Freeing the United States from foreign oil dependence

by Don Koenig - 2006

The solution for foreign oil independence can be said in five words: "alternative energy and drill for oil".

The first issue is getting the present price of oil down to a reasonable level in a very short period of time. The second issue is getting alternative energy production and distribution up to the level needed to keep energy prices stable in the future.

There are six main reasons why present oil prices are high:

1. The demand has gone up while the supply remains stagnant due to unstable situations in oil producing nations or regions.

2. We are not drilling for oil that we have off shore and in the Arctic.

2. There is not enough refinery capacity in the world.

3. "Just in time inventories" have built into the system inevitable disruptions that will guarantee periods of shortages.

4. Oil companies are making huge windfall profits and are gouging the consumer.

5. Oil brokers are bidding up the price of oil on speculation that prices will only continue to go higher.

Immediate actions we can take on these issues that will bring down oil prices rapidly and at the same time switch the nation to a path of alternative energy sources and freedom from foreign dependence:

1. Oil producing nations need to see that the United States has a serious plan to reduce our dependence on foreign oil by at least 50 percent in ten years. It will then become obvious to these nations that extreme oil prices will not be in their long term best interest. Doing this means that we will have to guarantee a base price for those making the investment to develop new energy resources in the United States. That guarantee should be for about ten years or until our national goals are met. After this period, internal price guarantees would be lifted and free enterprise would determine the most cost effective energy solutions.

During this development period we will need to guarantee a minimum base price of $45 for those developing new energy sources (energy equivalent to a barrel of oil). All imported energy products with the exception of certain favored nations developing alternatives besides crude oil (e.g. Canada - peat) would have a $10 tariff imposed on each barrel (or more if their price fell lower than $45 for the energy equivalent of a barrel of oil). Certain favored nations producing oil, like Mexico, would be given the option to fix their oil prices at $50 a barrel and would not have any tariff imposed.

This action would insure that new internal and alternate energy production would have a market advantage over all foreign oil products during this ten year program. All internal and foreign fixed prices would be adjusted for inflation each year. The funds collected from the tariff would be used to build strategic reserves of all commodities (see below).

With an assertive foreign policy, other nations that wish to cause us pain by artificially raising oil prices to retaliate for our tariff might find themselves eating their oil when they no longer have access to cheap United States food products. Even if oil cartels forced higher prices by cutting production they really would cut their own throat sooner by bringing alternative energy sources to the market faster.

While we phase in this program in order to not force even higher prices at the pump we should wait one year before the tariffs on foreign oil are put into place. This will give time for alternative energy to gear up and for oil prices to substantially decline (see why they will decline below)

2. New refineries need to be built in this nation in areas that are not subject to massive disruptions due to the weather or earthquakes. Environmental red tape needs to be cut so that these refineries can be built very quickly. Oil companies would be required to reinvest a portion of their recent and future profits into developing new refinery capacity. There simply has been no new refineries built in the United States in 30 years!

3. The "just in time" inventory system will need to be done away with in critical areas of the the United States supply system. We will go back to having strategic stockpiles of all major commodity and food products (not just oil). "Just in time" inventories have made larger profits for corporations but "just in time" inventories actually have built in guaranteed shortages when inevitable disruptions arise.

Any major crisis without stockpiles of the necessities of life could bring death and panic to millions of people. Doing away with "just in time" inventory means more storage costs but it brings security and more price stability. In these dangerous times we cannot put millions of people in jeopardy just so some corporations can make a few cents more per item. We should take a lesson from Joseph in the Bible. He stored up for seven lean years and by doing so saved the lives of his family and all the people of ancient Egypt.

Strategic stockpiles bought when there is a surplus will stabilize the price of commodities allowing a fair profit to investors with minimum risk. It will end large windfall profits due to shortages and price gougers and the grave danger that "just in time" inventory places our nation in during a time of crisis. It really is a grave matter of national security.

4. Oil companies have made over 100 billion dollars in windfall profits in the past year alone. Under my proposal they will be required to reinvest a large segment of these profits into developing new energy sources. If they did not, a windfall profit tax would be imposed upon them. Any moneys collected from such a tax would be rebated to the consumer by lowering gasoline taxes during the first phase in year. In future years if there were any large windfall profits not reinvested they would go to alternative energy research and development.

5. When speculators in the oil commodity market realize that the government has a real plan for lower and stable energy prices, the price of oil and gas products will fall like a rock almost overnight. This is simply because about one third of the price at the pump today is due to speculation that oil and gas prices will go higher. When oil futures fall like a rock so will the present prices at the pump.

If these actions are taken immediately and a base price is set for development of our own energy sources and if our government gets out of the way and allows energy to be freely developed the oil speculation driving up the prices will end and the bubble will burst. It is my opinion that gas will be selling at or below $2.00 a gallon in six months. Nevertheless, after the prices do fall we must not abandon our long term objective to get off of foreign oil dependency. If we do not make permanent changes, we can be assured there will be worse energy shocks in the future.

We must also legislate that the oil company distributors must provide outlets for alternative energy fuels. For example, there are now cars produced in the United States that burn 85 percent alcohol but there are few gas stations across the country that carry this alternative fuel.

What sources of energy will be feasible at the equivalent of $45 to $55 a barrel when mass produced?

1. Solar electric and solar produced hydrogen

2. Synthetic oil from our huge coal reserves

3. Wind or wave driven electrical generators

4. Bio-diesel from areas of the country that are now growing tobacco or weeds

5. Alcohol from sugar producing countries and our own bio-mass

6. New oil development and recovery methods in the United States

7. Oil from shale (we have the largest oil reserves in shale in the world)

8. Oil from the huge peat and oil sands areas of Canada

There are also other alternative energy sources, and there is also quite a bit of conservation that could take place to lower energy use with tax incentives. So it is not really a question of if it can be done. The question is, do we have the will and the leadership to take the necessary action to bring it about?

Will the people in the United States be satisfied with a base energy price of about $2.00 a gallon or would they rather have gas fluctuating between $1.50 a gallon and $5.00 a gallon (and even much higher in a time of crisis)? Would they rather be held hostage to the oil producing nations and get involved in wars to secure it or would they rather obtain foreign energy independence?

Do the people of the United States want to survive some inevitable crises or do they wish to experience a break down of our society when "just in time" inventories do not supply the need? Do we take back control of the internal affairs in our nation or do we continue to rely on lobbyists and corporate power brokers to do what is best for us? We shall soon see.

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