One of reasons why Americans are angry about the precipitous rise in the price of fuel is suddenness. Another is the fact that we have been talking about this problem for decade, ever since the 1970s oil embargo, the perfect storm for the U.S.
What caused the crisis was the Organization of Arab Petroleum Exporting Countries' (OAPEC, which was the Arab members of OPEC plus Egypt and Syria) embargo on shipping petroleum to nations that supported Israel in the Yom Kippur War between Israel, Syria and Egypt.About the same time, OAPEC members agreed to use their leverage over the world price-setting mechanism for oil to quadruple world oil prices, after attempts at negotiation with the major oil companies failed.
The problem was worsened, Jacobs said, because most people didn't believe the crisis was real. "They believed it was a conspiracy perpetrated by big oil to reap high profits, and they also blamed government," she said.
Americans were not prepared for an energy shortage. They drove cars like the 1959 Cadillac Coupe de Ville--a 5,000-pound "living room on wheels"--and took the presence of cheap and abundant energy for granted. The Department of Energy didn't exist yet because energy issues were not on most people's mental radar screens.
Democrats in Congress blamed big oil and demanded that government come to the rescue. The Nixon administration was reluctant to "overreact," as Office of Management and Budget Director Roy L. Ash put it in a White House memo, but, unknown to most Americans, the administration allowed imported oil to trickle in to boost supply.
The full-blown crisis--schools and offices shut down to save on heating oil, laid-off factory workers, a truckers' strike to protest a national maximum 55 mph speed limit--provides a "lesson from the past on the difficulty of winning support for solutions," Jacobs said.
The energy crisis did lead to some positive, although unintentional, results: a greater interest in renewable energy, a conservation movement and corporate average fuel economy (CAFE) standards that downsized existing automobile categories and made the Volkswagen Rabbit more popular than gas-guzzlers.
"What does the energy crisis teach us? That it's hard for meaningful change when few think there is a problem," Jacobs said. The challenge today, as much as it was then, is to "create a market and momentum for new ways of thinking about energy."
Today's version is a throwback to the decades' old problem, a problem that already should have been solved.
Our procrastination has been us into an untenable situation: the funding for an expensive war is cutting off funds for other underdeveloped needed programs such as biofuels:
Not long ago, the fledgling ethanol industry was the darling of investors, farmers, the federal government and a lot of Americans who liked the idea of turning corn into fuel.But suddenly, it doesn't have nearly as many friends.
Rising worldwide food prices and shortages have spurred calls in Congress to roll back the federal requirement that increases the amount of ethanol and other biofuels blended with the nation's gasoline supply. Critics say so much corn is being used for ethanol that there's less available for people and animals to eat, raising prices of everything from tortillas to meat.
What's more, investors who bought into the industry in good times aren't seeing the returns they'd hoped for as once-record profits began to fall.
"Consumers are starting to get restless and Washington is starting to listen," said Morningstar analyst Ann Gilpin, who follows Archer Daniels Midland, the country's second-largest ethanol producer.
The ethanol market would be severely limited if Congress rolled back the federal mandate that calls for annual increases in the amount of biofuels added to the fuel supply - 9 billion gallons by the end of this year, increasing to 36 billion gallons by 2022.
That would most hurt companies that rely exclusively or primarily on ethanol, which include a mix of small, often locally owned distillers - already under pressure since ethanol prices fell and corn prices rose sharply - as well as larger publicly traded firms like VeraSun Energy Corp., the country's top ethanol producer.
The odds of Congress changing that mandate this year are slim because the 10 states - mostly in the Midwest - that produce more than 80 percent of American ethanol have almost half of the 270 electoral votes needed to win a presidential election, said analyst Kevin Book of Friedman, Billings, Ramsey & Co.
After the election, though, sentiment could change.
"I think we're still a long ways from anything actually being done on it, but at the same time there is a lot more serious support than there was at this time two or three years ago," said Rick Kment, an ethanol industry analyst for agricultural data company DTN.
Investor disappointment also is weighing on ethanol-only companies, particularly those that are smaller and privately held, Kment said.
He said much of the public and private investment was made when profits were at record levels - $2 per gallon in some cases, meaning even a small plant that distilled half a million gallons a year would clear $1 million.
Experts are "stumped" as to why prices are rising:
Confused about oil prices? So are the experts.Executives from the giant oil companies say it's partly the fault of "speculators" or financial players. Key financial players say it's really a question of limited supply and expanding global demand. Some members of Congress accuse the Organization of the Petroleum Exporting Countries for bottling up some of its production capacity. And OPEC blames speculators, wasteful U.S. consumers and feckless U.S. policy.
Almost everyone points at China's growing appetite for fuel.
Whatever the causes, one of the most dizzying runs in the history of oil prices picked up pace yesterday -- again -- as crude oil prices jumped to settle at more than $133 a barrel, up $4.19 in one day, 18 percent so far this month and more than one-third so far this year. Prices climbed even higher in late electronic trading.
The nationwide average price for a gallon of regular gasoline yesterday also set another record at $3.81 a gallon, up a penny a day for the past month, the auto club AAA reported.
"People don't get it," said Sen. Herb Kohl (D-Wis.) at a Judiciary Committee hearing yesterday at which senior oil company executives were grilled about prices. Kohl said: "Demand is not crazy. Why are prices going crazy?"
While the share of blame for soaring oil prices may be blurry, the impact of those rising prices is painfully clear. They are damaging the profits of oil-intensive industries, tearing holes in the pockets of American consumers, offsetting the stimulant effect of tax breaks, sapping more than $1.5 billion a day out of the U.S. economy for oil imports and diverting ever-bigger gushers of dollars to oil-producing countries such as Saudi Arabia, Russia, Iran and Venezuela.
Analysts cited several factors behind yesterday's crude oil move: the declining dollar, the impact of higher price forecasts issued by investment banks, an unexpected drop in U.S. crude inventories and a jump in Chinese fuel imports. China needs extra fuel to run generators to compensate for disruptions in coal deliveries and hydropower resulting from the recent earthquake. Traders said demand is particularly strong for diesel fuel, used by drivers in Europe and in Chinese generators.
But the bigger question is: What has been driving the doubling of prices over the past year even as U.S. demand has stagnated and global output has continued without any major new disruption?
Believe it or not, in 1999, economists predicted that oil prices would remain low, or even drop.
As the price of food goes up, ethanol from corn may be abandoned. Algae may be an alternative. Would could get serious about nuclear energy.
Other renewable fuels made from grasses, wood chips and various wastes could be developed.
One source of grass is found on the margins of most most farms
Farmers in Nebraska and the Dakotas brought the U.S. closer to becoming a biofuel economy, planting huge tracts of land for the first time with switchgrass—a native North American perennial grass (Panicum virgatum) that often grows on the borders of cropland naturally—and proving that it can deliver more than five times more energy than it takes to grow it.Working with the U.S. Department of Agriculture (USDA), the farmers tracked the seed used to establish the plant, fertilizer used to boost its growth, fuel used to farm it, overall rainfall and the amount of grass ultimately harvested for five years on fields ranging from seven to 23 acres in size (three to nine hectares).
Once established, the fields yielded from 5.2 to 11.1 metric tons of grass bales per hectare, depending on rainfall, says USDA plant scientist Ken Vogel. "It fluctuates with the timing of the precipitation,'' he says. "Switchgrass needs most of its moisture in spring and midsummer. If you get fall rains, it's not going to do that year's crops much good."
But yields from a grass that only needs to be planted once would deliver an average of 13.1 megajoules of energy as ethanol for every megajoule of petroleum consumed—in the form of nitrogen fertilizers or diesel for tractors—growing them. "It's a prediction because right now there are no biorefineries built that handle cellulosic material" like that which switchgrass provides, Vogel notes. "We're pretty confident the ethanol yield is pretty close." This means that switchgrass ethanol delivers 540 percent of the energy used to produce it, compared with just roughly 25 percent more energy returned by corn-based ethanol according to the most optimistic studies.
The U.S. Department of Energy (DOE) is partially funding the construction of six such cellulosic biorefineries, estimated to cost a total of $1.2 billion. The first to be built will be the Range Fuels Biorefinery in Soperton, Ga., which will process wood waste from the timber industry into biofuels and chemicals. The DOE is providing an initial $50 million to start construction.
"Cost competitive, energy responsible cellulosic ethanol made from switchgrass or from forestry waste like sawdust and wood chips requires a more complex refining process but it's worth the investment," Energy Secretary Samuel Bodman said at the Range Fuels facility groundbreaking in November. "Cellulosic ethanol contains more net energy and emits significantly fewer greenhouse gases than ethanol made from corn."
Plans for management of switchgrass are already in place.
These promising technologies aren't ready to solve the short-term problem of outrageously high gasoline prices made from petroleum.
The outrage is that no one planned this for this contingency. But ever resourceful Americans are doing what is necessary to get raw products to make biodiesel, even if they have to steal from restaurant grease barrels which now require their own security guards!
Who could have known.
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