With oil prices dropping down below $45USD a barrel its easy to forget the impact of $100USD+ prices of just eighteen months ago.   People were driving less and trading in their gas guzzling SUVs for more fuel efficient vehicles. Now that prices have come down there is far less pressure on American’s to use less petroleum. Today, Securing America’s Future Energy (SAFE) President and CEO Robbie Diamond issued the following statement today in response to the release of government data showing that the 2008 trade deficit for petroleum and refined products was more than $380 billion, representing more than 56 percent of the entire national trade deficit:

“This week, we once again have been presented with clear and compelling evidence of the tremendous threats posed by our dependence on petroleum, most of it imported. Petroleum and petroleum products represented more than $380 billion of our total $677 billion trade deficit in 2008. In other words, our addiction to oil accounted for more than 56 percent of our entire national trade deficit. This is an unprecedented and unsustainable transfer of wealth to other nations, many of which are hostile to American interests.

“In the long term, the only way to significantly and permanently reduce our oil imports is to significantly and permanently reduce the amount of petroleum we consume, primarily through long-term electrification of the transportation sector. In the meantime, it is crucial that Congress and the president safeguard our economy and national security. Improving fuel efficiency standards is one way to do this. Another vital step, which will reduce our trade deficit and strengthen the dollar, is to take affirmative steps toward the responsible, safe expansion of domestic oil and natural gas production. Ending our dependence on oil is a matter of economic and national security, and we cannot wait any longer.”

World Oil Expenditure as a Percent of World GDP

In September, SAFE’s Energy Security Leadership Council — a distinguished group of business executives and national security leaders led by General P.X. Kelley (Ret.), 28th Commandant of the Marine Corps, and Frederick W. Smith, Chairman, President and CEO of FedEx Corporation — released A National Strategy for Energy Security, a comprehensive set of solutions to the very real threats posed by our nation’s dependence on oil.

The National Strategy presents a bold vision: the electrification of our transportation sector, which today accounts for nearly 70 percent of the total oil consumed by the U.S. Because that is a long-term goal, the recommendations also detail the policy steps necessary to reach it while preserving our economic and national security in the short and medium term, including dramatic increases in funding and reforms to our research, development, and deployment system; demand reductions; and an expansion of domestic oil and natural gas production.

Securing America’s Future Energy (SAFE) is an action-oriented, nonpartisan organization that aims to reduce America’s dependence on oil and improve U.S. energy security to bolster national security and strengthen the economy.

WASHINGTON, Oct. 16 /USNewswire/ — President George Bush this week rejected a Congressional effort to bar the United States military from controlling Iraq’s oil resources.

In the authorization bill, Mr. Bush challenged four sections. One forbid the money from being used “to exercise United States control of the oil resources of Iraq”; another required negotiations for an agreement by which Iraq would share some of the costs of the American military operations there.

The Friends Committee on National Legislation, a 65-year-old Quaker lobby, has worked with Congress for three years to pass legislation that bars the United States from building permanent military bases in Iraq or exercising control of Iraq’s oil resources. “We are dismayed that the president would deny the Iraqi people and its government the basic sovereign right to control their own natural resources. President Bush apparently believes that as commander in chief he is entitled to seize Iraq’s oil fields and control Iraqi oil if he should deem it necessary to protect U.S. national security,” said Jim Fine, a lobbyist for the Friends Committee on National Legislation. “It’s hard to see any other logic behind his signing statement. He has, in effect, declared himself — and any future U.S. presidents who fail to repudiate his outlandish claims — emperors of Iraq.”

President Bush has signed the restriction against controlling Iraqi oil into law five times since 2006, but has issued 2 signing statements this year asserting that banning U.S. control over Iraqi oil would violate the constitutional powers of the executive. He argues that his administration is not legally bound to abide by those provisions.

For more on FCNL’s Middle East program, see http://www.fcnl.org/iraq.

The Friends Committee on National Legislation, the oldest registered religious lobby in Washington, is a nonpartisan Quaker lobby in the public interest. FCNL works with a nationwide network of tens of thousands of people from every state in the U.S. to advocate for social and economic justice, peace, and good government. For more information, visit http://www.fcnl.org/.

• Forget the fact that the US invasion of Iraq reduced its oil exports.
• Forget that our military presence in Iraq and Afghanistan has introduced far more instability to the energy rich Persian Gulf region than was present when Bill Clinton left the presidency.
• Forget the fact that a 1997 provision in the U.S. tax code (Section 179) provided small businesses with a tax write-off of up to $25,000 for a vehicle weighing more than 6,000 pounds- used 50% of the time for work purposes and only a $7,000 deduction for smaller, more fuel efficient cars.
• Forget that in 2003, the Bush administration proposed increasing the tax deduction to $75,000 but the Republican legislators in Congress responded by expanding it to a whopping $100,000 as part of the $350 million tax cut package.
• Forget that Jimmy Carter warned us 30 years ago that over reliance on foreign sources of energy makes the US economy as a whole subject to market spikes like the one we are all living through now.
• Forget that Vice President Dick Cheney said “conservation may be a sign of personal virtue, but it is not a sufficient basis for a sound, comprehensive energy policy” and refused to use his position as head of the President’s Energy Task Force to include conservation and higher efficiency standards as part of the task force’s recommendations.

Its much easier instead to blame OPEC. After all, they are the ones with the oil and we need that oil. Doesn’t that mean they must pump as fast as they can to keep up with the ever growing demand from the US and China and India and Europe and everyone else who wants it? Saudi Arabia did not play a role in the “Green Revolution” in which we turned over vast portions of our food supply chain to industrial farming that is so dependent on petroleum and natural gas that corn wheat, and rice are hitting record highs when oil prices are doing the same.

Venezuela’s Hugo Chavez may call our president names, but help expand the “Hummer Loophole” in the US tax code that encouraged Americans to buy the biggest, heaviest, and most inefficient behemoths that Detroit could conceive.

OPEC nations are not huge recipients of non-military US foreign aid. Our “aid” to Saudi Arabia involves congress giving them permission to pay our defense contractors vast sums of money. Knowing all this, why do we feel entitled to dictate how quickly other soveriegn nations sell off a natural resource that is often their only source of wealth?

OPEC is not the US’s biggest source of oil. For that we need to look to our parters in NAFTA. Despite the vilification of OPEC in the news, they are not our biggest supplier. The problem right now is that NON-OPEC oil exporting nations are going to fail to keep supplies up with demand for the foreseable future as noted in the Financial Times story below.

Non-Opec producers face stalling output

By Carola Hoyos in Madrid and Javier Blas in London
Published: Jul 02, 2008

Countries outside the Opec oil cartel will barely be able to increase their production of crude oil over the next five years for the first time in the industry’s history, the western countries’ energy watchdog warned yesterday.

The International Energy Agency’s dim forecast to 2013 suggested record oil prices have yet to balance sluggish supply with relatively robust demand.

“Structural demand growth in developing countries and ongoing supply constraints continue to paint a tight market picture over the medium term,” the IEA said in its Medium-Term Oil Market Report.

Despite billions of dollars of investment, the challenge of pumping ever more oil out of ageing fields is proving so great that non-Opec countries will, in the next five year, have to rely on bio-fuels, such as corn-based ethanol, for 50 per cent of their growth in overall fuels.

The IEA said annual non-Opec supply growth, including biofuels, would slow to 0.5 per cent between 2008 and 2013. But demand, supported by rising incomes in developing countries such as China, would grow by 1.6 per cent a year.

Analysts warned the new forecast meant the world economy would rely more on Opec and oil prices were likely to remain elevated.

“Poor supply-side performance . . . in the face of strong demand pressures from developing countries has forced oil prices up sharply to curb demand,” said the IEA.

Crude oil prices moved more than $3 higher to $143.33 a barrel as the market digested the forecast. The IEA said that current prices, which hit a record high this week of $143.67 a barrel, were “justified by fundamentals”.

The fast decline of fields – especially in the North Sea and Mexico, where production is shrinking by more than 20 per cent each year – means that 14.8m of the 16m barrels of new supply from non-Opec countries over the next five years will only go to make up for losses from old fields producing less each year. Stagnant oil output in Russia is another key factor in lower non-Opec supply growth.

Nobuo Tanaka, executive director of the IEA, said in an interview: “In non-Opec countries we want to see more access to resources and more transparency of the legal system because we believe that . . . the underground resource is still there; the problem is above ground.”

Opec, meanwhile, is also struggling, with project delays constraining its ability to add new capacity. The IEA substantially downgraded its expectations for Opec crude capacity from 2008-2013, cutting earlier forecasts by 1.2m b/d.

The IEA said it believed Saudi Arabia was having bigger problems than the kingdom, the world’s largest exporter, was willing to admit to.

These fluctuations in oil supply come as demand growth is continuing, especially in the developing countries, whose oil needs are expected to have almost caught up with those of the rich world by 2013.

We were discussing how much of the current price of oil is due to fundamental supply and demand issues and how much is due to speculators in the oil futures market. There is also the problem (for Americans) of a weak US dollar. I wrote about how this results in Americans paying a premium for oil in Keeping Oil Prices in Perspective back when oil was nearing 100 USD per barrel and it’s actually gotten worse in many ways since then.

As complicated as those factors are when trying to sort out oil prices, this article brings up another element.

We live in an increasingly commoditized world. As a result we tend to think of the actual real live nouns associated with trading markets as more uniform than they are. At one point every bushel of corn grown in Iowa and sold in New York had a farmer’s name printed right on the bag. Food producers who used the corn (or wheat or oats) could make a point of getting their raw materials from farmers who were known for particularly good quality or who grew corn with a certain trait that the consumer valued.

That time is long gone. Now that Iowa farmer’s corn is mixed with other corn from his area of the same basic grade and loaded onto train cars for delivery by the ton. Oil is much the same way now. We talk about and complain about oil prices but what we are actually talking about are oil FUTURES prices. When it comes to the actual black sticky stuff, it comes in many grades and with many different qualities.

Refineries are machined in such a way as to best process a certain grade of oil. The good stuff is known as “Light Sweet Crude” and thats what Saudi Arabia’s huge Ghawar Oil Field, West Texas, and Nigeria in East Africa are known for producing. This is the stuff US refineries are designed to process into good old gasline and diesel fuel.

Apparently, the refineries are paying a higher premium – on top of the already high commodity prices – to get the grades they need. The lower grades CAN be refined but its a more expensive and the USA is not really set up for that as far as our refining infrastructure. So if you want to yell at your political reps about oil prices, start by demanding that they approve the building of more refineries that can use high sulfur crude.

Refinery premiums cast doubt on speculators
By Javier Blas in London
Published: June 12 2008 18:44 | Last updated: June 12 2008 18:44

Refiners are paying record premiums for the high-quality crude oil they use to produce diesel and petrol, a sign of strong demand in the physical oil market that calls into question claims that soaring oil prices are being driven by speculators.

Refiners are paying up to $5-$6 a barrel on top of current record prices to secure high-grade oil, traders said, double the level of a year ago. The mark-ups are four times higher than the 2000-2008 average. The movement in prices paid for physical barrels of oil has gone largely undetected outside the refinery industry because financial markets pay almost exclusive attention to the price of oil futures traded in London and New York.

The fact that refiners are willing to pay a higher price for physical supplies than the futures benchmark lends weight to the argument that speculators are not the cause of record oil prices. At the same time, though, refiners are obtaining unusually large discounts for low-quality crude oil, traditionally refined into fuel oil. Traders said supplies of low-grade oil, typically produced in the Middle East, are relatively plentiful.

The premium for Nigeria’s high-grade Bonny Light oil has surged this month to $4 a barrel, up from $2.50 a year ago. In the same period, the discount for low-grade Iran Heavy oil has widened to $13.05 a barrel from $7.

The split in the physical market explains Opec’s reluctance to boost its production as most of the cartel’s spare capacity is of low-quality oil. However, the situation could change as Saudi Arabia plans to bring on stream its Khursaniyah high-quality oil field. It also highlights a lack of capacity at refineries that can turn heavy, low-quality oil into products such as diesel. Francisco Blanch, head of commodities research at Merrill Lynch, said the price of Middle East low-grade oil was falling behind because of refining bottlenecks.

“Middle East heavy crudes have been unable to keep up with the growing appetite for low sulphur middle distillates products, such as diesel,” he said, adding the difference between Saudi Arabia’s high- and low-quality oil was at a record high.

The scarcity of premium oil has been aggravated by shortfalls in Nigeria.

Copyright The Financial Times Limited 2008

Physicists find new material for storing hydrogen

Physicists in the US may have found a promising new class of material that can absorb and store large amounts of hydrogen. Adam Phillips and Bellave Shivaram of the University of Virginia measured around 12% by weight of hydrogen uptake in the metal-based composites. This is significantly higher than the target of 5.4wt% set by the US Department of Energy to support the development of hydrogen-powered vehicles — although the physicists say much work still needs to be done.

A low-cost, high-capacity hydrogen-storage medium is essential for the commercialization of hydrogen fuel-cell technologies in the future. While scientists have investigated various classes of material, such as carbon nanotubes, hydrogen-clathrate-hydrates and other nanostructured materials over the past few decades, no one satisfactory material has yet been found.

Adam Philips went on to say:

"It is critical to say that our work is at a very early stage," added Phillips. "While we have measured the hydrogen uptake, we have not yet been able to determine how the material desorbs. However, we are very optimistic about the possibility of scaling up and overcoming many of the other hurdles we now face."

You can read the whole article at http://physicsworld.com/cws/article/news/33614 (Free subscription may be required)

If this and other work like it pans out the pie-in-sky feel to the promises of a Hydrogen Economy may start to disappear.

When GWB was praising Hydrogen as a way to wean the US of its addiction to petroleum he was not completely candid.  Its important to remember that hydrogen is an energy carrier, and not an energy source. It is usually produced from other energy sources by burning petroleum, through wind power, or via solar photovoltaic cells. Hydrogen can also be extracted  from underground reservoirs of methane and natural gas,  from coal by coal gasification, or from oil shale by oil shale gasification.  Electrolysis (Remember Junior High Science and separating water into Oxygen and Hyydrogen?), which requires electricity, and high-temperature electrolysis/thermochemical production, which requires high temperatures (ideal for nuclear reactors), are two primary methods for the extraction of hydrogen from water.

If you understand the ways we are currently producing hydrogen in the quantities needed for fuel cells you can see that a "Hydrogen Economy" has benefits for humans such as cleaner burning cars but is NOT a solution to climate change or the geopolitical problems associated with petroleum extraction and consumption.