Tampa, Florida  August 24, 2012

Inside Straight Strategies

$5 Gallon – the Romney-Koch Price of Gas

As the Republicans ponder preponing Mitt Romney’s roll-call and nomination speech so they can get out of Tampa before Hurricane Isaac brings the wrath of – we are assured – God, not global warming, down on the Gulf Coast, Romney released his own energy platform, drafted from all appearances by Koch Industries, and laying the framework for a major increase in the price of driving.
This, of course, was not the packaging. In releasing his energy platform yesterday, Romney claimed he was aiming for North American Energy Independence by 2020. Most analysts scoffed at the proposal on its faceWhat no one has yet done is calculate what Romney’s path would cost if we tried it?
When you do, it turns out Romney’s plan guarantees gasoline at $5/gallon or higher – if we take it seriously. Here’s why. The price of oil is determined by the most expensive barrel that the market uses.  So you can’t reduce the price of oil by producing expensive oil – and the Canadian tar sands oil that Romney is counting on to achieve “energy independence” in 2020 is some of the most expensive oil on earth.  A few weeks ago, when oil was selling for $90/barrel, tar sands producers were cancelling big projects, because new supplies from that region are not sufficiently profitable even at $4/gallon.
North America does have enough oil to be energy independent. But it’s very expensive oil. Bringing it to market would require a very high world price to come to market – good for the Koch’s brothers, devastating for the American economy and American families.
Right now, tar sands oil does sell for less than world prices – typically $20/barrel, $0.45/gallon less.That’s because its only outlets are Canada and the Midwest – it can’t reach more expensive European markets because there is no pipeline. So Romney proposes to eliminate that brake on the cost of oil by building the Keystone XL Export Pipeline, so that Canadian producers can get their oil through, not to, the US, and ship diesel and gasoline at OPEC prices to Europe and Latin America. The Koch Brothers, with their major investments in the tar-sands, are among the major beneficiaries of the pipeline, and the swing states of the Midwest and Rocky Mountain West are the big losers.
But just in case Keystone XL doesn’t raise the price enough to satisfy Koch and Romney’s other oil backers, Mitt has another high-price plank in his plan. You can’t restore cheap oil by producing more expensive oil.  But you could get oil back down to $40-50/barrel, half of today’s level, fairly easily, by reducing demand. We found that out during the Great Recession, when a drop of demand of only 4 mbd dropped the price of oil by $50/barrel. There is enough conventional or cheap oil, mainly in the Mideast but much in Texas, North Dakota and the US Gulf, to meet global demand even at 85 mbd.
How do we get demand back to 85 mbd, from its present level of 90 mbd, and take into account the growth in the economies of places like China and India?  We build a transportation network that breaks oil’s monopoly and uses fuel more efficiently.  Romney is strongly opposed to either. He wants to kill the federal investments in advanced biofuels that might give us genuinely competitive liquid fuels, and worse, he wants to undo the Obama fuel efficiency standards by repealing EPA’s regulatory authority over carbon pollution, and to require Congress, not the Administration, to make all future regulations on fuel economy.
The Obama fuel efficiency regulations alone will reduce global demand for oil by 2.5 million barrels a day. That’s worth $25/b on the price of oil — $0.50/gallon. So Romney is proposing a double whammy on American drivers – an increase in global demand for oil, combined with a whopping jump in the price of the Canadian oil he wants us to depend on.  It’s the equivalent of a $1.00/gallon gas tax – but going to Koch, and Russian, Saudi and Venezuelan governments.
So much for cheap oil and low tax Republicans – the Koch Brothers made sure there wouldn’t be anything in the Romney platform for drivers – or the US economy.  Now I must admit – right now Mitt Romney looks like an awfully attractive candidate for Premier of Alberta, or even Governor of East Siberia.  But President of the United States – I don’t think so.

A veteran leader in the environmental movement, Carl Pope is the former executive director and chairman of the Sierra Club. Mr. Pope is co-author — along with Paul Rauber — of Strategic Ignorance: Why the Bush Administration Is Recklessly Destroying a Century of Environmental Progress, which the New York Review of Books called “a splendidly fierce book.”