It seems that the high price of crude oil internationally has caused the production of a great amount of crude oil here in the United States. The production increases has put so much crude oil on the market that it has lowered imports of oil coming from outside North America. In comes the Keystone XL Pipeline from Canada. You would think that tar sands crude would finish the job on imports and the United States would be independent from sources of oil outside the North America continent. By a strange twist the Canadian Keystone XL pipeline crude isn’t bound for us. The entire thrust of the pipeline through the heart of the United States is because the company wanting to build the pipeline, TransCanada, wants to reach international markets in Latin America, Europe, Africa and other places around the Atlantic. TransCanada plans to take its product to the Pacific Rim nations from ports in Seattle and elsewhere on the Canadian west coast.
TransCanada wants to ship its tar crude to the rest of the world by going through the United States to Gulf coast terminals and perhaps sell some to the refineries there. The oil companies and refineries at the same time got an idea as well. The crude coming through the pipelines would not be theirs; however, a new market had been growing around the world for finished refined goods that come from crude like gasoline. They had all the crude oil they needed to produce gasoline for the United States from non-tar sand sources. They didn’t want to produce too much gasoline for the domestic market and thereby reduce the price of gasoline. However, if they spent the money for the extra refining needed to process the tar sands crude they could sell products like gasoline and diesel to the world at a margin well worth the investment. So the entire plan for the Keystone XL pipeline has been hatched and it doesn’t include lowering the price of gasoline in the United States. The number of jobs that will be produced that will be permanent jobs will be minimal. A few more refining jobs, some pipeline maintenance workers and maybe a job or two at the terminal connecting to the tanker ships where all this oil and oil products will be eventually loaded up and shipped elsewhere.
The increases in production will have virtually no effect on US prices for gasoline since they are being used to feed the increasing demand for oil coming from emerging economies around the world. As more and more economies emerge from third world status into the global economy their increased demand for oil will drive prices ever higher. That is unless our United States elected officials work to prevent our excess production and the Canadian tar sand oil traversing our country, from being shipped overseas. To create the excess supply that will bring down prices we need for that stuff to stay here. (Not that I want it to stay here, I am an environmentalist. What I am doing is poking holes in the argument that we need the Keystone XL pipeline because it will reduce the cost of gasoline for American consumers.)
We can only effectively solve the affects of high priced gasoline in the United States in three ways, either a tremendous increase in domestic output of oil that creates a surplus of oil and requiring that oil to stay here, or reducing our consumption significantly thereby creating an oversupply here in the United States and requiring that oversupply to stay here, or that the we look at possible substitutes or alternatives to oil to moderate demand on oil by providing consumers choices. The first approach, increasing our domestic supply has happened, however, with exports our price dropping excess oil can be shipped overseas where the emerging economies will grow to soak up all of that extra production. The push to reduce demand is also happening. The government’s dramatic increase in Corporate Average Fuel Economy (CAFÉ) standards has pushed new car fuel efficiency dramatically upward thereby reducing the growth of the demand for oil. The recession and the high price of gasoline has also dampened demand significantly and moved consumers to purchase more fuel-efficient vehicles and less gasoline. Yet, these two major factors have not had a significant effect on the price of gasoline as of late, which is an example that oil doesn’t follow normal economic assumptions. There is greater than good chance that oil prices are dictated and manipulated quite effectively by individuals and groups who control its supply. In this case the third option, which is to find other ways to power our vehicles, may be the only true way to control oil prices. Unlike finding more oil, substitutes have a strong moderating effect on future oil prices because consumers can switch to a substitute if oil prices get too high. Alternatives or substitutes for oil provide for a more effective competition in fuels. International prices can’t go up but so high since the height of their price depends on the height of the price of its competing alternatives. Remember if oil becomes more expensive than an alternative then everyone who can will switch to an alternative to save money.
The three oil substitutes that need the fewest infrastructure changes for distribution are ethanol, natural gas and electricity. Unfortunately ethanol prices have risen dramatically in recent weeks because of the droughts in western and mid-western states. Making ethanol a real alternative would also added demand to a commodity that is not used to the demand levels of crude oil. Shifting America’s motive power to ethanol will probably push prices up much higher and production would be limited by land availability. There are also ethical problems using a food crop to power our vehicles. However, making ethanol from non-food feed stock would be a highly effective alternative to gasoline. Natural gas, on the other hand, has a very strong distribution network already in existence; it is in abundant supply and is far less expensive than gasoline. If vehicles were made to be multi-fuel vehicles, taking both natural gas and any combination of ethanol and gasoline we could be heading down the path of providing the vehicle owner with what the motive fuel arena really needs, which is a lot more choices in fuels. Electricity has the added advantage of being produced from a variety of fuel sources such as natural gas, coal, nuclear, as well as renewable sources such as wind, solar and hydroelectric power. This variety keeps prices for fuels under control by distributing demand among a wider variety of fuel suppliers.
The ultimate solution to the oil price problem would be a vehicle that can take advantage of all three fuels. This vehicle would be a multi-fuel vehicle capable of taking advantage of gasoline or natural gas, or even liquid petroleum gases such as propane or butane. It would also be a flexible fuel vehicle able to use 100% gasoline all the way to 100% ethanol and any mixture in between. Ideally this vehicles combustion engine should be reserved to play a backup role as a range extended generator for an electric vehicle similar to the Chevy Volt and the Fisker Karma set up. In this way the owner could easily choose between fuels to the one that allows him or her to keep more of their hard earned income to use for other purposes. It is the other purposes that will spur the economy onward and upward.
All three fuels, ethanol, natural gas and electricity, when combined would provide choices to consumers and provide a moderating force on run-away oil prices. They would do that by competing with each other to provide the lowest price so that each can hold onto a share of the fuel market. There are other reasons for using alternatives to oil such as the lower impact on the environment and lowering our dependence on foreign sources of energy. Still, for strictly economic reasons, alternatives are now a necessary strategic response to preventing future economic hardships caused by oil price increases and volatility.