The Perfect Solution to Solving the Oil Crisis

Have you ever gone to a gas station to fill up your tank and realize that the fifty bucks you thought would cover the cost only amounts to half a tank? About 15 years ago that amount of money would have lasted for weeks at the pump but now in 2008 gas is more expensive and combined with the declining dollar it makes for a big blow every trip to the gas station.

The problem started with the first oil crisis back in 1973 when OPEC set an oil embargo on the United States (“Energy Kid’s Page Oil Timeline” 1). The OPEC nations did this because the United States was helping Israel in the “Yom Kippur” War. As a result of this embargo, the OPEC oil production decreased by one fourth and oil prices tripled. The next big contributor to the 70’s crisis was the Iranian Revolution between 1978 and 1980 (“Energy Kid’s Page Oil Timeline” 2). This war caused a tremendous drop in oil production as Iran failed to continue with their oil output due to the war. Also, many other Arab oil countries stopped or cut back on production of their oil to help in the Iranian war. Both of these factors caused oil prices to double again.

This crisis had remained dormant for several years because in 1986 Saudi Arabia began to produce more oil and the price of oil greatly dropped. However, in 1990 Kuwait was invaded by Iraq (Persian Gulf War) which made the oil prices rise once more (“Energy Kid’s Page Oil Timeline” 2). To make matters worse, the U.N. limited the amount of oil every country could buy from Iraq and Kuwait. Due to this unwise sanction, the oil prices went through the roof reaching a startling $36 per barrel. This lasted until the Asian economies started to falter in 1997 and their demand for oil decreased. This led to more available oil and the price for it became almost nonexistent compared to what it is now. It was around $1.25 for a nation wide average. However, this incredibly low price could be one of the reasons why people use so much gas and drive those huge and inefficient SUVs and Hummers that get around 12 miles per gallon. These relatively low gas prices have pretty much been stable up until these last few years when they really started to take off.

The current oil situation is one that should cause some alarm. Although it is not at the stage where the red lights are flashing and a huge “Warning Self Destruct Sequence Commencing” sign is up, but there definitely is a yellow caution and slow down sign looming right up front. Recently, in 2005, the hurricanes Katrina and Rita in the Gulf of Mexico and Florida almost completely destroyed all of the oil and gas lines in that region (“Energy Kid’s Page” 3). The problem with that is that one of the largest supplies of oil for the United States is located there. Also, the hurricanes caused mass blackouts all across the east coast which shut down many of the gas lines that ran to them. Michael Englund (chief economist with Action Economics) explains that the damage to oil production in the Gulf of Mexico will lead to a lower economic growth percentage for the third quarter than what was previously expected (Bhatnagar 1-2). He also insists that there will be a short-term gas crisis that will ultimately keep the gas prices high. He was absolutely right. The price of gas climbed from $2.10 a gallon to an unthinkable $3.10 a gallon nation wide (“U.S. Retail Gasoline Prices” 2-3). The next few years after the hurricane have seen the gas prices see-saw back and forth always staying within a range of $2.10 as a low and $3.10 as a high. However, from 2007 and on the price has only dropped to a low of $2.80 per gallon and currently in 2008 the price is steady at around $3.40 per gallon as of April. The price is ever increasing slowly but steadily and analysts predict that the price will reach $4.00 by the end of this summer (Mouawad 2). This second oil crisis that is currently happening is unlike the first one where there was just too little oil. According to John B. Hess this new crisis has to do with both the demand for oil and the supply of it (Mouawad 3). There has to be a stop to this drastic increase in price. Something has to be done.

Published solutions to this problem are as varied as opinions surrounding it. The International Energy Agency (IEA) suggests that the OPEC oil nations begin to increase the output of their oil to the rest of the world and/or decrease the oil price per barrel (“IEA Urges Again OPEC to Increase Oil Production” 1). This plan will include the increase of the amount of oil they are allowed to produce and export. Claude Mandil, head of the energy watchdog, explains that the oil prices are high right now because of the decrease in the value of many American stocks. He believes that if they distribute more oil, it will keep prices down and allow for a rebirth of American stocks (“IEA Urges Again OPEC to Increase Oil Production” 1).

There are several drawbacks to this solution. Ali-al-Naimi (Saudi Arabia’s oil minister) explains that because the cost of developing new supplies is so expensive, is remains extremely doubtful that oil prices would subside back to their former price of $60 per barrel (Mouawad 2). He comes to the conclusion, “Therefore, a line has been drawn below which the price cannot fall.” Another reason that this proposed plan might not work is the “Hubbert’s Peak” theory (Than 1-2). Most scientists adamantly believe that the day will dawn when the summit of oil production will have been achieved. This means that rising oil prices will only be due to this peak where they simply cannot produce enough oil because there is just not enough. The economic pressures and political pressures that once had been the main brunt on the price of oil will then be rendered obsolete. Thus the “Hubbert’s Peak” theory was born. Some scientists such as Kenneth Deffeyes, a Professor Emeritus at Princeton University, believe that this summit has already been reached in 2005. If this is true, then OPEC cannot hope to increase their output because it will only decline every year.

Another potential solution for this oil crisis is for the entire world to cut down on their oil consumption (Feldstein 1). This solution greatly encompasses the cut of European oil consumption. One of the reasons why these countries are buying and using so much of the oil is that on the international market, they use the U.S. dollar to price oil (Mouawad 1). In recent years this pricing has become a big problem for the United States because of the declining value in the U.S. dollar. This low value enables Mainland Europe and the United Kingdom (both have stronger currencies than the U.S.) to buy more and more oil, which in turn drive the price higher and higher. Because oil is priced using the dollar bill, it enables Europe and the United Kingdom to be able to afford to spend more money on each barrel of oil. For example, one English pound equals 1.9909 U.S. dollars (“Yahoo Currency Converter” 1). Pretend that the English pound equals two dollars, just so the math is simpler. Now the pound is worth double the amount of the U.S. dollar. Pretend there are two men who want to buy oil, one from the U.K. and one from the U.S. Both of them have $100 in their own currency. Pretend that oil currently costs $100 per barrel. If they both spent all of their money on oil the American will be able to buy only one barrel but the European will be able to buy two barrels. Now if the price of oil suddenly jumps from $100 to $120, the American will not be able to buy any oil but the European will still be able to buy one barrel. This simulation demonstrates that Europe is able and willing to pay more for their oil than the U.S. is. Consequently, when Europeans pay more, it drives the price up in the U.S. and they are forced to pay more because it is essential for their economy. This solution will be hard pressed to work because Europe will not be willing to halt their economy just to save the United States.

The best way to alleviate the oil crisis is to create superior hybrid and fuel efficient automobiles and to perfect biofuels such as ethanol (Meagher 1). For this solution the United States will have to come up with even better and more fuel efficient cars and transportation. There are already several different fuel sources that could potentially be used instead of gasoline. One of the more adequate ones is ethanol. Ethanol is a fuel source based on agricultural crops such as corn. This fuel would be a nice supplement to the more expensive gasoline. Dan Kammen says, “We know that ethanol is a net energy winner, with investment and innovation, it could be a huge resource” (Meagher 1). One of the better attributes about corn ethanol is that it is currently available. People can start to buy this fuel while scientists can come up with an even more affective and newer source.

The use of fuel efficient cars will not ensure that the price of oil will go down, but it will enable the owner of such vehicles to save money on gas because they will make fewer trips to the gas station. American car companies are perfecting alternative fuel combustion systems (Broder 1). One example of this is the homogeneous charge compression ignition, which transforms the way that engines use fuel. It also gives better mileage and lowers the emissions of the car. The X Prize Foundation says that it will offer a reward of $10 million to anyone who can successfully make a production-ready automobile that will be able to get 100 or more miles per gallon (Durbin 1). This is the perfect way to find new potential cars that have good mileage. The way this foundation has it set up is exactly the way it should be. It provides plenty of incentive to develop better vehicles. Most people will not do a job (or they will do the job but not as well) without a proper incentive that they feel is worth their effort for doing the job. Because of this incentive, it will cause more people to collaborate on new designs and ultimately come up with the “supercar” that exceeds everyone in the X Prize Foundation’s expectations, like the car from the company Fuelvapor Technologies. Their car is able to get 92 miles per gallon (Durbin 1). However, the Vice President of Fuelvapor Technologies believes that a hybrid model of the car could reach up to 400 miles per gallon. Now when this car is ready, the entire nation will have the choice to purchase it and save at the pump. This is without a doubt the best way to reverse the oil crisis. If this cannot be achieved, then there will never be another descent price at the gas station.

This oil crisis must be averted. Everything possible must be done to find the correct solution to this ailment. Believe in the ideas of Dan Kammen (Meagher 1) and in the designs of Fuelvapor Technologies (Durbin 1). Do not shun them for being different and revolutionary. Also, ordinary people can make a difference by saving fuel. Too many people leave their SUV’s engine running for fifteen to twenty minutes while they wait to pick their kid up from school. This goes on daily. If everyone would just turn off their engine while they wait, then the gas saved would be enormous. The best way to resolve this crisis is to come up with alternative fuel like ethanol and start mass producing fuel efficient cars that can exceed one hundred miles per gallon. If all of this is done, then there will be plenty of fuel and low prices for everyone. If nothing is done to correct this situation, then there will continue to be high oil prices and the price of gasoline will skyrocket like never before seen.