Oily waters

Big oil isn't as powerful as it used to be, but when everyone is buying SUVs and gas prices are dropping, there's still little hope for alternative energy. Second of two parts.


Damien Cave
November 21, 2001 1:30AM (UTC)

Part 2 of two parts. Read Part 1

The Bush administration's close ties to the oil industry are undeniable. But they need to be viewed in a context in which big oil has progressively lost influence on foreign and domestic policy. The question to ask, with respect to Bush and oil, is not whether oil executives are in charge of crafting new governmental policy initiatives, but whether Bush's oil experience will undermine or help create reform -- policy shifts that will end U.S. dependence on foreign oil.

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A case can be made that the oil industry has been progressively losing power since the 1960s, when countries in the Persian Gulf started nationalizing control of their oil resources. Many of the companies that thought they could control both the oil below ground and the governments above it became rent-paying guests instead.

"British Petroleum [in the 1950s] used to have lots of influence even in the producing countries," says Manoucher Takin, a former advisor in the OPEC secretariat and senior analyst for the Centre for Global Energy Studies in London. "They tried to topple governments, bring out revolutions."

"But that story is not there anymore," he says. "They've become more commercial concerns."

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Chevron is a good example. Formerly Standard of California (Socal), the company paid $175,000 in 1933 for rights to most of Saudi Arabia's largest reserves. But today Saudi Arabia owns and operates its oil fields and Chevron, like other oil companies, is essentially just a buyer of raw crude. Not even the tankers that transport the oil to Chevron refineries belong to the company.

"These oil companies simply provide services," explains Bill O'Grady, an energy futures analyst at AG Edwards. "They get contracts to drill or do consulting work and either get paid a flat sum or with a piece of the action. For the most part, they're just subcontractors, not owners and producers."

No American president has attempted to rein in the power that local governments have over the companies, O'Grady says. Oil companies were left to negotiate nationalization plans on their own. Military support has never been considered in defense of, say, oil rigs in Nigeria that are regularly attacked. Even now, as the Venezuelan government considers a plan to rewrite the law and take 30 percent of the oil profits of the national oil company and its partners -- nearly doubling the contracted rate of 16 percent -- the U.S. government sits idly by.

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In most cases, the Gulf War being an obvious exception, presidents -- Republican and Democratic alike -- have eschewed the use of force for oil, choosing diversification at home instead. The oil shocks of the 1970s set the pattern. When production cuts of around 5 percent -- caused in 1973 by the Arab oil embargo and in 1979 by the overthrow of the shah in Iran -- caused prices to more than triple, public attention to energy suddenly turned inward.

President Carter responded to these shocks by creating the Department of Energy and pushing through legislation that scheduled higher fuel efficiency standards and provided tax breaks for producers and consumers of alternative fuels.

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Even President Reagan, who dismantled many of Carter's alternative energy incentives in an attempt to streamline the tax code, was responsible for actions that angered the oil industry and weakened its influence. Sanctions against Libya and Iran -- an earlier version of the war on terrorism -- did some of the damage. In Iran, sanctions forced at least one company, Conoco, out of the country for good. Reagan also cost the oil industry billions of dollars domestically when he signed into law the bill creating the EPA "Superfund" -- which levied a tax on crude oil in order to fund a national pollution cleanup campaign.

President Bush (the first) went even further. He added Iraq to the list of sanctioned countries and signed several pieces of legislation that assisted conservation and alternative fuels. In 1990, for example, he signed legislation that funded research and development of alternative fuels with an increased gas tax. That same year, Bush created the reformulated gasoline program, which essentially decreased ground-level ozone by forcing oil companies to make cleaner gas. And his Energy Policy Act of 1992 (EPAct) offered a broad array of financial incentives for reducing oil dependence. Along with slightly expanded tax breaks for domestic oil and gas producers, EPAct also offered substantial rewards for producers of nonconventional energy sources. Consumers even won incentives: Anyone who bought a car that ran on biomass fuel earned a $2,000 tax deduction.

President Clinton, however, did not continue the trend. John Holdren and Dan Kammen, who both worked on Clintons Committee of Advisors on Science and Technology, say that over two terms, the president repeatedly ignored calls for energy efficiency incentives and a carbon emission tax. Although these provisions would, in Holdren's words, "reduce the vulnerability of our economy to price shocks in the world oil market, as well as decrease the constraints on our freedom of action in the Middle East," Clinton didn't see the need to pursue a long-term energy plan. With the domestic economy booming, he was content to ignore the problem.

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Now that the economy is in free fall and the Middle East is an uproar, the question of oil is back at the forefront. None of the measures enacted by Carter, Reagan or Bush significantly changed the status quo; dependence on foreign oil has been rising for years and alternative fuels still supply only a fraction of the nation's energy needs. A terrorist attack against the Alaska pipeline, a coup in Saudi Arabia, another Arab oil embargo -- if any disruption to the oil supply occurs, the already weak U.S. and world economies could easily fall into a deep swoon. Will Bush, goaded on by these dangers and the renewed public interest in energy, fight to end the American oil addiction?

The new Bush administration may have several publicized connections to the oil industry, but the relationship's history contains some surprising twists. There is little evidence so far that the Bush White House has significantly helped big oil, even in Saudi Arabia, where the Bush connections run deep.

Last year -- for the first time in decades -- the Saudi finance ministry announced that it would award contracts to foreign oil companies, giving them the right to produce and sell Saudi natural gas from three large fields. Given Bush's ties to oil, and the long history of U.S. ties to the Saudi kingdom, American oil companies might have seemed like shoe-ins. But when the awards came through in May 2001, American companies were not the big winners. ExxonMobil, the world's largest oil company, did win contracts as part of a larger consortium, and other companies picked up pieces of the massive $40 billion project, but Chevron was completely excluded from the deal, and most of the winning companies hailed from Europe.

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Why? Because Saudi Arabia's crown prince, Abdullah bin Abdulaziz, wasn't happy with U.S. policy in the Middle East, says Chris Toensing, editor of the Middle East Report.

"Abdullah -- the country's real ruler -- unlike previous Saudi rulers, feels sincerely about the Palestinian issue, and there's been a chill in U.S.-Saudi relations because of that, because the king doesn't feel that the U.S. has done enough," he says. "So before Sept. 11, the Saudi strategy had been to reduce its own dependence on the U.S., economically, by giving preferential treatment to European oil companies. It's a sort of signal that the Saudis are not going to be monogamously married to the U.S."

"To what extent have Saudi Arabia's demands been met by the Bush administration?" asks Fareed Mohamedi, chief economist at the Petroleum Finance Company. "To no extent," he answers. "To what extent have they been rebuffed? Totally."

Nor is the present push for peace in Israel, spearheaded by Secretary of State Colin Powell, a sign of Bush being influenced by Saudi demands, says Yahya Sadowski, Middle Eastern studies professor at American University in Beirut.

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"The current U.S. discussion about supporting a Palestinian state does not really represent any decline of the U.S. alliance with Israel; this is something that the Israeli government itself has been preparing for," he says. "The pressure on the U.S. to move in this direction comes not so much from Saudi Arabia but from the European Union, Russia, and our wider concerns about holding together the coalition of support for the war in Afghanistan."

The administration's lack of opposition to ILSA -- the Iran-Libya Sanctions Act that ExxonMobil and other companies have repeatedly lobbied against -- also shows that Big Oil's foreign policy influence is not without limit. And on the domestic front, Bush's own energy plan further confuses the question of how Bush's ties to oil are affecting government policy. Coordinated by Vice President Cheney and released earlier this summer, the plan is, on the surface, a gift to the industry. Yet alternative energy proponents actually found a lot to like.

"Their energy document was better than many people expected," says Harvard's Holdren. "It gave substantial attention to renewables and to alternative energy."

But whatever attention Bush's energy plan paid to alternative energy has to be weighed, say critics, against what Bush actually does. Vice President Cheney's declaration that "conservation" was not the answer to California's energy crisis, and the administration's naked desire to permit drilling in the Alaskan National Wildlife Refuge, would appear to be clear signals that oil interests do have influence over the Bush agenda.

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As Holdren puts it, "The real problem with the Bush energy plan is that of the 185 recommendations, there's no sense of priorities -- no sense of what they're actually going to do."

In any event, with respect to decreasing foreign oil dependency, few energy experts are optimistic that anything will change soon. "We are locked in until we see a crisis of epic proportions," says Dan Kammen, director of the renewable and appropriate energy laboratory at Berkeley. "My guess is that we'll change eventually, but not soon."

But Kammen and others don't necessarily blame Bush.

Much of the problem, they argue, lies with American consumers. They just don't get it. Though they conserve when asked -- as Californians did this summer -- consumers fail to regularly make energy a priority, Holdren says. Even now, with the Persian Gulf aflame in anti-American sentiment, they don't grasp that the cheap energy they depend on could easily disappear.

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"People don't understand the risks associated with dependence on oil from politically fragile regions," says Holdren at Harvard. "They don't understand the risks of climate change; they don't even remember that the last major oil price shock drove the world into a global recession."

The energy infrastructure already in place makes it especially hard to break consumer habits. Our present system is intimately tied to oil: Ports are built specifically for tankers; electricity is generated mainly with fossil fuel; gas stations are ubiquitous. When "one of five jobs is related to automobile and one of four related to the present energy business," says Kammen at Berkeley, "it's very difficult to steer a different course."

Today's low oil prices don't help. Alternative fuels' best chance for growth lies with a return to the high oil prices of the '70s. A $30 barrel of oil would make solar competitive; higher prices would make hydrogen-driven fuel cells look cheap. But with oil prices dropping steadily, the prospect for that form of incentive appears bleak.

No incentive plan would be able to do much good if oil hit $8 a barrel. But even if Bush is not to blame for oil dependence, he, more than anyone, has the power to effect change. With a long-term vision for energy, Bush could implement a variety of options, say experts. Several ideas for reducing oil dependence have been around for years. Holdren favors a carbon tax that would charge carbon dioxide emitters for polluting. Kammen suggests rewriting the tax code to provide larger incentives for companies that develop and use renewable energy sources, such as solar power.

And energy efficiency, many argue, is the world's ace in the hole. Efficiency improvements in cars, appliances and other products have kept total energy use flat even as economic output per capita has risen 74 percent since 1973, according to the Energy Information Administration, a division of the Department of Energy. In monetary terms, the savings have been enormous. In 2000 alone, the energy efficiency gains made over the past 30 years saved the country $430 billion.

There are easy ways to tap into this cost-saving tool. Raising Corporate Average Fuel Efficiency (CAFE) standards for all vehicles, for example, would significantly decrease oil use. The standards for cars haven't been updated since 1990, and under current law, SUVs don't have to comply with fuel efficiency laws for cars. A new Toyota Camry must get 27.5 mpg, but a Chevy Tahoe is allowed to chug along at only 15 mpg. Meanwhile, upping the average efficiency for SUVs and light trucks by three MPG alone would cut U.S. oil consumption by 49 million gallons per day.

But Bush and Cheney are unlikely to push for change, even though Energy Secretary Spencer Abraham -- a former senator from Michigan -- gave a speech Oct. 25 extolling alternative fuels and conservation. It's not that the administration is in the oil industry's pocket, say observers; it's more simply that men like Bush and Cheney are unable to imagine any alternative aside from cheap oil.

"It's a benevolent form of conspiracy," says Berkeley's Kammen. "People like Cheney are not trying to screw the American public in order to get rich. They just don't know enough about the alternatives and are not trying to learn."

"The administration does not have a strong appreciation for conservation and the role of technology," says Ed Smeloff, assistant general manager for power policy in San Francisco. "They have a supply side perspective. Perhaps that's what happens when you spend your whole life looking for oil."

Raised and bred in oil, Bush has had little incentive of his own to think about energy in a bold new way. But given his connections to the industry, his current popularity, and the crisis engulfing the Arab world right now, he has both reason and opportunity to make a bold move away from oil dependency.

He could take a page from the book of a previous Republican president, Nixon, who after years of seeing Communist bogeymen under every bed became the first American leader to reach out to China. But alternative energy advocates aren't holding their breath. Big oil may not be calling every shot, but neither is it in danger of being shoved to the side. And Bush isn't the only leader to blame. Clinton didn't help the alternative energy cause, and every time an American consumer buys another Ford Expedition or luxury minivan, he or she is at fault as well. The United States of Oil is a group effort -- and for now, it's here to stay.


Damien Cave

Damien Cave is an associate editor at Rolling Stone and a contributing writer at Salon.

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