Sunday, February 19, 2006

Fixing America's Oil Dependency

The United States economy is like a drug addict, whose body has become so dependent on the substance it craves that it will do almost anything to get it. The drug of choice for the American economy is not cocaine or marijuana, however, it is oil.

While the United States does produce some oil domestically, it imports far more, and a key problem is the countries from which the US imports oil. Much of the world's most readily available oil sits in countries whose policies are not well aligned with those of the US: Saudi Arabia, Iran, Venezuela, etc. America's dependence on foreign oil is indirectly funding Iran's nuclear program, just like it indirectly funded the 9/11 terrorist attacks on its own soil.

The need for oil has sometimes caused the US to take short-sighted actions, propping up undemocratic regimes in order to protect its oil supply-chain. How different would world politics be if there was no oil in the Middle East?

Successive US presidents have articulated the need to wean America from its dependency on foreign oil, but none have articulated an effective way to do it. Perhaps simple economics is the key...

What many Americans do not realize is there are commercially viable alternative fuel sources today. One of these is synthetic gasoline, which can be made from coal using a method called the Fischer-Tropsch (F-T) process. The F-T process was originally developed in Germany in the runup to World War II to produce a ready supply of gasoline in the coal-rich but oil-poor nation, and was used to provide fuel for the German and Japanese military forces. In later years, companies in South Africa, most notably a company named Sasol, continued work on the F-T process and built a number of coal-to-oil plants. Other companies, including Mobil, Shell, and Exxon have also conducted research into F-T chemistry and have built some limited-scale synthesis plants.

Another alternate fuel source sits north of the border, in the Canadian province of Alberta. Yes, Canadian oil is "foreign oil", but Canada's policies are much more closely aligned with the United States than Saudi Arabia or Iran. It is estimated that the tar-sands of Alberta hold over a trillion barrels of oil, more than the combined reserves in all of the Middle East. However, while the oil in the Middle East flows readily from the ground, tar sands must be dug up, taken to a processing plant, and the oil extracted. In addition, the tar-sands oil is "heavy oil", which requires more refining to achieve gasoline and other useful products.

The key problem with both of these technologies is the cost. Until a couple of years ago, oil was hovering at about $20 a barrel, rendering synthetic fuel and tar-sands oil unprofitable However, with oil hovering over $50 a barrel, these types fo technologies can become more commercially feasible.

If the US government wants to accelerate the process of weaning the US economy off foreign oil, the key would be to shift the financial balance, making foreign oil uncompetitive, while making fuel from alternate sources more so. One way to do this is through import duties. By slapping duties on oil imports, and using these duties to subsidize fuel from alternate sources, the US can make itself more self-reliant for its energy needs.

Of course, these import duties would probably not be popular, as they would undoubtedly result in a price-spike at the gas pumps, and so it would take a brave politician to attempt to implement them.