MB: Whatever happens vis a vis our energy transition, it will involve a long time and lots of moving parts. But what about the near-term?  Can we expect to see any changes, energy-wise, in say the next two years? The next ten? Severin?

SB: I don’t think we’ll see an increase in energy prices from taxes by any substantial amount. Natural gas and coal prices are unlikely to rise very much. Oil prices might rise again for the same reason they rose in 2008, which was a short-run production constraint. Geoff made this distinction, quite rightly, between the ability to produce oil and the amount in the ground. And if we see a vast [economic] recovery worldwide, we might see oil prices go back up again. Futures prices tell us that they are going to drift up and that’s probably the best guess. Which means gasoline prices will probably go up a bit from where they are right now, but won’t skyrocket. And we’ll probably continue what we’re doing.

MB: Geoff?

GS: In the short term, we’re not going to see very much different. Certainly continued volatility. If you look 10 years out, people are going to be noticing renewable energy cropping up all around them. If it hasn’t already come to your neighborhood, it’s going to. At the same time, people are going to be frustrated and disappointed at how reliant we still are on fossil fuels. 

MB: Lisa, anything to add?

LM: There is a lot of unpredictability. We haven’t decided what sort of climate change regime we are going to use and that keeps the industry in the U.S. trying to second-guess, especially in the refining industries. We have the whole issue of storms coming in and hitting the part of the country where we produce a third of our oil, refine half of it, and keep all of our strategic petroleum reserves. We have had the experience of Katrina hitting and prices going up. We have this political insecurity in the Middle East. There are a lot of things that could actually give us another Black Swan event. We just had one with the [Gulf] spill.

It’s very difficult to predict what’s going to happen, except that the American population does seem to be a bit numb to this. The predictability of that numbness, and the fact that there are actually m
any and increasing risks in the supply chain is what bothers me. Those two things are kind of out of sync.

MB: Speaking of risks, while we’re trying to set a safer, more logical course for our long-term energy future, what do you think about the short-term issue of offshore drilling: necessary and safe? Yes or no. Geoff?

GS: Absolutely necessary unless we just want to continue importing more and more oil from OPEC. 

MB: What about safe?

GS: If you look at what happened in the Gulf as a statistical event, with a very low probability, and if you look at the response that the industry is putting together — a billion dollars to create these marine well containment systems and things like that — then [offshore drilling] is prospectively much safer than it has been in the past. At the same time, if we end up with something that looks like a moratorium, a lot of that R&D won’t happen.

MB: Lisa, offshore drilling necessary and safe?

LM: All oil is risky. You bring it in on a tanker, there’s a chance something happens with the tanker. Offshore drilling is necessary if we are going to continue to use the amount of oil we use, which is enormous. Is it safe? It’s as safe as we are willing to regulate it to be. There are obviously problems in the safety arena, but everything I’ve read about the Deepwater Horizon disaster suggests that there were a cascade of bad decisions. 

MB: Severin, what do you think?

SB: I can’t really comment on safety. But [offshore drilling] is not at all necessary. In fact, it [doesn’t produce] enough oil to substantially change either the world price of oil or our trade balance. The reason you should allow drilling for offshore oil is because you think the value it creates is greater than the environmental risk. And I don’t know if that’s true or not. But the idea that drilling in the Gulf is going to substantially change our oil position when we are talking about a drop in the bucket in terms of the world market, and even a pretty small share of U.S. consumption, is just getting the economics wrong. We have to recognize that offshore oil drilling should be regulated and determined by the economic value it creates.

GS: I would disagree with that for equally sound economic reasons, having traded this stuff for many years. Basically the price is set at the margin. You’re dealing with OPEC, which basically controls the global price. But the price tends to go up when non-OPEC production doesn’t keep up with demand. The price goes down when non-OPEC production exceeds demand. Take a million barrels a day out of U.S. production and you’ve significantly shifted the market power towards OPEC. So, big impact on prices.

SB: If you took a million barrels a day off the market over 15-20 years, it will have no noticeable effect. 

GS: Not over 15-20 years. But if you’re looking at three, four, five years, the depletion rates are pretty high.

LM: From a moral perspective, I don’t believe it is right for the U.S. to simply import oil when we’ve decided that it’s too risky to drill off our own coast. To be importing from countries like Nigeria and Angola, and even countries in the Middle East where there are not the same sort of environmental standards or where there is simply not the same accountability, I don’t think that’s right. The moratorium on drilling is in many ways an easy way out for Americans — we don’t want the environmental effects on our own shores, and we’re going to let it go to somebody else’s. And it’s a relatively easy political victory, when in fact what we really need to do is work on reducing our demand dramatically. 

MB: We’ll have to end it there. I’d like to thank my guests, Lisa Margonelli, Severin Bornstein, and Geoffrey Styles. It’s been a pleasure speaking with you. This is Mary Bruno for Grist Talks. Thanks for listening and please tune in next time.