Southwest Airlines' Herb Kelleher: Energy Independence, As You Understand It, Is A Myth
Southwest Airlines co-founder Herb Kelleher and a gaggle of other titans, from former U.S. Spec Ops commanders to Sam Gilliland, chief executive officer of Dallas-based Sabre Holdings, reject outright the idea that we can drill our way to energy independence. In an Energy Security Leadership Council report unveiled Tuesday at the SMU Bush Institute, they attempt to dispel a few myths.
Independence from foreign oil lies not in domestic oil production, they conclude, but in independence from oil, period.
"While the new oil boom will alleviate our trade deficit and be an important source of domestic employment growth, unfortunately it won't break our nation's dependence on the highly price-volatile global oil market," Kelleher said during the report's release at SMU. "'Energy independence' for the United States is an admirable goal, but even if the U.S. were to produce enough oil to meet our demand, the domestic price is still set on the global market, meaning a potential supply disruption anywhere can impact the price of oil everywhere."
Take the current state of domestic energy, for example. Contrary to campaign-season distortions that President Obama has somehow hamstrung energy companies, the United States is in the midst of a fossil-fuel renaissance. The last three years represented the longest consecutive yearly growth in production since the mid-'80s. Crude oil production increased 14 percent between 2008 and 2011 -- the biggest increase since the '60s. Domestic liquid fuels have reached 8.8 million barrels a day, the most in 20 years. By any metric, this is a boom.
It happened for a few reasons. Oil prices have marched ever upward over the last decade. A "perfect storm," the report says, of the right technology and the right price at the right time ignited a natural gas bonanza in places like North Texas' Barnett Shale. And even when natural gas prices collapsed, the technology we developed in the shale translated to unconventional oil plays.
In the short term, it may give the economy a shot in the arm. But it won't lower gasoline prices. That is, of course, the opposite of what we're so often told -- that if we just drill enough, prices at the pump will fall. The idea is nothing new. In fact, it's been a centerpiece of political discourse for decades anytime gas prices rise. Yet it's a fiction. We've spent $800 billion annually on oil for the last five years. Our economy is inextricably bound to its price. Oil is basically the only thing that fuels our cars, trucks, airplanes and ships. When oil prices rise, we don't get to balk. We have no choice but to pay up, and that usually comes at the expense of paying for other things, sending a growth-stifling shudder through the rest of the economy.
The forces that push and pull the price of this one, true currency are beyond us. It is pretty easy to ship, so its market is global. It's a commodity whose value is shaped by the fortunes and conflicts of oil producing and consuming countries -- or even by countries that control important shipping channels, the report says (think OPEC, Iran). "The key consequence of this dynamic is that changes in oil supply or demand anywhere tend to affect prices everywhere."
When we say we seek energy independence through domestic energy production, we're thinking about the external forces pushing the price of oil all wrong. Our exposure to oil price volatility isn't a function of how much oil we produce. It's all about how much we consume. And its our utter dependence on it to move this country that has nearly derailed our economic recovery over the last few years. Think of the cost to each of us. We've spent as much as $4,000 a year on gas while earning a stagnant median income of $49,000 a year.
It's tempting to point to other success stories like, say, the shale gas boom and the glut that drove prices into the basement. But there's a fundamental difference. There isn't really a global market for natural gas. Drill, baby, drill may be catchy, but that doesn't work on oil prices. It ignores (or is willfully ignorant of) the realities of a global oil market. Take Canada and Norway: They're net exporters of oil these days. Bet they got real cheap gas, right? Nope. Their retail fuel prices track global oil prices.
This isn't to say there aren't benefits to domestic energy production, the report concludes. It wouldn't hurt to reduce our yawning trade deficit. And we've taken a few, meager steps to reduce our dependence on oil. The rise of mass-production electric cars helps. And recent fuel-economy regulations will reduce demand for gasoline and diesel by 3.7 million barrels a day by 2030.
But until we don't depend solely on oil to move us, that nearly $4-a-gallon gas will remain a fact of life, no matter how many wells we drill, baby.