Updated: May 3, 2013 12:14PM
Originally published: August 7, 2001
About a decade ago a courtly older gentleman dropped by my office to expound his views on America’s growing energy dependency--and to sell me an interest in some oil wells he was drilling in, of all places, Downstate Illinois.
I passed on the investment opportunity, but I was fascinated by the stacks of research he had distilled into a pile of reports, and by the audiotape he had created to warn of all sorts of future energy-related disasters.
Oil prices plummeted in the ensuing years, reaching a low of less than $10 a barrel in fall of 1999, before soaring to their present $30 levels. I’d almost forgotten Louie Fieber until another thick envelope arrived in my mail last week: Louie had resurfaced, again warning of America’s vulnerability. And once again I couldn’t resist his highly footnoted text and his compelling logic.
The facts are well-researched, and only time will tell if his gloomy forecasts come true. I disagree with some of his policy conclusions, but in a week that contained goblins and ghosts, it seemed a scary story worth examining.
Facts (according to Louie)
* “Approximately 80 percent of the world’s oil is produced from approximately 300 large oil fields scattered around the world. . . . World oil usage exceeds 23 billion barrels per year, yet there have only been about 9 billion barrels of new oil found each year since 1960.” (The footnote for this statistic comes from Nature magazine, and subsequent footnotes are in parentheses.)
* “Only 11 nations [including the US] produce 60 percent of the oil.” (US News & World Report, 10/9/00) And while about one-third of U.S. oil was imported during 1973, now nearly 63 percent of refinery needs are imported. (Chicago Tribune and the Washington Times--Yes, Fieber is an eclectic reader!)
* “Alaskan oil production is at a 20-year low, and that world oil production per capita has dropped from 5.5 barrels in 1979 to 4.5 barrels per person currently, while world population growth has exceed the growth of world oil production by over 1 percent per year over the past two decades.” (Oil & Gas Journal)
His statistics pile one upon the other, to indicate that our growing demand for oil is not being met with new reserves, or even new exploration, while current reserves continue to be depleted.
Implications (according to Louie)
* Since oil is priced worldwide in dollars, the strong dollar has allowed Americans to purchase oil relatively cheaply. That has made our economy even more dependent on imported energy.
Fieber worries about the future strength of the dollar, and the impact on our economy if the dollar should fall and oil become relatively more expensive.
With footnoted descriptions of oil storage and oil tanker shortages, he predicts that interruptions such as the USS Cole attack in Aden or pipeline sabotage in Nigeria could place our “just-in-time” economy in a very vulnerable position.
But Fieber carries his reasoning to such extremes that one wonders if he’d like the United States to return to its 19th century status of a self-sufficient continent in everything from raw materials to manufacturing, instead of participating in the wealth created by global trade. Yes, vulnerability is dangerous--but so is isolationism.
Statistics (according to Louie)
Fieber complains--as I have in previous columns--about Consumer Price Index reports that exclude food and energy costs (although those figures are indeed included in some series of the report). He suggests that using the pre-1974 basis of computing the CPI, inflation today would be running at about 4 percent annually, generating huge cost-of-living increases in everything from Social Security payments to wage contracts.
He seems to suggest a government conspiracy to keep reported inflation low, even as energy prices rise.
Dangers (according to Louie)
In the stock market we’d say Louie is talking up his position--a man who drills oil wells wants to see investments in his business. So he rails against ethanol, which he decries as uneconomic without the federal subsidy of about 54 cents per gallon.
And he warns that the Strategic Petroleum Reserve would supply a world demand of 75 million daily barrels for only about 7.5 days. Louie’s against the EPA rules which limit production, and encourages more oil be put into the reserve.
Why listen to Louie?
Fieber reaches a conclusion that is supported by many oil experts--although I expect my distillation of his comments to bring spirited controversy. Yet, it’s worth examining our domestic vulnerability to international oil imports, especially given the unrest in the Middle East which supplies so much of our oil.
We haven’t had a public debate over energy policy in decades. Our reaction to the embargos of the 1970s, which resulted in using alternative energy sources and conservation, have been largely forgotten in a glut of SUVs and energy consuming devices.
While Louie Fieber’s isolationist and protectionist politics strike me as the wrong reaction to a serious problem, sometimes it takes a gadfly to raise issues we’d rather ignore. So, thanks Louie, for your latest packet of information. I wish you good luck drilling your next oil well.
That’s the Savage Truth.
Terry Savage is a registered investment adviser for stocks and commodities and is on the board of directors of McDonald’s Corp. and Devon Energy Corp. You can send questions to her via e-mail at firstname.lastname@example.org. Her third book, The Savage Truth on Money, was recently published by John Wiley & Sons Inc.