IBD-Editorials 11/04/08

~ Vision-4-Freedom ~

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By: INVESTOR'S BUSINESS DAILY

Posted: Tuesday, November 04, 2008 4:20 PM PT
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Energy: With the economy slowing, gasoline is lower at the pump and many are relieved. But the U.S. is still as dependent as ever on imported oil, and remains vulnerable to disruption. This is no time to get complacent.

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IBD Series: Energy Read More: Breaking The Back Of High Oil

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This year's spike in energy prices served as a reminder that we still depend on imported oil for 60% of our consumption and that petrotyrannies can still take advantage of high demand and a dominant market position to manipulate supplies with impunity.

The U.S. also has lots of energy resources, but we can't develop them. Alaska Gov. Sarah Palin came to the fore in the election precisely because she's serious about tapping new U.S. supplies. Yet as the election draws to an end and a financial crisis commands attention, drilling for oil and natural gas has slid from the front pages.

It remains an issue, though, and the Democratic side of the ticket talks of coal as "dirty energy" and calls for bankrupting the industry or shipping it to China. Easy to say when energy is cheap and abundant. But what hasn't disappeared is America's continuing dependence on imported oil.

U.S. crude oil imports in August rose 1.8%, or by 183,000 barrels, over July, according to the Energy Department. It was the highest monthly increase in a year and contrasts sharply with the 2% decline on all imported goods in the same period.

In August 2007, crude imports actually fell from the previous month, though only by the tissue-thin margin of 26,000 barrels.

So even though energy prices are down, oil imports and the dependency that comes with them are not going away.

The U.S. still uses 21 million barrels of oil a day to make every light bulb, car, gear, microphone, computer, train, ship and farm fertilizer work. It imports 12 million barrels of oil and petroleum products to meet that vital economic need. Six out of 10 barrels of these imports come from the Organization of the Petroleum Exporting Countries, many of whose members are hostile petrotyrannies.

Energy demand may flatten as the economy slows, but it isn't going down at the speed of other imports.

Meanwhile, the petrotyrants may be weakened by lower prices, and cheating on their quotas; but so long as America continues to import, they retain a capacity to threaten oil cutoffs.

The cutoffs, in fact, may not happen through pique, but through neglect. Production in Venezuela and Russia is falling just from chasing off foreign investment.

Mexico, meanwhile, our No. 3 supplier, is now a time bomb, its Cantarell field production expected to go dry by 2010. Reform efforts there to permit foreign partnerships are slow and minuscule.

Congress let the federal moratorium on offshore drilling expire this year and that was a step in the right direction, yet state obstacles remain and there seems to be a lack of political urgency.

But imports are still rising and in light of the instability of these suppliers, there ought to be a renewed focus on developing more domestic resources. Energy self-sufficiency is the best antidote to petrotyrannies and all the damage they do, not just to their buyers but themselves.

The issue is just as important as it was this summer. We shouldn't let the chimera of lower energy prices fool us into thinking the problem is over.

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