Why Falling Oil Prices Aren't Good News

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But first, reader discretion advised: Politics and aviation sometimes intersect and I know by experience that some readers don't like hearing about that. If you're one of them, be forewarned.

If anyone has doubts about general aviation's vitality, this morning's market opening should remove them. Since August, the Dow has declined by a staggering 5000 points and as I'm writing this, it's still searching for the bottom. Everyone in the aviation business knows that a large percentage of aviation-related purchases are discretionary and made by people who invest widely, both in stocks and other instruments. It's axiomatic that if $2 trillion or more of that wealth has evaporated, many of those purchases simply won't happen. It's anybody's guess what shape a recovery will take and when it will happen. (I'm optimistic—I think recovery is certain eventually.)

In the meantime, the U.S. electorate is going to have to snap out its sustained and historically shortsighted delusion concerning energy policy. Or should I say what energy policy? I was watching the two presidential candidates debate the other night and all I heard was claptrap about drilling and the usual lip service to nuclear and alternative energy supplies. When both candidates were asked what sacrifices they'll ask the American public to make, both missed the opportunity to look the electorate in the eye and say: It's you, you're the problem and you need to wake up and change your habits.

Here's the logic. A friend of mine reported that his recently graduated son got his first job, a well-paying one at that. His first purchase was a large, high-testosterone pick-up averaging maybe 18 MPG at best. He's a white-collar guy, not a tradesman, so he needs a pick-up like Britney Spears needs a haircut. He bought the truck despite $4 a gallon gas, which suggests to me that to him, gas isn't very expensive, or at least expensive enough to make him change his behavior. The fact that the price of oil is now in retreat only makes this worse and sends the wrong signal to car buyers: Oil is cheap, it's OK to waste it again. Moreover, it's still OK to send money to Saudi Arabia and Russia to pay for it all.

Until consumers change that kind of behavior, the single largest economic and security threat to the U.S. will only grow worse and that's our increasing dependence on imported oil. Everyone agrees that we have to fix this five-alarm problem, but no one has the guts to say what needs to be done.

And that is, unfortunately, an additional tax on automotive gasoline that forces meaningful change in the market by tripling or quadrupling fleet fuel economy. At NBAA earlier this week, I had dinner with some staffers from the U.K.-based Flight International who reported paying $11 a gallon for gas. Interestingly, one of them actually drove more miles a year than I do, but his car averaged 60 MPG. On a dollars-per-mile basis, he's probably paying lower fuel costs per mile than most Americans are. He's also spewing less pollution into the atmosphere than I do.

That's so because the Brits, like all European countries, hit fuel hard with taxes—way too hard for U.S. tastes. This country would never tolerate that level of taxation and it's probably not needed to change car buying habits anyway. Would $5 or $6 gas do it? I'm not sure, but it's plain to see that $4 gas won't. Our single best hope to sharply reduce dependence on imported oil is a much higher fleet economy average and a rapid transition to plug-in hybrid technology of some kind, probably powered by a new generation of nuclear power plants. Detroit automakers haven't found the economic sweet spot for these cars for various reasons. But if the price of gas goes to north of $5 or $6, watch how fast they'll move.

So what's the aviation connection? Stable oil prices in a world where petroleum demand flattens or even declines. Airplanes of all kinds will, for the foreseeable future, depend on liquid fuels. Cars can migrate to hydrogen, to battery and engine hybrids or gaseous fuels, charged by wind or nuclear, and the sooner they are forced in that direction, the better, especially for aviation interests. And it's no bad thing if Russia has less money with which to sow grief around the world.

If I were setting this policy, I wouldn't tax aviation fuel any more than it already is. Aviation use of gasoline is already in decline, sharply, thus there's no argument to change behavior. I would simply peg the price of aviation gasoline to the price of road fuel. Since leaded avgas is certain to disappear, I think this is one way to look at it realistically. By the way, revenues generated by an additional gasoline tax could fix our crappy bridges and potholed roads and maybe fund part of T. Boone's windmill project. A few bucks thrown at the deficit wouldn't hurt, either.

For this to work, the country has to grow up. And fast. At the moment, we are seriously screwed. The finance system is in shambles, fiscal policy is a mess and the deficit is out of control. Shipping more money to Saudi Arabia only makes it worse and threatens the very bedrock of U.S. security.

Americans have to learn to tune out—or at least rationally analyze and think through—the constant, knee-jerk drumbeat that all taxes are bad and are thus to be cut, avoided or ignored. Pre-election, don't expect either candidate to give voice to this reality, but we have to accept that out-of-control deficits place us in ever more peril and this is abetted by the lack of any energy policy. There are real sacrifices ahead for all of us and the end of cheap gas--and yes, $4 is cheap--is just one of them.

Whichever party is elected in three weeks will have to confront this, one way or another. Our finances are in such a mess that the next president won't have much operating room for many years to come. Acting on a meaningful energy policy by curbing oil consumption and forcing more efficiency into the economy is one thing that can be done.

If it's not done, the entire country—not just GA—is headed over a cliff.

Comments (56)

Paul, I've been preaching the need for much higher taxes on fuel for road (and off-road) vehicles for years to whoever would listen. In a country where consumption (in excess of income) is the problem, consumption taxes make sense. If I were king, I would increase the federal tax on road fuel 10 cents a year for ten or twenty years, giving people plenty of time to junk their gas guzzlers and manufacturers time to retool their products. The proof that it would reduce consumption is before us- look at what has happened this year. Instead of sending the windfall to OPEC, it could go into the public coffers for the uses you suggest. Maybe once elected, Obama will bring this up. No politician would touch it before an election.

Posted by: JEAN F REAT | October 10, 2008 12:22 PM    Report this comment

I couldn't agree more with this position. Oil needs to stabilize around $100/barrel and then the automakers, alternative energy industries and consumers will eventually get used it to it and adapt. Oil didn't suddenly get plentiful again. Within a couple years, demand will be back and it will be expensive again. We need to adapt now, not wait around for a few more years.

Posted by: scott dickey | October 12, 2008 10:56 AM    Report this comment

Hope Berto enjoys flying sailplanes. The Euro model is about tax revenue for social programs, not saving the planet. This proposal will kill GA for good- if we are going to judge someone's need for a truck, then there is little supporting logic for the need for most GA aircraft.

Posted by: Max Buffet | October 13, 2008 5:14 AM    Report this comment

To a Socialist, any excuse for more taxes and more government is a good one. I suspect these same folks would propose some new tax if we wanted to increase use of foreign oil instead.

What I would like to see is a real innovation like a tax reduction to achieve a goal like oil import reduction. We all know that Diesel engines are more efficient than gasoline ones. How about reducing the fuel tax on Diesel fuel to Zero?

Posted by: PAUL MULWITZ | October 13, 2008 5:19 AM    Report this comment

As a life-long oil man, I am surprised that you don't recognize the real problem with our transportation fuels.

It is our wacko, life-time, lawyer-bred politicians of all political stripes.

We have plenty of OUR OWN oil, in OUR OWN ground, but OUR OWN politicians are in the way of producing it.

So, throw the bums out, elect a Congress of normal business people, and get on with it. Take the shackles off the oil industry and get back to normal markets, not tax-based welfare resulting in shrivelling economies!

Posted by: SAMUEL MCCAULEY | October 13, 2008 6:46 AM    Report this comment

Spoken like a true socialist, Paul. What makes you think that revenue from higher fuel taxes would be allocated to fix bridges, roads, or reduce the deficit?? And why do you keep bringing to attention the price of fuel in Europe? Who the heck wants to emulate what the socialists in Europe are doing? You've been partaking of the Kool-Aid, Paul. I'm to the point where I'm just about ready to throw in the towel on aircraft ownership. Too much regulation; costs too high. By the way, the number of primary students at the local airport where I keep my airplane is way down...costs are just too high.

Posted by: Dennis Crenshaw | October 13, 2008 7:24 AM    Report this comment

You're absolutely right Paul. We have the technology now to begin powering our cars and powerplants without carbon based fuels. Once we do this, the fact that airplanes (for now) must run on carbon based fuels won't matter. They only account for 2% of the CO2 produced anyway. We need to get on with it.

Posted by: ROBERT THOMASON | October 13, 2008 7:29 AM    Report this comment

If the price of oil has dropped so much, why is 100LL still selling for $6/gallon? I realize it's a boutique fuel, but I pay $1 less per gallon for diesel now than I did at the peak of the insanity 3 months ago, yet avgas hasn't budged.

Posted by: Will Alibrandi | October 13, 2008 8:17 AM    Report this comment

Taxes are not the answer to our oil dependence problem. The government should set some long term goals, as they did with refrigerants in the Clean Air Act of 1990. Allow a phase out of fossel fuels over a period of time for an alternative. Do not allow the government to determine the alternative as they will screw thing up as they normally do. Industry will meet the goals if they are properly set and reasonable.

Sending more money to Washington is a poor idea. Our Representatives are drunk with power as it is, more money would be like pouring gasoline on a fire.

For the forseeable future, there will be a necessity for fossel based fuels for aviation, military, transportation and our economy in general. We need to develop our natural resources here at home to get us over the hump until the new technologies have a chance to take effect. Our politicians always wants instant gratification. This will be a 20 to 30 year plan to make the transition smooth, driving that transition with higher taxes does no one any good except lobbysts and reelection campaigns.

Posted by: Stu Brown | October 13, 2008 9:29 AM    Report this comment

It is so disappointing to see the sentiments in this blog posted here. The appropriate response has already been expressed: Arguing against certain types of automobiles on the basis of fuel consumption while thinking it is OK to fly our prized aircraft at 8-14 mpg is faulty reasoning at best. Plus...European taxes on fuel are only used to finance the Socialist state, specifically entitlements for all. The unbridled pursuit of tax money to fund the Socialist state has led to policies of unchecked legal immigration to provide the revenue necessary while recognizing the decreased reproductive rates of their indigenous citizens. A slow suicide, that. One of the principal political parties are trying to take US down much the same road. The rationale expressed here will guarantee the end of the freedom to engage in aviation.

Posted by: BILL MCCLURE | October 13, 2008 9:33 AM    Report this comment

I am very disappointed to see this kind of junk on AVWEB. Paul after your done with your socialist views please come back and talk about flying.

Posted by: John Fulton | October 13, 2008 9:48 AM    Report this comment

Another Socialist "Pie-in-the-Sky" scheme. Raise taxes in the name of doing good for our roads, garbage collection, etc. and the Demoncratic controlled Congress will spend the money on give away social engineering projects. Raising "average" fuel mileage is a worthy cause but do it in a manner that will not cause undo pain for people in lower economic realm. Domestically produce oil rather than sending petro dollars to countries that want to see our demise.

Posted by: Joe Cardella | October 13, 2008 9:52 AM    Report this comment

Only about 6% of the energy usage in the U.S. used in generating electricity.

Don't forget that there are many low margin enterprises out there that will be simply put out of business by artificially high fuel costs.

Have we certified the first hydrogen or natural gas powered aircraft? Wind and Solar to generate electricity by the most optomistic estimates, will contribute between 25-35% of the requirement. There are only about 45-50 locations where you could optimistically locate a nuclear power plant.

Hydrogen and electric cars require cheap electricity. Natural gas is a good temporary solution, but it is not renewable fuel and still has measuable pollution.

Tax fuel to fix/build roads? That is what part of most current fuel taxes are supposed to do. Exactly how much money do you want to fix/build roads and bridges. A twenty cent tax on road fuels would probably create tens of billions of dollars for that purpose.

What we cannot do is create such high taxes (on anything) that the new technology, renewable resource vehicles are priced out of the range of most of us.

Run fuel taxes up and the consequences to the economy are huge. Fewer people will have jobs because so much of the economy depends on the cost of transportation to make some enterprises viable.

Eliminating dependence on Foreign Oil will take two decades. We still have to grow the economy for however long it takes. Doubling the cost of fuel won't help that effort.

Posted by: THOMAS OLSEN | October 13, 2008 10:05 AM    Report this comment

Could we first try a market based approach before taxes. We don't have a great track record with government lead programs.
Simply open lands and seas to exploration. Streamline EPA processes for refineries. If we are going to make this a national security issues then maybe tilt tax policy in favor of domestically produced carbon based fuels. Like in the olden days we had light taxation on imports. This should be a pure revenue play and not a social engineering attempt. Lease unused federal lands for refinery building. Give massive tax breaks for re-opening some of the abandoned refineries.
I hate the idea of taxing the consumer to consume less so you can find more. If the market doesn't support it, leave it alone.

Posted by: Michael Mahoney | October 13, 2008 10:13 AM    Report this comment

The idea of much higher gas taxes was proposed years ago. The authors of the idea pointed out that the price of oil was going to go higher no matter what we did, so it would be more useful to send that money to our government than to the governments of Russia, Saudia Arabia, etc.

Sadly, nobody in our Congress had the political guts to even suggest it, much less propose it. If we had enacted that proposal, we would today have more efficient cars, be less dependent on foreign oil, and have more money in the treasury to fix our bridges and roads.

Posted by: Jonathan Spencer | October 13, 2008 10:24 AM    Report this comment

Only the U.S. Air Force has done any serious research on Bio Jet fuel (Diesel) and according to some experts, it will take a corn field the size of Florida to create enough bio-diesel to fuel 15% of the domestic fuel use in air transportation.

The point there are few solutions that really solve the problem in a broad stroke. Doubling the cost of fuel is another one of those that has really bad unintended consequences.

The real answer to the problem is a serious look/attack on all those fronts. Solar collectors on every house/building south of a certain latitude will make inroads into daytime energy use, until battery technology catches up, but that has unintended consequences as well. What happens to the local (and historically reliable) electric utilities?

The best way to create energy independence is a broad attack on the problem, including drilling in domestic reserves as a stop gap measure while the new technology is developed.

The problem there is that it is estimated that recovering domestic oil, because of legal, environmental and ownership concerns, will cost an estimated $100 a barrel.

We are dependent upon foreign oil because it has been cheaper to buy it abroad than it is/was to drill for it here. It is only the recent increase in the price of oil because of the addition of new consumers in developing countries that has brought us out of our fantasy. What I can't figure out is why we couldn't have seen that coming?

Posted by: THOMAS OLSEN | October 13, 2008 10:32 AM    Report this comment

I am having trouble wrapping my head around the concept that affordable avgas is bad for G.A. Affordable avgas provides jobs, allows Private Pilots to enjoy their aircraft and contribute significantly to our economy through supporting the airports they use, the hotels they stay in, the cars they rent, the parks they visit and so on. The real answer is not for the public to grow up but for Gov't to shrink to a reasonable and affordable size. TSA is an excellent example - a security agency created with a good and important purpose in mind - but having become some sort of Federal parasite constantly justifying why the agency needs to become bigger!

Posted by: Robert Eilers | October 13, 2008 1:00 PM    Report this comment

The idea isn't to tell people that they can't drive their trucks, but to ensure that they pay the true cost of their chosen method of transportation. For anybody who thinks that the whole cost of their transportation is paid via the gas tax, I invite them to consider the $600B bill for our activities in the Middle East. That's gonna take awhile to pay off at 18 cents a gallon.

Drive whatever you want, fly whatever you want, but please don't come to me for a handout to subsidize the cost of your choices. That's what you're getting right now.

Posted by: Kevin Lahey | October 13, 2008 7:56 PM    Report this comment

I agree that we desperately need to eliminate dependence on foreign oil. However, penalizing the taxpayer is not the best way to accomplish it.

Our biggest consumer of oil is our truck/automotive fleet & should be a primary focus. Since it takes almost 14 years to recycle this fleet, a technology we can offer today will take us 14 years to implement. Countries like Brazil now require every single automobile manufactured to be multi-fuel, running on gasoline, ethanol, methanol or any combination thereof. GM a majority producer of Brazil's fleet so the technology is readily available. (That "economic sweetspot" that Detroit automakers are missing is much closer than most of us realize.) Brazil produces ethanol from sugar cane. While we cannot produce ethonal quite as efficiently from corn, it is what we have to work with & should be implemented. Methanol is carbon based. The USA produces 25% of the worlds coal. We can readily make methanol from our coal. Ethanol and methanol are not the final solution, they are something that we can produce in quantities sufficient to make a difference. Combined with tapping US oil reserves, conservation, hybrid electric cars, wind, solar & nuclear energy & we are truly getting somewhere, buying us time to develop & produce fuel cells for 4 decades down the road. This is an "Energy Policy", not the politically motivated & mindless "drill now" that we are hearing from our politicians.

Posted by: Kerry Ford | October 13, 2008 7:59 PM    Report this comment

As a non-pilot aviation enthusiast, I'd like to comment on the range of comments expressed on this article. Actually there are just two sides here tax or no tax. It is no wonder we can't get this problem solved. Each side is vehement on its point of view.

I think OPEC took a measure, this summer, of how high we will go before we reduce our fuel usage and found it to be about $4.25 for auto gas. I believe we need to do whatever it takes to keep consumption levels where they have been this summer, or lower. It could be a combination of a floating tax to keep the gas price stable along with a large shift in the overall fuel economy towards 40 MPG. Just the humble opinion of a groundling!

Posted by: Jeff Michael | October 13, 2008 8:01 PM    Report this comment

Paul B lost a lot of respect with this rubbish, at least in my eyes. Mr Bertorelli - Please stick to what you know: flying. Your head is in the clouds as far as economics and politics are concerned.

The good news is that there seems to be a healthy proportion of pro-American pro-freemarket responses from AVWeb readers. This is a refreshing change from the apparent majority of morons who read and produce the main-stream-media.

It's not surprising though, since to be a pilot, one must show good judgement, work hard, and be responsible. Aviation enthusiasts are probably also at least a bit smarter than average socialist! These are virtues not valued in a socialist system.

Liberal/socialist ideas masked in environmentalism assured our dependence on foriegn oil, just as the socialist idea of forced and sub-prime loans assured the contemporary economic "crisis."

Posted by: Denny H | October 13, 2008 8:22 PM    Report this comment

Jeff. OPEC controls the worldwide pool of available oil as they see fit, and they see fit to keep everyone dependent on them.

If country A steps up production of oil, OPEC offsets by stepping down production, thus ensuring a fixed amount of oil on the market, and thus being able to control the price of that oil.

OPEC sits on 3/4ths of the worlds oil reserves. They will always be able to control availability and price until we shirk off the need for their oil.

So just by trying to moderate our usage and maintain consumption levels will gain us nothing, OPEC will remain in control of our destiny. And we will still be paying them for the priveledge of training and funding terrorists to abuse us. A war that we can never win as long as we continue financing the enemies side.

No, to get past this we need a plan that has us free of their hydrocarbon yoke.

Posted by: Kerry Ford | October 13, 2008 8:40 PM    Report this comment

I'm so tired of liberal socialists comparing how we live here in the US to Europe.

You cannot compare the United States of America to Europe. USA is a big country and we like it that way. You could put Germany in Montana and have nearly enough room left for Finland. We have wide open spaces, thousands of miles across. Darned few people could possibly ride a bicycle to work, it's too far. To busy. We don't have the time to ride buses and trains except in a few compact urban areas, it would take too long.

This is why nearly everything you can think of was invented here: The Europeans with their 2 month annual holidays (in some countries) and liberal health benefit packages have made those countries much less productive than the US.

Why is the USA the center of general aviation? Because there IS somewhere to go! We have an excellent aviation infrastructure here and it's all funded by our fuel taxes right now. We don't want taxes added to pay for free housing, food and healthcare for people who don't work and don't contribute to society, or even to their own keep.

Posted by: Steve Waechter | October 13, 2008 9:41 PM    Report this comment

Anyone who wants to live like Europeans should move there. Stop comparing us to them and trying to turn us into them. We like it here. We like the wide open spaces. We want our personal aircraft. We don't want to drive tiny kiddie cars with our knees up in our chests.

Why is it that 50 or 60% of the world would move to the US if they could? Why do we have millions of illegal aliens here?

People worldwide love and admire America. This is where it's AT. This is the greatest country ever, and our forefathers designed it to be great and it IS.

I am not saying we shouldn't avoid importing oil from countries that hate us. We should. But I don't want to have socialists using contrived taxes to modify behavior.

We should work through our problems without putting billions more in the hands of government instead of the people. Develop our own oil. Pump from ANWR and offshore, and drill now not later. Build 150 more nuclear plants. Use our own natural gas, we have plenty.

Develop alternative fuels too, we got the message, we don't need ridiculous taxes to get us to develop new methods, new fuels, new technologies. We have the ingenuity, we have the technology. We'll do it. We always have.

It will all be made in America. Where everything was made.

Posted by: Steve Waechter | October 13, 2008 9:42 PM    Report this comment

Politics? Just what the heck are you expert aviation types flapping your ignorent lips about? It's the ECONOMY, STUPID! Any cash flow is better than none! Ask your FBO or the local A/P how they like all the time off they get when nobody is buying $100 burgers.
As for me, the more I fly, the better. Oh! by the way, runaway capitalism got us where we are. Not to mention the "Great Depr..., I degress, Good times will follow good cash flow.

Posted by: Larry Fries | October 13, 2008 10:42 PM    Report this comment

The main point is this : only so much oil out there, which at low prices will be decimated for mundaine purposes like driving and heating. If high prices turn such parasites to alternative fuels, that leaves all the fossil fuels for GA, whcih would then pay low prices because there would be hardly any takers for oil. Music ! However, GA is hanging by a very thin leaded thread. We need to solve that first.

Posted by: Peter De Ceulaer | October 14, 2008 2:21 AM    Report this comment

As an ardent fan of capitalism and flying, I partially agree with Paul's column. It is all about the GDP when it comes to domestic prosperity. For the US to sustain its economic development, while competing globally for commodities with emerging third world nations, America must become more self-sustaining. If not, ever increasing portions of our gross domestic product will be diverted to foreign economies to obtain commodities such as oil.
Paul's wish to maintain a negative economic incentive to promote conservation of oil has good intentions but I would prefer positive governmental incentives for greater energy efficiencies and conservation.
Bruce Vinnola

Posted by: BRUCE VINNOLA | October 14, 2008 8:00 AM    Report this comment

Was it a coincidence that the home mortgage collapse occurred not long after the enormous run-up in mogas, diesel and home heating fuel prices? I don't think so. It is true that the "toxic" mortgages were "toxic" before the price run-up. But it was the price run-up that made people choose between filling the tank and getting to work, versus paying the mortgage. Guess which option won?

Had the price run-up not occurred, the "toxic" mortgages would have defaulted at a manageable rate. With the price run-up, the rate of default became the collapse that we are presently unable to fathom.

And never mind what social engineering resulted in the "toxic" mortgages getting written in the first place.

The country was built on economical fuel. So was all of aviation, including our beloved general aviation. If in fact there were no domestic oil reserves available to be exploited, then there would be no alternative to adapting to the high prices. But there are domestic oil reserves that are intentionally prohibited because of a fundamental position of one of our political parties. So there is a choice. The high prices are not unavoidable. Paul thinks the high prices are a good idea. I don't.

Posted by: FRANK NATOLI | October 15, 2008 8:55 PM    Report this comment

Hi from Brisbane, Oz.
This comments section is a real eye opener - I guess we are not sampling from the whole population with an aviation website readership but the "socialist" mud being thrown at this guy is striking to this Aussie. I guess you guys fought the cold war and are freaked by any whiff of anything other than pure marketism. I am also putting some of this down to all the money many people who read this site have probably lost recently. I love America but you guys have developed a reputation in recent decades for being a failing state, in terms of society/social issues. Don't worry, we are trying to catch up. Over here, a school shooting is announced on the news as, "... in the latest school shooting in the United states ..." That's pretty bad. At some stage I hope the pendulum swings back a bit the other way - you don't have to be commos to care a bit more for your fellow man. Every kid here learns about how in WW2 the Australian and Brit POWs had much higher survival rates than US POWs because they stuck together and looked out for each other. The US guys had more of an every-man-for-themselves attitude apparently.
Personally, I think there are better ways to achieve change that over-taxing something. But calling this guy a socialist? Crazy stuff. He does good interviews and writing that sort of stuff about him is silly - its easy to say on the Net but I bet most of those people flaming him would be too ashamed to say it to his face.
John Hogan

Posted by: John Hogan | October 16, 2008 9:33 AM    Report this comment

John: there appears to be one "fact" in your post, that sixty years ago Australian and Brit POWs had a higher survival rate than American POWs. And that is relevant to the price of oil in what way? Everything else in your post is gratuitous opinion, which, curiously, you attack when directed to Paul. I happen to like and enjoy reading Paul, though I definitely live on the opposite side of the political track from him.

Here's a few facts for you, vis-a-vis your "your guys...are freaked by any whiff of anything other than pure marketism". (1) Oil prices are where they are because OPEC functions successfully as a monopoly, the essence of the state run market. (2) OPEC can successfully function as a monopoly because the United States, with at the very least hundreds of billions if not trillions of barrels of economically exploitable oil reserves, has because of dubious science and political considerations chosen to not exploit those reserves. (3) The comments about the latency in bringing new oil to the market, and therefore being a bad idea period, are completely ignorant of the way the market anticipates changes in supply. (4) The comments about whatever reserves the U.S. has being not enough to eliminate imports, and therefore being a bad idea period, are also completely ignorant of the way the market anticipates changes in supply.

Posted by: FRANK NATOLI | October 16, 2008 10:47 AM    Report this comment

(5) The financial meltdown we are presently experiencing immediately followed the oil price run-up, which was causal of the meltdown, and both phenomena, the oil price run-up, and the "toxic" mortgage loans, are products of government interference in the "pure market". (6) I am presently paying $0.21/KwH for electricity in New Jersey, while a good friend in Missouri, a different grid, is paying $0.085/KwH. This is entirely because his grid supports economical power plants, whereas my grid, thanks to government interference, does not. (7) The French generate 85% of their electricity with nuclear power, and we, the country that invented the technology, generate less than 20%, thanks to government interference. (8) The French store all their nuclear waste in a single [large] building in Le Havre, because they post-process the fuel. We are prohibited from post processing thanks to a [Democrat] Carter Administration regulation prohibiting it. This results in an enormous increase in the volume of nuclear waste that must find a home. Thanks once more to government interference.

Editorial: You're welcome to sing the praises of your homeland. But you can keep your gratuitous criticisms of the U.S. to yourself.

Posted by: FRANK NATOLI | October 16, 2008 10:47 AM    Report this comment

Excellent analysis, Frank. The only point I would add is that the size of our untapped oil reserves is proportional to the demand for it. As an example, in 1969 it was stated that the Oklahoma oil fields were down to 125 million barrels. Over the next 25 years the demand increased, new extraction technologies were developed and 4.5 billion barrels were "discovered" there. By artificially suppressing our production we back-burner this cutting-edge technology. And as counter-intuitive as it sounds, taxing energy to force down consumption has historically had the opposite effect. We find more efficient ways to extract energy from oil and consumption ultimately increases. The ever increasing consumption of energy has made the U.S. the economic and technological giant it is, but the suppression of both production and demand before we have suitable alternatives to oil could lead to its demise. We have the oil but it's controlled by politicians who are at best feckless and at worst willing to leverage the media's miseducation of the populace to create "crises" from which to "rescue" us.

Posted by: RIC CARHART | October 16, 2008 8:36 PM    Report this comment

Ric: there is a unique political aspect to the run-up in energy prices, be they mogas, diesel, fuel oil or electricity. That unique aspect is that it has to hurt everybody in order to be "effective" in reducing demand. The same people who plan to "solve" the problems of affordable medical care or retirement by taxing group "A" and subsidizing group "B", and in the process buying the votes of group "B", cannot follow the same strategy with energy prices. That is because group "B" will not alter its behavior if their energy costs don't hurt, and subsidies to group "B" will remove the hurt. So plans to coerce changes in energy consumption, of necessity, have to be most malicious on those least able to afford the price increases. But group "B" will still vote into office the very people who will crucify them with energy price increases. Nice trick, eh?

Posted by: FRANK NATOLI | October 16, 2008 8:58 PM    Report this comment

Hi Frank,
I am sorry but not surprised that my response to the way Paul is being attacked has got your back back up. Seeing the posts sure got me thinking and what I wrote was my musings about it. And yes, there are criticisms in there because we are all on the same team, mate, but as a country you guys are embarrassing us right now. Hard to hear and hard to care for many but its true. And no, I am not anti-american, just anti-moron. We have plenty too but yours can and are doing more damage. We desperately need you guys to succeed.
To focus on my original thoughts about Paul's article - I disagree with simply over-taxing something to reduce demand - its artificial and I think that the negative way is not what we elect politicians for in a democracy. A crisis often brings out the prescriptive plans, rather than the elegant, far sighted ones. The better way I think is for the government to modify the market by encouraging (ie: paying for) the research and development of something that people will prefer - like cheaper and more sustainable bio-somethings. We fine people for speeding, Paul's plan sounds to me like fining people for flying, when in and of itself flying is not a crime or to be discouraged....

Posted by: John Hogan | October 17, 2008 5:46 PM    Report this comment

... And light sport aircraft are more efficient per mile than the vast majority of cars. I am a big advocate of having a network of airfields with cheap hire cars so that more people can treat light aircraft as part of their transport system.
re your points 1 and 2: I agree - but none of us have learnt much since 1977 huh? A concerted effort could have put OPEC back on camels by the 90's but market forces meant that it was easiest to let this happen again. Burning oil could have been seen as something that poor people do in dirty 3rd world slum cities. Instead my kids will still grow up breathing unburnt hydrocarbons in what is apparently one of the worlds top 10 most "livable" cities.
3 and 4: I have read that refining capacity is a big issue - that the big oil mobs are loath to build more refineries because they think peak oil is past us.
5: I agree - the oil price hike was the tipping point I believe. But the debt bubble had reached the point some time before that where it was (relatively) three times as big as just before the great depression. That and the foreign oil dependence should have been considered actionable security issues but the current administration did not act. If I had wanted to hurt the US, I would have been incredulous that you guys would leave yourselves so open to economic attack. Tom Clancy could not have written this any better...

Posted by: John Hogan | October 17, 2008 6:13 PM    Report this comment

5. Cont... I disagree - the market created this because some of its participants were fools, and their stupidity was slowly legitimized as the debt was passed up the chain. While the market is the best system we have, some years ago I coined the term "marketism" for those who believe the market is always right - its just not possible. The market allowed us to tolerate and even encourage monopolies - they give good dividends to shareholders.
re Nuclear - We have more coal and uranium here than air, just about, so this debate has been raging. The French government decided to go nuclear for energy security. Coal was and remains cheaper per kilowatt hour. You have government interference around the wrong way there. And thats my point I guess - government is supposed to be our best and brightest and to look ahead and steer us (and your beloved markets :-) ) around potential trouble. Markets are the closest to the biological processes that (allegedly) made us, but unfettered human markets are dangerous and unsustainable.

And Australia is just where I am from. Homeland sounds like cold war BS. We are all in this together and if you fail, we fail. Only those heading for a fall think they are above criticism.

Posted by: John Hogan | October 17, 2008 6:37 PM    Report this comment

John: you appear to be a reasonable guy, even if you persist in gratuitous insults such as “you guys are embarrassing us right now” and “I am not anti-american, just anti-moron”.

You also write “The better way I think is for the government to modify the market”. Stop right there. I made a reasonable, rational and objective case that the U.S. government did indeed “modify the market” by empowering OPEC, by strangling U.S. domestic oil production, by strangling U.S. nuclear power, by requiring banks to make fantastic sums of zero down payment mortgage loans to uncreditworthy people, and your rebuttal is for more government interference in the markets? With all due respect to Paul Newman in “Cool Hand Luke”, what we have here, is a failure to communicate. In this and many similar issues, government is the problem, not the solution.

If the U.S. government hadn’t interfered in the oil industry, by forbidding drilling in ANWR, Alaska offshore, California offshore, Gulf of Mexico offshore, Atlantic offshore, Montana/Dakota Bakken field, and Rocky Mountain shale oil fields, OPEC could not operate as a monopoly, and oil might be around $30/barrel, and we’d be burning cheap avgas to our heart’s content.

Posted by: FRANK NATOLI | October 17, 2008 6:44 PM    Report this comment

“Burning oil could have been seen as something that poor people do in dirty 3rd world slum cities. Instead my kids will still grow up breathing unburnt hydrocarbons in what is apparently one of the world’s top 10 most "livable" cities.”

Internal combustion engines in the last forty years have become extraordinarily efficient, and referring to the process of “burning oil” as “something that poor people do” has nothing to do with reality, and everything to do with environmental hyperbole. Such hyperbole is a death sentence for the entire general aviation fleet.

“The big oil mobs are loath to build more refineries because they think peak oil is past us.”

Believe what you want, but it is fundamentally impossible to obtain zoning approvals to construct new refineries in the United States. It is a classic Catch-22: if you build near a populated area, you’re a racist for polluting the air where certain racial victim groups live. If you build in an un-populated area, you’re spoiling pristine nature. Give the refiners an ironclad expedited process for getting zoning approvals, and if they then refuse to start construction, I’ll buy you a beer. But until then, the problem remains the government.

Posted by: FRANK NATOLI | October 17, 2008 6:44 PM    Report this comment

Hear,Hear! Frank. The mess we're in now is not due to capitalism but the ineptness, coruption and over regulation of government. As Ronaldo Magnus said, "government is the problem." Higher taxes, more regulation, and more social programs will make things worse.

And John, I'm sure you're swell mate, but enough of the backhanded swipes at the U.S. of A. This is the country that the world most admires, inspite of the propoganda put out daily by the politically correct and the world's liberal media. This is the country that the oppressed peoples of the world would most like to emigrate to. We have the highest worker productivity, and among the lowest unemployment of any industrialized country. We still cherish indiviual freedoms over benevolence of the state, and believe that the way to make things better is through individual responsibility rather than wealth transfer mandated by the state. And thank God we have a Bill of Rights with a Second Amendment; something most of your social democracies around the world don't have...

Posted by: Dennis Crenshaw | October 18, 2008 9:33 AM    Report this comment

...If we're all standing around waiting for government to solve our current morass, we might as well throw in the towel now. Government can't do it.

Paul, see what a can of worms you've opened up?

Now, as soon as the wind dies down and the sun starts to peak out a little here in the southeast, I'm going to go out and spend $50, burn some hydrocarbons, and fly my classic Stinson 108 for an hour this weekend. The hell with the evironmentalists and the politically correct.

Posted by: Dennis Crenshaw | October 18, 2008 9:34 AM    Report this comment

Well that's it! We have vented. We now know greed and power are two volital cocktails. Surprise, Surprise! Let us come together, behind a leader with BRAINS, and get on with finding ways to reverse the ship. This problem of economy is only the tip of the proverbial iceberg. Overpopulation and natural forces will resist the most vigorous measures we employ. There will be a shortage of EVERYTHING for the world's inhabitants for at least the next 11 years. The good news is we still, in this vast country, have the size and resourses to sustain. It's time to turn inward, for a change, and make it work for us. Select your LEADERS well. READ the words of the founding fathers. They were drunk on booze and vission. They knew this time would come. And they knew that TOGETHER with strong intellegent leaders AND citizens we could survive. PREACH this concept and follow its' message. We are a frail and self-centered bunch. This could be our last chance to prove we CAN work together to a better future, or perhaps none at all.

Posted by: Larry Fries | October 18, 2008 1:51 PM    Report this comment

"There will be a shortage of EVERYTHING for the world's inhabitants for at least the next 11 years."

When I was a kid, growing up in the 50s, the guys who walked up and down the streets with the boards marked "repent, the end is near" were regarded as innocuous insane curiosities. Today, the boards are marked as quoted above, and the majority of Americans apparently intend to vote as if they were written on tablets from Sinai.

Roughly twenty years ago, a similar shortage prophecy was challenged. The challenge was to make a list of ten commodities that would, in ten years, be in short supply. Guess what? All ten were in more plentiful supply after ten years. Think it's apocryphal? Would you like to see the references? If I provide the references, would it change your mind?

Posted by: FRANK NATOLI | October 18, 2008 5:48 PM    Report this comment

There are always some ready to fight or at least bet on anything. If you are one of those so be it. However, past performance is not the perfect predicter of the future. The simple fact that sun spot activity will cause a drought and power interuptions is a predicable fact. Take a close count of the population and growth and places to grow and harvest food. Now, throw in increased weather related damage and a world economic downturn. Are you a betting man?

Posted by: Larry Fries | October 18, 2008 7:16 PM    Report this comment

"There are always some ready to fight or at least bet on anything."

For some, certainly true! If you want to fight or bet, find someone else. I was trying to reason, to show that every time your prophecy was made to date, it was dead wrong. You know Santayana's line about those unwilling to learn from the past, right? You are going to be the exception, not learn from the past, and be bang on, right? And in the process, you're going to insist that all of us live our lives under energy policies that accept your prophecy as fact, right? OK if I opt out?

Posted by: FRANK NATOLI | October 18, 2008 7:25 PM    Report this comment

Please, I did not mean to affend anyone. Just the opposite! Frank, do not opt out! Fight! Just pretend the sky is falling and do those things as if it were. My wish is that we pull on the same side of the rope and pull ALL of us up! Our grand parents survived the deprssion, the dust bowl, and Corpus Cristy along with WWII! WE CAN do it! But, these things require the deep pockets only government can provide. So, I say choose your leaders well. And to do that, we must educate, inform, and UNITE. You have the education and information whats say we work together for the common good?

Posted by: Larry Fries | October 18, 2008 8:44 PM    Report this comment

Paul, did I detect a tone of disparagement when you singled me out by name and mentioned that I described myself as a "life-long oil man" in one of your subsequent AvWeb reports?

Perhaps I should have mentioned in my blog that it was my company (employer) that discovered the giant oil deposit at Prudhoe Bay on the frozen North Slope of Alaska, that built the Trans-Alaska Pipeline, that built special tankers to haul the Alaskan crude oil to our West Coast, and that built the last refinery in the United States near Bellingham, Washington more than 30 years ago.

All of the above contributed in a big way to lessening the dependence of our West Coast on foreign oil.

You see, Paul, it has been done, and it can be done again.

American ingenuity, tenacity, and perseverence can accomplish great things. Paralyzing politicians cannot!

Posted by: SAMUEL MCCAULEY | October 19, 2008 8:11 AM    Report this comment

No disparagement at all, Samuel. (You did use the term "life-long oil man.") I was actually writing in support of your point of view. Normally, I don't reply in the comment section because this is the readers' sandbox. I have my own to get the blog started.

On many subjects where politics intersect with aviation, I find that ideology often guides the discussion independent of facts. For example, in this discussion, I see much of the blame for a lack of energy policy placed on politicians and especially the "environmental lobby." There's truth to that--but as a journalist, I always ask for specifics. Cite attributions and facts, not bland talking points. And there's almost always a larger, more complicated picture at play, thus the situation is shades of gray, not black and white.

So when you said the U.S. has vast untapped oil reserves, I felt it worth noting that a curious reader can in fact confirm this. But it's also worth noting that it's not just politics that have prevented these reserves from being produced, but also economics. And the oil industry is hardly speaking with one voice on how economical these reserves are.

For blogging, reporting and in life in general, I strive to keep an open mind toward all sides of an argument. To me, that is the essence of critical thinking.


Paul Bertorelli

Posted by: Paul Bertorelli | October 19, 2008 11:37 AM    Report this comment

Paul: The environmental lobby, acting through the political party to whom it directs virtually all of its PAC money, has intentionally strangled U.S. domestic energy production as per the following specifics.

Posted by: Paul Bertorelli | October 20, 2008 2:37 PM    Report this comment

Paul: your reply does not directly address any of the five items I listed, all of which are peculiar to the party that is going to control us for the next four years. That is because...you ask for specifics but have no reply to specifics?

Your observation about Crist et al [and Jeb Bush before him] perfidy on "fouling the beaches" is well taken. It is indeed political. But if the politics were as evenly apportioned as your reply would suggest, Sierra Club et al would be contributing equally to Dems and Reps. But they're not. Do they know something you don't?

"For blogging, reporting and in life in general, I strive to keep an open mind toward all sides of an argument. To me, that is the essence of critical thinking."

Quite correct. But having ingested all the sides, all the information, and then being unable or unwilling to reach a conclusion, suggests some kind of hopeless cerebral thrashing, an eternal and endless debate of the mind. Such a state couldn't be further from the definition of critical thinking.

Posted by: FRANK NATOLI | October 20, 2008 2:49 PM    Report this comment

Paul is absolutely correct in stating that SOMETHING has to be done and really soon too. General Motors has seen the light with their decision to pursue production of an electric automobile. Chrysler promises to deliver a sports car which is supposed to have a range of up to 200 miles by 2010. My prediction is that any automobile company which fails to produce an economic and useful electric vehicle within 3-5 years will go bust. And I am not sure that that many more power stations will be required to provide the power as the vast majority of these vehicles can be charged overnight when demand is lower. Electric vehicle owners can be offered incentives such as use of transit / bus lanes during peak hours, lower parking fees in cities and lower licence fees etc.

Posted by: David Venish | October 20, 2008 6:27 PM    Report this comment

The days of passing on needed oil extraction from offshore resources out of fear of fouling the beaches or nutty public opinion are over, Paul.

We have to develop our own resources, and we have to do it now.

We may not particularly like seeing oil rigs off the coast, oil drilling in ANWR, and nuclear power plants all over, but we have to put that aside and do it, and now.

The alternative, giving up hundreds of billions of dollars to foreign countries who don't particularly like us or sitting here in the dark unable to go out or even to turn on the lights for fear of using too much power are too awful.

Anyone who doesn't like it needs to get the heck out of the way. Move somewhere that you like it better, except there isn't any place like that.

This is the greatest country ever and we need to solve our own energy problems. Nuclear and natural gas, and yeah, our own oil resources, not imported oil.

Liberal lunatics who want to keep us riding bicycles or buses need to be done away with. That's the real problem here. Fear of fouling the beaches. Gee whiz, we'll just have to be extra careful, won't we?

Posted by: Steve Waechter | October 20, 2008 8:30 PM    Report this comment

"Fear of fouling the beaches."

That is one reason some people do not want new fossil fuel exploitation. But, as the Snopes link that Paul provides makes clear, it is the CO2 emissions that the same some people regard as anathema to the environment that is the ultimate consideration. That means even if mogas or diesel or home heating oil or avgas or jet-A could be delivered to the gas tanks with zero effect on the environment, the same some people do not want it, because the same some people do not want you to burn it, period.

This is not science. This is religion. I can recognize it as such, because I am a relatively religious guy who has spent his life in the engineering world. To some people, that may seem a contradiction, but it is not. Very simply stated, I believe I ultimately answer to a Creator who makes the rules. As such, it is up to me to understand the rules and play by them, not for me to make the rules, not for my opinion to trump all evidence or rules to the contrary. It actually is the same in the engineering [and science] world. It is not for us to make the rules, or to allow opinion to trump the evidence, rather, it is for us to learn the rules and the evidence and how our intuitive sense is quite often dead wrong.

Posted by: FRANK NATOLI | October 21, 2008 9:46 AM    Report this comment

But in a Western world that predominantly answers only to one's self, it is not surprising that one's opinion, one's intuitive sense, becomes the almighty arbiter of right and wrong, fact and fiction, and what to impose on everyone else, hello President Obama, a filibuster proof Democrat Congress, and a Democrat judiciary at all levels.

I made a good faith effort above to document how one side has prevailed in strangling domestic energy production, even to the extent of preventing the mining of uranium or merely ascertaining of the quantity of offshore reserves. But it didn't make a dent. And that's because environmentalism is a matter of religious faith, not a science derived from fact and experimentation.

Posted by: FRANK NATOLI | October 21, 2008 9:47 AM    Report this comment

And that's because environmentalism is a matter of religious faith, not a science derived from fact and experimentation.

Posted by: Paul Bertorelli | October 21, 2008 10:25 AM    Report this comment

Am I take this to mean that you view all the serious science done on CO2 levels and climate change is merely religious faith, not science? In other words, any treatise on ocean warming, CO2 levels, rapid ice melting and the like that may connect to something called environmentalism is...just religion?
I suspect those studies are largely done to prove a point by people who actually want to prove a certain thing as scientific fact. Frank's environmental lobby. FWIW I am an environmentalist, I wouldn't support doing anything to hurt the environment. But those studies, well, if you can't win your own study, whose can you win?

Posted by: Steve Waechter | October 21, 2008 10:51 AM    Report this comment

1. It's a good thing we have people like you around to lobby in favor of forcing people to behave the way you think they should.

2. This is bad economics anyway. If a bunch of people reduce their oil use it will simply leave more for other people, most of them in other countries. All taxes will do is make the population is a bit less free, a bit more poor, and the ruling class (the state and its armies of employees) a bit more powerful. And someone else will have more oil.

3. The assumption that oil is the most ecologically damaging energy sector is quite possibly untrue. It's at least quite efficient in terms of land area used and other resources (think water) consumed. The cars run cleanly now. Even the CO2 is grey area; in some ways its increase is a good thing, we are replenishing the much greater amounts the atmosphere once had, and which all the vegetation lives on. Those trees aren't created out of earth, all that plant material comes from carbon extracted out of the air.

4. You can't dismiss the wisdom of drilling for oil by simply sneering at it. It's been funny to watch that aspect of this campaign. People try to tell us that drilling for oil doesn't produce more oil. Uhh, how did we get what we now have?

5. I'm aware that your views are common and are commonly repeated by politicians, schoolteachers, and other keepers of dogma. That's doesn't make them any less inaccurate. Can you at least not use the word "logic" when you spew them back in the future?

Posted by: John Doe | October 21, 2008 1:26 PM    Report this comment

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