What Unrest In Egypt Means for Oil Prices at Home

02.08.11David Holt, President, Consumer Energy Alliance

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Americans are all too familiar with the ways political instability in oil rich places like Iraq and Saudi Arabia impact the price they pay for gasoline and heating oil. But uncertain energy prices affect the economy at large -- not just the cost to refuel our cars and heat our homes. A strong, growing economy depends on stability in the markets. This week, amid widespread unrest in Egypt, we have gotten a sobering reminder that even countries that are not large oil producers can influence global crude oil prices. The current crisis in Egypt has the potential to reverberate across the region and lead to more political unrest and even greater market volatility. Indeed, it is a small and tightly interconnected world when it comes to the politics of oil.

Crude oil prices have been volatile, surpassing $100 a barrel, and most people are pointing to the situation in Egypt for an explanation. In many ways, this is a familiar story that has been playing out for decades in different parts of the world. The difference this time is that Egypt has very little oil. Its ability to influence world oil prices results from its control of the Suez Canal, which as a key waterway connecting the Middle East and Europe, is the gateway for two million barrels of oil being transported to points west per day. Without the canal, ships must carry their cargo around the entire continent of Africa -- increasing delivery time and costs.

While different world leaders in the past have attempted to influence oil prices for their own gain, this is not what is happening in Egypt, where local residents are more worried about food prices there than gasoline prices here. But if increased volatility in world crude prices was a totally unintended consequence of the uprising, it is no less significant to oil-dependent economies like our own. In short, Egypt has caught us all off guard.

One of the many lessons of the turmoil rapidly unfolding in Egypt is that, when it comes to the complex geopolitics of oil, it is hard to predict where the next threat will come from. We focus directly on a relatively small but influential number of oil-exporting nations, often failing to recognize how dependence on foreign oil also leaves us vulnerable to events occurring elsewhere. As a country, we should be able to react to events in Egypt without the impact on oil being our primary concern.

Despite current market volatility, the United States has the opportunity to implement a smart, balanced energy policy that draws upon our vast and diverse natural resources. This means expanding access to both onshore and offshore energy sources, developing alternative and renewable energy, and making it easier for energy producers to do business in the U.S. While the United States will never be immune to significant global events like the uprising in Egypt, we may be able to mitigate the effects with a more comprehensive energy policy and provide greater stability and security for consumers here at home.

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Reader's Comments

Date	Comment
Ferdinand E. Banks 2.9.11	I agree completely with the last paragraph in this paper. The problem is that the man who should have written that paragraph, and included an expanded version of it in every speech he gives, as well as dinner table conversations, evidently does not do so. That man of course is Energy Secretary Chu. Dinner table conversations? Well, why should they be different from his formal talks, speeches, lectures, etc, which according to what I have heard are not exactly exhibition standard.
Len Gould 2.9.11	Everyone, including Mr. Chu, should get a chill feeling from the Wikileaks item in which a "prominent insider" (can't recall who) confirmed that Saudi oil reserves are overstated by 40%.
Malcolm Rawlingson 2.10.11	That;s why the UAE is building 4 nuclear plants. They know they are running out of oil. A good article David. But there is good news. You very stable and friendly neighbour to the North has more oil than Saudi Arabia and a lot more oil if the Saudis overstate their reserves by 40%. TransCanada recently completed the second part of a crude oil pipeline that carries Alberta oil from Hardisty to Patoka Illinois and then down to Oklahoma. On the way it can pick up oil from the Bakken oil shale in the US. Current capacity is 595,000 barrels of oil per day. An extension to that system will increase capacity to 1.1 million barrels per day and displace 40% of Venezuelan and middle east oil imports. Canada could easily displace all oil imported from unstable areas of the world and provide the USA with energy stability and security it has not known for years. Coupled with massive natural gas supplies from the Bakken and Marcellus shales, the Mackenzie valley gas pipelin eand the alaska gas pipeline there is no reason at all why the US and Canada could not be fully self sufficient in energy. The pipeline extension awaits approval by the US Government. One wonders with all that is going on overseas why it takes your government so long to make a no-brainer decision. Malcolm
Len Gould 2.15.11	I need 25 people to "like" my new project on Facebook, Economic Assist for Egyptians, in order to get it made public there. Could I ask you to take a minute to click the link and click the "Like" word there please? Thanks.
Len Gould 2.15.11	Economic Assist for Egyptians Please click this link, then click the "Like" you should find there. Thanks
Jay Draiman 2.15.11	Oil Reserves in the USA – Abundance of Energy OIL Reserves in the Trillions of barrels - you better be sitting down when you read this! How does this grab you? And what do you make of it? About 6 months ago, the writer was watching a news program on oil and one of the Forbes Bros. was the guest. The host said to Forbes, "I am going to ask you a direct question and I would like a direct answer; how much oil does the U.S. have in the ground?" Forbes did not miss a beat, he said, "more than all the Middle East put together." Please read below. The U. S. Geological Service issued a report in April 2008 that only scientists and oil men knew was coming, but man was it big. It was a revised report (hadn't been updated since 1995) on how much oil was in this area of the western 2/3 of North Dakota, western South Dakota, and extreme eastern Montana ..... check THIS out: The Bakken is the largest domestic oil discovery since Alaska 's Prudhoe Bay , and has the potential to eliminate all American dependence on foreign oil. The Energy Information Administration (EIA) estimates it at 503 billion barrels. Even if just 10% of the oil is recoverable... at $107 a barrel, we're looking at a resource base worth more than $5...3 trillion. "When I first briefed legislators on this, you could practically see their jaws hit the floor. They had no idea." says Terry Johnson, the Montana Legislature's financial analyst. "This sizable find is now the highest-producing onshore oil field found in the past 56 years," reports The Pittsburgh Post Gazette. It's a formation known as the Williston Basin , but is more commonly referred to as the 'Bakken.' It stretches from Northern Montana, through North Dakota and into Canada . For years, U. S. oil exploration has been considered a dead end. Even the 'Big Oil' companies gave up searching for major oil wells decades ago. However, a recent technological breakthrough has opened up the Bakken's massive reserves..... and we now have access of up to 500 billion barrels. And because this is light, sweet oil, those billions of barrels will cost Americans just $16 PER BARREL! That's enough crude to fully fuel the American economy for 2041 years straight. And if THAT didn't throw you on the floor, then this next one should - because it's from 2006! U.S. Oil Discovery- Largest Reserve in the World Stansberry Report Online - 4/20/2006 Hidden 1,000 feet beneath the surface of the Rocky Mountains lies the largest untapped oil reserve in the world. It is more than 2 TRILLION barrels. On August 8, 2005 President Bush mandated its extraction. In three and a half years of high oil prices none has been extracted. With this mother load of oil why are we still fighting over off-shore drilling? They reported this stunning news: We have more oil inside our borders, than all the other proven reserves on earth.. Here are the official estimates: - 8-times as much oil as Saudi Arabia - 18-times as much oil as Iraq - 21-times as much oil as Kuwait - 22-times as much oil as Iran - 500-times as much oil as Yemen - and it's all right here in the Western United States . HOW can this BE? HOW can we NOT BE extracting this? Because the environmentalists and others have blocked all efforts to help America become independent of foreign oil! Again, we are letting a small group of people dictate our lives and our economy.....WHY? James Bartis, lead researcher with the study says we've got more oil in this very compact area than the entire Middle East -more than 2 TRILLION barrels untapped. That's more than all the proven oil reserves of crude oil in the world today, reports The Denver Post. Don't think 'OPEC' will drop its price - even with this find? Think again! It's all about the competitive marketplace, - it has to. Think OPEC just might be funding the environmentalists? Compiled by: YJ Draiman
Len Gould 2.15.11	Mr Draiman: "The Bakken is the largest domestic oil discovery since Alaska 's Prudhoe Bay , and has the potential to eliminate all American dependence on foreign oil." -- We've all heard of the Bakken, and I'm disappointed to hear its been evaluated so small. Prudoe Bay, though a nice find, didn't even overcome the post-peak depletion rate of continental US fields at the time. I suggest you post your information on The Oil Drum Website. The experts there will surely be aware of any such information, (and IMHO likely declare your data foolish nonsense).
Don Hirschberg 2.15.11	Jay Draiman, i..e. Y] Draiman, wants to be elected mayor of Los Angeles, claims he is an energy expert and says he is working on a PhD. And, as they say, much , much more. Take a look at jaydraiman.com.
Jeff Presley 2.15.11	There aren't 2 trillion bbls in the Bakken, they are the oil shale in Colorado, Utah and Wyoming. Unlike Mr Jay, I've BEEN to the oil shale conferences and AM an expert. This email has been making the rounds for years. It is misleading at best downright deceitful at worst. but in this case they are spot on. Meanwhile, getting back to the article at hand, the coming unrest in Saudi Arabia will completely reshuffle the deck as they say. Egypt is not the big deal but Saudi is the grand prize, and don't think everyone isn't gunning for it. When it falls the proverbial stinky stuff will rapidly hit the fast spinning object.
Paul Stevens 2.18.11	Interesting article in the Boston Globe: http://www.boston.com/bostonglobe/ideas/articles/2011/02/13/crude_reality/ The thrust of the article is that, according to several studies, the US has been far less affected by disruptions of oil supply than many would have believed possible. Examples cited were the Iran/Iraq war, when the two countries were shooting at each others tankers and trying to damage oil infrastructure, hurricane Katrina, which really only caused a relatively short term price spike, the invasions of Iraq and Afghanistan and others. The only Middle Eastern source that the author of the article (and some of the studies) pointed to that would be significant in the real sense of the word (as opposed to inconvenient) was Saudi Arabia. Paul Stevens
Ferdinand E. Banks 2.24.11	I was fired from my job at Hughes Aircraft in LA, traveled to San Francisco where I spent a week listening to jazz and studying math, following which I reenlisted in the army. Why was I so happy to get out of LA? Well, when I read that post by Mr Draiman, I know why. That post - by a future mayor of LA - is strictly off the wall. Pure nuthouse. And Jeff, this trouble in Libya is wish fulfillment for Saudi Arabia. Take out your slide rule and work out how much extra they have made in the last nine or ten days. Moreover.....well, I think that I'll keep that for myself.
Ferdinand E. Banks 2.27.11	Mr Draiman is more interesting than I originally thought. Some of his political positions were mentioned on Google, and I found myself in strong agreement with them. What I can't understand is this two trillion 'thing'. He should really give that number some serious serious thought, and under no circumstances pay any attention to anything the Forbes brothers say about energy (and a few other things). At the same time I don't mind saying that as far as I am concerned, their publication ('Forbes' ) is/was great, and has been extremely valuable for me.
David Holt 2.28.11	Thank you all for great responses. Unfortunately, the situation continues to affect global oil markets as uncertainty looms with protests spreading throughout the Middle East. While the uprising in Egypt threatened strategic shipments of crude, riots in Libya - the third largest producer of oil in Africa - have caused global oil prices to rise. We agree that domestic resources along with supplies from Canada can help improve our energy dependency. However, in order to really make an impact, we need a comprehensive and diverse energy policy that allows us to safely develop these resources while exploring alternative options for the future. We cannot get our economy back on its feet without a stable and affordable energy supply. Access to domestic energy resources is a critical issue - and there's an action you can take right now. The Bureau of Ocean Energy Management, Regulation, and Enforcement is accepting public comments on where to lease for offshore oil and gas development over the next five years.