America has been blessed by geology. We
have an opportunity to be the world’s low cost producers of oil, gas,
electrical energy, chemical feedstocks and the building blocks of almost all
products of modern life. Combined with our rule of law, individual rights,
private property, private capital and a culture of innovation; America truly
could be great and secure as never before.
Some background: Shale oil is almost a
uniquely USA geological phenomenon. Total worldwide shale oil reserves are estimated to be 4.8 trillion barrels, of which 1
trillion is recoverable, with 77% is located in the USA. For comparison,
conventional worldwide oil reserves are 1.3 trillion barrels.
We could be completely energy independent
by 2020 -- if, and only if, markets are not manipulated by totalitarian oil
producing regimes.
As an example, in June 2014, Saudi Arabia
orchestrated a price war. At the time, the breakeven price for USA shale oil
was about $75 per barrel. Saudi Arabia was at a breakeven of $25 per barrel and
Gulf States at $30 per barrel. Their goal was to bankrupt American shale oil
producers. However, American shale roared back thru ingenuity and innovation.
By August 2015 breakeven for shale was $50 per barrel. By November 2016 the
breakeven was estimated to be $40 per barrel. By 2019, it is estimated that
shale oil’s breakeven could be $25 per barrel. Shale oil is a revolutionary
competitive advantage for America. (See Peter Zeihan’sbook, The Absent Super Power, The Shale
Revolution and a World without America).
Shale oil also yields low cost (almost
free) natural gas as a byproduct, which is used to produce low cost electrical
energy. Low cost oil, gas and electricity constitute the trifecta of industrial
competitiveness. This will revive energy intensive industries such as aluminum,
steel, copper, paper and chemicals. In addition, low cost oil and natural gas
can yield low cost chemical feedstocks, which could enable the most competitive
chemical industry of the world. The combined low cost building blocks of raw
energy and manufactured chemicals will revitalize American industries.
Energy independence is hindered because
the worldwide market for oil is controlled by dictators and totalitarian
regimes that nationalized western oil companies and which manipulate the market
thru OPEC. Over half (54%) of worldwide non-USA oil is from countries
that are “mostly unfree” or “repressed” as defined by Heritage Foundations 2017 Index of Economic Freedom. Many
readers may be old enough to remember the block-long gas station lines and
gasoline rationing in 1973/1974 caused by the OAPEC(Organization
of Arab Oil Exporting Countries) oil embargo led by Saudi Arabia. By 1976
all Middle Eastern, African and Latin American countries had nationalized
western oil in whole or in part. Over 10 years western companieslost 74%
of crude oil supplies.
It is time America asserts its own
national self-interest. Our foreign policy should ensure fair international
trade for American companies and individuals.
There is an ongoing debate on free trade
versus fair trade. I believe under our current circumstances, free trade is an
illusion. Free trade was repudiated in 1971 when President Nixon suspended the
Bretton Woods gold standard and
implemented de facto fiat currencies. All countries have evolved to
various forms of mixed
economies since the Bretton
Woods monetary and trade system was signed in 1944. All countries are now
a mixture of freedom and government controls -- a mixture of freedom and force
ranging from mostly free to repressive dictatorships. Free trade cannot exist
without objective currencies, a level playing field of laissez-faire capitalism
and a complete separation of state and economics. Any trade involving the
mixture of freedom and force is not a free trade; it is trade by national
coercion.
Ian Bremmer of the Eurasia Group has
characterized this as “when the Chinese government comes into a room, they’re
bringing to the negotiating table their military, their political system, their
economy, their diaspora, their propaganda tools, and everything else.” On the
other side of the table sits the American businessperson with marketing tools
of product, price, place and promotion. I know, I have been there many, many
times.
Anyone that advocates for free trade in
the current world context of mixed economies and fiat currencies is totally
naïve. Americans were naïve in thinking that if we played by the Bretton Woods’
rules that everyone else would follow. Our competitive disadvantage is self-imposed
from our altruistic culture. We have swallowed the idea of globalism,
the idea that nations should put the interests of the entire world above their
own. Our foreign policy needs to assert our own national self-interest and
defend the freedom and individual rights of our citizens and should therefore
ensure fair international trade for American companies and individuals.
I believe a proper approach aligned with
America’s self-interest would look something like this:
- Impose a border adjustment tax of 20%
for imports of oil into the USA to level the playing field for the manipulated
oil market. At current oil prices of $55 per barrel and imports of 310 million
barrels per month, this would raise about $40
billion per year. Of course, consumption patterns would change with
the new tax. But the monies collected could be used as a portion of the
overall tax reduction plan or to fund other strategic initiatives such as
increased military funding.
Notes: There is major debate about the
wisdom of a total 20% border tax in the Paul Ryan plan on all imports. I will
leave that debate to others but I do believe implementing it in oil is valid.
Yes, the price of gasoline will go up temporally for consumers until foreign
oil is phased out. An $11 per barrel increase would increase the price of
gasoline about 26 cents per gallon if we used 100% imported oil. At the current
import rate of 24%, gasoline would probably increase 10 to 20 cents per gallon
depending on market dynamics.
- All that the Federal Government has to
do is to implement the oil border adjustment and the promised tax and
regulation reductions including enabling private shale oil production on
government lands. Private industries will do the rest to make us energy independent
by 2020.
- Next, exit our military involvements in
the Middle East. If we are energy independent, we would have no rational
strategic foreign policy interests in the Middle East. USA money would no
longer purchase imported oil which is the main revenue source to fund terrorism
and dictatorships.
- Phase out the government subsidies for
solar power, wind power and electric vehicles.
- In 2020 eliminate the Department of
Energy and Congratulate Rick Perry on achieving energy independence.
America can be the low cost producers of
oil, gas, electricity and chemicals, creating millions of jobs, increaseing
wages and creating individual and private company wealth. It would improve our
security, defund terrorism and get the USA out of Middle East conflicts.
America would not only be great but we would flourish!
Craig Schwartz is a retired business
director of a Fortune 100 company and has been involved in chemical markets for
38 years and managed multinational high technology chemical businesses. He has
been involved in the study of Ayn Rand’s philosophy of Objectivism for over 30
years.
