Do we have enough oil?

As 2005 comes to a close, this should be the policy question for 2006. Although Iraq, Washington scandals, and issues of civil liberties dominate our headlines, all of these are relatively short-horizon questions. But the question of oil— and it isn’t simply, “are we running out” but moreWells Fargo customer service meaningfully, “can we produce enough to meet growing world demand”— should be central in our policy debates.

Secretary of Energy Samuel Bodman has at least put the question out. In a letter to Lee Raymond, Chairman of the National Petroleum Council and, incidentally, CEO of ExxonMobile, Bodman has asked the question, “Do we have enough oil.”

Bodman asked:

1. "What does the future hold for global oil and natural gas supply?"
2. "Can incremental oil and natural gas supply be brought on line, on time, and at a reasonable price to meet future demand without jeopardizing economic growth?"
3. "What oil and gas supply strategies and/or demand-side strategies does NPC recommend the U. S. pursue to ensure greater economic stability and prosperity?"

Bodman has asked Big Oil to provide some answers and some data. Neither is in long supply, and the global economy, not just the U.S.’s, hang in the balance. The Conference Board just released an analysis that showed that high energy prices were sapping economic growth by slowing consumer spending. An imbalance between investment and consumption was described, leading to an investment overhang.

Not only do high oil prices force decisions at the gas pump, the wild fluctuations create uncertainty. The difference between $2.15 gas and $2.87 gas is the difference between eating out, buying a luxury item or taking a vacation for many American families.

We are now in a tight-supply world for energy, regardless of whether there are thirty years of oil left in the ground or three hundred. Rising demand, and little investment in production and refining capacity, coupled with geo-political and weather-related disruption (Iraq is still producing less oil today than it did before the U.S. invasion) have strangled to ability to get oil to consumers. The result isn’t just higher prices, but uncertainty and volatility. Uncertainty and volatility make price signals that would lead to household conservation and more investment difficult to interpret and act upon.

As pressing as health care, the deficit, education and the war are, the biggest factor in the future prosperity of the nation is price stability for energy.

Washington policy makers must start taking positive steps on this issue in 2006.