known oil reserves, wishes us ill, and periodically manipulates production to raise prices. Venezuela, which ranks with the Saudis in importance as a source of our imported oil, is run by a president whose hero is Fidel Castro, who is dedicated to bringing down "Western imperialism," and whose support of bin Laden is so overt that Washington has been compelled to recall our ambassador "for consultations."

When we look further down the ranking of countries blessed with significant reserves, we find that Iraq is followed by the United Arab Emirates and by perhaps the world's most famous ingrate, Kuwait, each with a bit more than 9 percent of the world's known reserves. We have less than 3 percent of the world's known reserves, about the same portion as neighboring Mexico. Canada, although rich in natural gas, has relatively small known reserves of oil that are economically recoverable at anything like current prices. Russia, the new "hot" area for oil exploration, has substantial reserves and, with large-scale investment, can significantly expand its production. But lacking sufficient pipeline capacity, Russia can't increase exports significantly before several billions are spent and at least five years pass. Besides, it is not unreasonable to question the wisdom of developing a new energy policy that markedly increases our reliance on a country that has yet to establish itself as a reliable geopolitical partner.

Even these figures understate our dependence on the Saudis. Enough oil is known to exist in the United States to maintain current production levels for about 10 years, and in Canada for about 8 years; the Saudis can tap their reserves for over 80 years without slowing output. There is worse: It is well known that the Saudis haven't really attempted to explore for new reserves because they already know precisely where some 260 billion barrels are located. "You don't plant potatoes when you have a cellar full of spuds," a grizzled denizen of America's oil patch once told me. Not only are the Saudis sitting on the world's largest known reserves, they are also the only country with existing excess capacity, and therefore the only country in a position to increase production quickly should some other supplier withdraw from the market or be knocked out of action.

In short, Saudi Arabia is and will remain the kingpin of the oil world, able to pump enough oil to satisfy America's thirst if it chooses. But should this regime come to believe that its survival requires unsheathing the oil weapon, or should a regime less wedded to cash flow come to power, supplies might be cut off. In the latter case, analysts would suddenly find themselves following the words of a bin Laden oil minister more closely than those of Alan Greenspan when they prepare their forecasts of the course of the American economy.

IN THE LONG RUN, then, if things continue as they have, we will increasingly be dependent on a shaky, despotic regime that uses the proceeds of its oil sales to support the gangs that aim to destroy us, and to educate its young to hate us, after skimming off enough to support its princes' penchant for yachts, women, and Johnny Walker Black Label. In a worse case, we will see our supplies controlled by a regime driven more by hatred than by greed.

This is not a new problem. Post World War II history is replete with efforts by administrations, Democratic and Republican, to free America from dependence on Saudi Arabia and its cartel colleagues. As I have noted in an essay for the Hudson Institute, when the Arabs first unsheathed the oil weapon in October 1973 in response to America's support of Israel during the Yom Kippur War, President Nixon responded: "Let us set as our national goal . . . that by the end of this decade we will have developed the potential to meet our own energy needs without depending on any foreign sources."

Not to be outdone by his predecessor, President Ford pursued the illusory goal of self-sufficiency by attacking both the supply side--encouraging greater use of coal and providing greater incentives for domestic exploration--and the demand side (auto fuel efficiency standards), while at the same time creating a Strategic Petroleum Reserve as a buffer against another shortage.

Jimmy Carter proved that failure to craft a successful "energy policy" is bipartisan. He created the Department of Energy to wage what he unfortunately termed "the moral equivalent of war" (which quickly became known by its acronym, MEOW, and didn't strike terror into the hearts of OPEC). The usual mix of supply-side subsidies and demand-side constraints followed, notwithstanding the failure of such efforts in the past, as President Carter appeared, sweater-clad, to urge Americans to shiver a bit more in the winter and sweat a bit more in the summer--and to do without hot water in federal facilities such as the restrooms of airports.

By the end of the 1980s, we were more dependent on imported oil than ever before. So George Bush the elder decided to meet the threat to our oil supplies created by Saddam Hussein's march into Kuwait en route to Saudi Arabia in a more direct fashion. He sent half a million troops and several aircraft carriers to the Gulf to defend a corrupt, despotic regime in which we would have no interest were it not sitting atop a large pool of oil (100 million barrels already found, much more awaiting exploration), and athwart the road to Saudi Arabia.

And there things have stood, with only trivial changes in U.S. policy in the decade since. The new Bush administration's attempt to develop an energy policy turns out to be, like many before it, a stew concocted to please pressure groups from the nuclear, oil, and coal industries, with side dishes to delight supporters of energy from renewable if not terribly reliable sources such as the wind and the sun. It is perhaps best described by the line attributed to that great philosopher Yogi Berra: "I came to a fork in the road, and I took it."

The best that can be said for this latest grand scheme for America's energy future is that it was developed before the terror attack on America made business as usual in oil markets more risky even than before. Now we know that it would be imprudent in the extreme to assume that the Saudi royal family will remain in Riyadh, rather than pulling up stakes and moving to the South of France and to London's Dorchester Hotel on a permanent, year-round basis. This introduces a further degree of uncertainty into an energy supply situation in which we are already in perpetual danger of a sudden cut-off of crucial oil. The unfortunate fact is that God saw fit to put the oil in places run by a lot of people who just don't like us.

In the post-September 11 world, we can forget about all of the subsidies the administration's plan would provide to increase electricity production. The market reaction to the short-term California shortage last summer--enough new capacity to produce a glut of electricity and a price collapse--shows that this is an area the government had best leave to the market. Besides, few generating plants any longer rely on oil as a fuel. The supply of natural gas can also be left to market forces: It is extraordinarily responsive to price changes, as the spurt in drilling when prices rose clearly demonstrates.

Oil is where the rubber hits the road in terms of national security. As far ahead as we can see, it is oil, refined into gasoline, that will keep the wheels of the economy turning. Nuclear can substitute for coal, and natural gas for both and for oil in stationary uses--like power generators--but it's safe to assume that engines that run on something other than gasoline will not be significant for a good long while. And this irreplaceable gasoline accounts for about 45 percent of all our oil consumption.

Those who think that we can reduce our dependence on the Saudi royals should think again. Sure, it is a good idea to increase the pace at which we develop our own reserves. But consider the possible contribution of the much-contested Arctic National Wildlife Refuge (ANWR). The best guess is that there are some 10.3 billion barrels of reserves to be had there and in abutting state and native lands, of which the pessimists guess about 4 billion are recoverable at today's prices, a figure that optimists would double. Applying a variety of rule-of-thumb estimates about how much can be produced and shipped in any year from a field that size, Howard Gruenspecht, resident scholar at Resources for the Future, estimates that at prices of around $20 per barrel we would get maybe one million barrels per day from ANWR. And that won't be until somewhere between 2010 and 2020, even if Congress acts promptly to open the area to drilling. By then, our consumption of oil, now running at about 19 million barrels daily, will have increased by a good bit more than what we will be getting from ANWR.

That doesn't mean that we shouldn't do all that we can, consistent with a market-based environmental policy, to increase domestic production. And we should of course diversify our supply sources, especially if we can persuade neighboring Mexico to allow us to invest in its oil industry, which is now a state-run morass so short of capital that it has allowed its known reserves to fall in half in the past decade.

But in the end, there is almost nothing that we can do on the supply side that will enable us not to care about the future of Saudi Arabia. Nor is there much relief in prospect on the demand side. Gruenspecht, who has more data about the oil demand and supply situation at his fingertips than any other expert, has run through some interesting calculations about the savings to be had by mandating tighter fuel efficiency standards, one of the centerpieces of any conservation program.

There are some 200 million cars and light trucks (the latter include SUVs, minivans, and pick-ups) on America's roads, with an average life of roughly 15 years. Vehicles seven years old or newer account for about half of all the vehicle miles traveled in any year. This means that eight years down the road, any tightening of standards now will still be affecting only half of the miles being driven. Only new vehicles, of which there are some 16 million produced in any year, would be subject to tighter efficiency standards, and not immediately, since those new standards would have to be phased in to give manufacturers time to adjust. Do some quick arithmetic and it turns out that a 25 percent increase in efficiency standards phased in over five years, now set at 27.5 miles for cars and 20.7 miles for light trucks, would, in a little over a decade, reduce consumption by a bit more than one million barrels per day. The full effect, which would not be felt until two decades from now, would be twice as large.

Throw into the policy mix Gruenspecht's pet program--auto insurance rates that reflect miles driven rather than being set without reference to how often you expose yourself and your vehicle to insured risk--and a 50 cent per gallon tax on gasoline, and you will reduce consumption immediately, but not by enough to change the hard fact of our dependence on Saudi oil. "It is hard to imagine that the world would be in good shape without Saudi Arabia," concludes Gruenspecht.

This leaves us with very few options. We can continue to ignore the Saudis' support of terrorists, and remain guarantors of the regime's survival, not abandoning it as we did the shah in Iran when the mullahs took over. We can, of course, throw in a bit of exhortation about democratic reforms, to which the response will undoubtedly be that such a path was what led the shah to his hasty exit. Asked some years ago what our energy policy is, I replied "aircraft carriers." That is as good a description as any of our present predicament. And it is about all we have to rely on at the moment.

It also leaves us with one overriding strategic imperative: We must make clear that in the event of an upheaval in Saudi Arabia, we will take control of, protect, and run the kingdom's oil fields, which American oil companies originally developed after paying substantial sums for the right to do so. This may be a difficult policy to defend in the post-imperialist era, but that doesn't make planning for this contingency any less necessary. Our State Department is creative; surely, if called upon, it would be able to figure out an arrangement for operating the oilfields that would safeguard our supply and win the blessing of a revenue-hungry regime with a stake in the continued flow of oil. And surely such a regime, if it did not exist, could be invented.

Before dismissing this as fantasy, consider that it is not very different from what we did in Kuwait, when we seized the oil fields from Saddam Hussein and put them in the hands of a friendly regime, one that remains dependent on us for its survival. In the end, we need the oil, they need the money, and, most of all, whoever is in power in these countries needs America to protect it from the Saddams and bin Ladens who are breathing down their necks.

We can do all the good things: increase domestic production, diversify sources of supply, finally learn how to set up an adequate Strategic Petroleum Reserve that does not discourage private companies from carrying inventories, and decrease our reliance on oil by conserving and pushing technologies that use fuels other than oil. Programs once deemed too costly to pursue might well make sense in this new era of heightened threats to our oil supplies.

But do all of these things, and we still end up with our future tied to Saudi oil. Unless, of course, we are willing, really willing, to pay the price of independence by raising and re-raising the price of oil, taxing imports and taxing them some more, until they are so expensive that we just don't import much oil, and are therefore free to set our foreign policy independent of coalitions that undermine our war on terrorism and seek to force us to abandon Israel to the tender mercies of Arafat and his Arab allies. Something around $5 per gallon should do the trick.

Irwin M. Stelzer is a contributing editor to The Weekly Standard, director of regulatory studies at the Hudson Institute, and a columnist for the Sunday Times (London).

I posted this earlier under "questions/opinions but it seems to have sunk without trace,so I thought maybe you might have come across this outfit at some time.

During an unrelated search I came across these two websites with identical content/layout etc.

Statedepartment.com
and
Sauduction.com

Both start off with this quote:
"I summon my blue-eyed slaves anytime it pleases me. I command the Americans to send me their bravest soldiers to die for me. Anytime I clap my hands a stupid genie called the American ambassador appears to do my bidding. When the Americans die in my service their bodies are frozen in metal boxes by the US Embassy and American airplanes carry them away, as if they never existed. Truly, America is my favorite slave." King Fahd Bin Abdul-Aziz, Jeddeh 1993

Then they show links to their newsletter which contains some disturbing stuff(if true)and some apparently tin foil hat material.

The website has a lot of information and before I invest the time in reading it I'd like to know if anyone at FR knows anything about this newsletter.

Yo Hog, Fusion has been working under lab conditions since the late 60's. Damn tricky business! But lets talk oil:

Any fool who has ever lived in LA Knows the reason there aren't basements in some neighborhoods is that they would soon fill with oil! In fact, there's an old LA Oil Company (Kelly) whose only source is pumping the basements of large office buildings! (hey, it's a living.) Beverly Hills is loaded with oil wells, including one under, the bleeping playing field where Monica Lewinsky once jiggled. Many a Hollywood loudmouth collects royalties from Beverly Hills oil! Check it out!

There is a giant totally natural oil seep right off the beaches of Santa Barbara, etc. ad nauseam. Yet the enviro-wackos insist that there be no more drilling.One more dumb factoid: The steam cleaning and detergents used on the beaches of Alaska after the Exxon Valdez struck were more environmentally harmful than the oil.

Like wow, dude, oil is like organic? Detergents are not? And like live steam at 1200F could kill tiny living things dead? Oh wow?

But speaking nuclear, one big mistake we made is not standardizing nuclear plant design. In NJ alone, there were four different types of reactor planned. The big local utility (PSE&G)and their boring management, belt-and-suspenders-Babcock-and-Wilcox-Coal-Fired-Steam-Generating Old-Time-Engineers, who knew nothin' about nucular, and were proud of it, made another huge error. Instead of hiring someone off Jimmy Carter's submarine, they went to great trouble and expense to find a mystical atomic/swami/wallah from a land which shall remain nameless, to be the chief nuclear engineer. He hired about a thousand more similar fellows, whose previous technical job experience had apparently been as tiger bait, to help out, and 14 years later they still had no nukes on line! I still have their memos: priceless. The company, once the richest utility in the land, went stony broke! .

Hey, we have learned a lot since then. Time to do it right and get those nukes fired up again! Good model? France, (believe it or not) where, since every plant has the same controls, trained crews are available who can go into any setup and straighten it out in case of emergency. Right now they are getting about half their electricity from nukes. They also pioneered molding the waste products into glass blocks and lowering them into salt mines 13,000 feet underground.

Also what people don't get is that all the nuclear waste from powerplants in the country for a year occupys the same cubic footage as a small house. It ain't a whole lot of tonnage, probably less than the BS emitted by environmentalists in a month!

My solution, if you'd like to know:

1) All electricity would be run off of hydroelectic and nuclear generation.

2) The refining aspect would be expanded. The wells in the southeast are opened up to pumping with the usual profit margin.

3) ANWR is opened for new drilling!

4) Natural gas would be marketed for personal home, industrial, and any other use that would fit the market.

5) All governmental price caps and taxes are done away with so that a free market can take effect.

6) Government would give funds for alternative energy ideas. But, only under the guide of REAL science. It would also be monitored, and rewarded by it actual accomplishments, not some paper written on a principle, but pure scientific logic and a working prototype.

7) Off shore drilling contracts are re-opened without taxes and fees.

8) Gasoline and fuel taxes are reduced by three quarters, across the board. Never to be increased again.

In other words, let a free, and open market take effect. Let people get rich, they deserve it if they pump their life savings into it. They take the risk, they get the profit.

We need refineries, and we need them now! The environmentalists have used the legal system, and the legislative process to stiffle the production of petrochemical processing. This has nothing to do with the environmant (considering the modern day refining process), but it does have everything to do with the social control aspect of the far left.

They are trying to control our food, it is their next project in it's infancy, but it is coming. If they control our energy use, then our food comes next. These people will stop at nothing to totally control the way that you live. They hate freedom, they hate liberty, and they hate these here United States of America, and it's Constitution.

Here is the problem that the socialists have; we have been free, we will be free, and we have a God given right to all of the above. Their power comes from America not looking. We are looking now, and by the God eternal we'll be looking always. America is awake, it is no longer the sleeping tool of the socialist left. All we have to do now is to change the Washington crowd. Make them accountable to "The People". In a short explaintion, it's time to take back the God given power given to us by blood and courage. It's time for the majority to take the high ground and liberate this land for freedom, and life, and the light of all mankind.

The second American revolution is coming. It is being pushed by a vocal minority, the socialist left, and the "do nothing for America" crowd in the legislative branch of this country's government. The time will come for the Poeple to take back this glorious land, and we will. It is our Consitutional right, and our responsibility..

I'll die on my feet before I'll live on my knees!

I would have to see the critical assumptions (such as weather) before I would buy that one study. I doubt that it included dust on the cell for example and SURELY didn't include the strorage requirements for night operation or the real estate costs for larger systems or the cost of the manufacturing apparatus (high-vacuum pumps for CVD processes don't come cheap). They might not look so good to you if you considered how much mining there would have to be to build adequate battery reserves. I wrote a rather long piece and posted it last night, but for some reason the system dumped it and it didn't show up. I noted for example, that broadband (for trip reduction) and passive heating are seldom part of the discussion. I'm not going to bother for now, because I don't live this stuff. I'm flaging snopercod because he deals with these issues more often than I.

PVs are fine in remote locations for low-current applications such as lighting. They just don't compete with other technologies as a primary source of energy. Even your citation states that. IMO solar is most appropriate for water and space heating, but even then carries a heavy environmental penalty for mining. Any conversion of our transportation economy from chemical to electric energy (other than nuclear) will require copper mining and the impact of demand pull upon raw material cost is seldom part of the analyses, especially in the case of rare earth minerals (magnets) and precious metals (catylists).

Now (for the real test of your understanding of the situation and how we got here), guess who is the biggest source of funds for RICOnut environmentalists?

The private foundations of stockholders in oil companies.

I'm not an expert by any means, but I used to do "energy calculations" for homebuilders in California so I have a pretty good feel for where heat comes in and goes out of a typical home. Also, I have built two energy and money-efficient homes.

These homes my wife and I built were not the kind you see splashed across the covers of Popular science, with the PV cells on the roof and all. They simply took advantage of science and nature both, where that was practical.

The first one, near the California coast, was passive solar, but not glaringly so. It had properly constructed South-facing windows, and a South-facing clerestory to let the winter sun heat the rooms which were normally occupied during the day. In the summer, these windows were shaded so the house didn't overheat. An inconnel fireplace was our only heat until we sold the place. Then we had to put in central heat so the buyers could get a mortgage.

I experimented with solar hot water on that one, too. I fabricated some copper panels an built them into a properly-sloped [lattitude plus ten degrees] South-facing porch. The storage tank was a fiberglass horse-trough in the attic with a floating, insulated lid. Even in foggy Los Osos, the system made enough hot water to do our laundry. (We had a faucet right over the washing machine where we could drain the horse-trough right into the machine.)

But "normal" homeowners simply won't [and don't] put up with all the little inconveniences in this type of home: Being a little too cold on some nights, or having to wait for a sunny day to do laundry, etc.

I have a good engineer friend in Los Osos who installed a commercial solar hot water system in 1979. He laughing claims that he is just now achieving break-even. It's probably the only system in California that ever has (if you subtract out all the tax credits).

I highly recommend a book called Your Engineered House by Rex Roberts to get you in the proper frame of mind for building such a house. You'll have to find it at a used book store, no doubt.

BTW, my latest home has 8" thick log walls, double insulated ceilings, .26 U-value windows (and very few of them), and is heated with a Rumford fireplace. No solar features in this one at all, since we're smack in the middle of a forest.

But by golly I will be using an electric heat-pump next summer when it's 90 degrees and 95% humidity outside!

For more articles, try a Google search with terms (energy analysis solar cell production). The link I posted was simply one of the more thorough synopses I found quickly. I found NO article saying that solar cells cost more energy to produce than their life-cycle power generation---as I suspected, that is just an "anti-PV" urban legend.

Of course, if you actually HAVE an article that says that, post the link--as I said before, I'd like to see it.

As to your other suppositions and comments--I've heard all of those arguments before, and have yet to see any real data supporting any of them.

As I've said on other threads , my ideal system is 5-10 sites in the western desert states combining nuclear fission (both burner and breeder reactors) AND photovoltaic, with storage and transmission done via hydrogen and pipeline. A good part of the transmission infrastructure is already in place with the natural gas distribution pipeline network (and PLEASE, folks, don't bring up the old conundrum about "pipelines won't work because of hydrogen embrittlement" thing). Let the feds do as they did for the railroads and donate the land from their current massive holdings.

Rad, I think you broke the code. I believe Bush is covering his bets by working with Putin to increase dramatically the portion of off-shore oil we get from Russia. It's the only option we have to bring pressure on the Saudi's and other Muslim/Oil countries to fight terrorism effectively. Right now, we can't go in there and dig them out ourselves - the middle-east would be in even more danger of exploding if we did.

Russia is just as worried about Muslim fundamentalism as we are. They desperately need hard currency foreign exchange. They have stuff we need. The whole senario makes too much sense for Bush and his policy team to ignore.

It will take a year or more to get meaningful amounts flowing out of Russia - so I think that Bush is keeping it under his hat right now.

The above is speculation on my part - I would love to hear comments from anyone who has solid information as to what may be going on!

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