- The Washington Times - Monday, March 12, 2001

SPECIAL REPORT

Revolutionaries are at the gate. It may be already too late. The age of oil is coming to an end.
When Saudi Sheik Ahmed Saki Yamani uttered those words last year he surely did not have Rep. Constance A. Morella in mind, but the Maryland Republican is a revolutionary. She recently bought and now drives a 60-miles-per-gallon Toyota Prius, a hybrid vehicle using both electric and gasoline power.
"Technology is the real enemy," the sheik warned members of the Organization of the Petroleum Exporting States (OPEC). "It will reduce oil consumption and increase production from other areas.
"The Stone Age came to an end not for a lack of stones, and the oil age will end but not for a lack of oil," said Sheik Yamani, a former Saudi oil minister, a founder of OPEC in its present form and now a private consultant in London.
Mrs. Morella, for her part, relishes her role as an iconoclastic crusader to end U.S. dependence on foreign oil.
"You should see my little green car. It is green just like the technology it represents," she said. "It is so good, technologically and in terms of saving gas."
Mrs. Morella is one of five members of Congress who have either bought or are on a waiting list for one of the innovative gasoline-electric hybrids, the first such car to be widely marketed. Christine Todd Whitman, the new chief of the Environmental Protection Agency, has looked into buying one.
Adds Mrs. Morella: "It's spacious, has trunk space. It's quiet and it gets better mileage in the city than on the highway. Everyone who sees it loves it."
Toyota this year expects to sell Americans 12,000 of the vehicles, which are powered by a hybrid electrical and internal combustion engine with almost zero emissions. Another 50,000 already are on the roads worldwide, mostly in Japan, and a hybrid minivan is about to go into production.
Not far behind, Honda has introduced its 70-mpg Insight, also a gasoline-electric hybrid. Ford is rolling out its hybrid 40-mpg Escape sport utility vehicle as well as a fuel-cell car in 2003. And DaimlerCrysler expects to have its hybrid the HyPer in commercial production before 2005.
"It is not here yet, but the oil endgame has begun," said Jason Denner of the Rocky Mountain Institute, an alternate technologies research and development company. "If everyone drove [a fuel-efficient car], we wouldn't have to import oil from OPEC."
Sheik Yamani "is right; it is going to happen," said Ed Porter, research manager of the American Petroleum Institute. "The question is when. The time frame is what is important. Even if there were a breakthrough today, it would take 10 to 20 years to make a difference in the market."
Brendon Prebo, a spokesman for the Ford Motor Co., said it is generally accepted that the automobile industry will be able to sell 100,000 low-emission, fuel-efficient vehicles a year in the United States by 2010.
The United States consumes almost 20 million barrels of oil a day, more than half of that some 13 million barrels for transportation. If 60-to-80-mpg vehicles ever win a significant share of the market, it will mean serious trouble for oil-producing nations.
"The real victims will be countries like Saudi Arabia with huge reserves, which they can do nothing with the oil will stay in the ground forever," Sheik Yamani predicted.
Mr. Denner agreed, saying OPEC leaders like Saudi Arabia and Venezuela "are making their last play to make some money" before the age of oil comes to an end.
Others in Washington, especially those responsible for short-term energy concerns, are skeptical.
A three-year study by the Center for Strategic and International Studies concluded in February that U.S. dependency on foreign oil is growing along with consumption, and an energy-dependent United States will be at increasing risk of economic blackmail from hostile nations like Iraq and Iran.
While some 60 percent of the world's oil supply now comes from non-OPEC nations, the study predicted that by 2020 half of the world's petroleum needs "will be met from countries that pose a high risk of internal instability."
The study said a crisis or a military conflict is "highly likely" in one or more of the world's key energy-producing countries.
But a growing number of oil industry executives and analysts, environmentalists, technology gurus and futurists consider the sheik's soothsaying on the mark.
William Ford Jr., chairman of the Ford Motor Co., has said alternate technologies in particular the fuel cell will replace the internal combustion engine within 25 years.
"I believe fuel-cell vehicles will finally end the 100-year reign of the internal combustion engine as the dominant source of power for personal transportation," he said last October. "Fuel cells could be the predominant automotive power source in 25 years." He said his company would have a test fleet of fuel-cell vehicles on the road by the end of this year.
The U.S. Department of Energy and the Department of Defense (DoD) have for years been spending millions on research and development of alternative technologies to heat and cool buildings and to run everything from Bradley Fighting Vehicles to motor-pool cars.
The Defense Advanced Research Projects Agency (DARPA), the DoD unit that, in conjunction with private enterprise, created the Internet and numerous silicon-chip innovations, is betting on the hydrogen fuel cell and other alternate technologies.
"Currently, there are several technologies that are being demonstrated on a large scale," said Robert Kripowicz, acting assistant secretary for fossil fuel in the Department of Energy.
"Commercial-scale technology will be introduced in the next two or three years. The technology is there. The problem is the high cost. There will be market penetration when the price comes down."
Control Risks Group (CRG), a private international security firm, recently warned its Fortune 500 business clients that the introduction of high-tech vehicles will change the world, possibly at the expense of their diversified investment portfolios.
"There is little doubt that the [U.S. federal alternative technologies program] will succeed in its initial aim. Widespread introduction of 80-miles-per-gallon vehicles, say from 2010, would have a major impact on world oil demand," said a CRG report released in October.
Should that happen, the report cautioned that foreign investors, the ruling families in the Middle East, who tend to buy their public support with oil revenues, "could lose crucial support and be removed."
In a domino effect, migrant laborers in the Middle East from Pakistan, India and the Philippines who depend on oil and ancillary work to send remittances home would be out of work, the report added.
On the positive side, reduced demand for oil could force Saudi Arabia and other oil-dependent economies to tighten their tax systems and liberalize their economies.
In an article in Foreign Affairs magazine, Amy Meyers Jaffe, senior economist for Petroleum Intelligence Weekly, and Robert A. Manning of the Council on Foreign Relations argued that cheap and abundant oil portends instability throughout the world.
"This scenario of plenty could destabilize oil-producing states, especially those in the ellipse stretching from the Persian Gulf to Russia," they wrote.
Several analysts noted that developing countries are embracing the newest technologies, for instance, by adopting cell phones and satellite communications without ever going through the stage of telephone lines strung on telephone poles.
"China is skipping 100 years of Alexander Graham Bell technology. That could happen with fuel-cell technology, too," said Sheila Lynch, of the Northeast Advanced Vehicle Consortium, which is funded in part by DARPA.
Another research paper, from the Thunderbird Graduate School of International Management, concludes "oil will cost $5 a barrel in 2010," compared with about $28 a barrel at present.
"The price of oil might be $5 a barrel in 2010 or $40, nobody really has any idea, but, the effect [of a price drop] for Venezuela would be catastrophic," said Norman Bailey, a senior fellow at the Potomac Foundation who specializes in Latin American oil.
The price of oil is determined by supply and demand. Global demand today is at about 73 million barrels a day. The world has an enormous supply more than 1 trillion barrels of "recoverable" reserves, and while demand is growing, it is not growing fast enough to outstrip supply for at least 40 years, according to the American Petroleum Institute.
Add new discoveries, which are being found every day, and the ability to use newer, cheaper technologies to extract more of what is already known to be in the ground, and the estimate of recoverable reserves balloons from 1 trillion barrels to more than 4 trillion barrels.
"For all practical purposes, oil is abundant and inexpensive," said Ibrahim Owiesz, a professor of economics at Georgetown University who has studied the oil industry for 50 years.
That is why OPEC has been doing everything in its power for 30 years to control the supply. For the first 70 years of the 20th century, until the advent of OPEC, the price of oil was fairly constant, at under $2 a barrel.
Since then OPEC has managed, for the most part, to keep a handle on supply. It costs an OPEC nation between $1 and $1.50 to produce a barrel of oil. If OPEC nations can stay in agreement and dictate the amount of oil available on the world market, it can keep the price fairly high, in the range of $25 a barrel.
This cycle of oil scarcity and glut has been repeated at least three times in the past 30 years, causing wild price swings from a low of $8 a barrel in 1998 to $35 a barrel last August.
U.S. refineries, which turn the oil into heating oil, gasoline and other products, are producing at near capacity. No one has invested in building new ones for 20 years because environmental regulations make new refinery construction both expensive and risky.
The Prius, which sells for about $20,000 fully loaded, is three times as efficient as the average car powered by a gas-burning internal-combustion engine. The hybrid technology is seen by most experts as an interim technology that will be replaced when hydrogen fuel-cell technology becomes cheaper and more accessible.
Car enthusiasts, who find identity and spiritual succor in the rumble of a V-8 with a 400-horsepower engine, dismiss the "green cars" as appliances.
"The Honda Insight gets 70 miles per gallon and it costs only $18,500. The car gets zero gas emissions. The problem is nobody is buying them," said Jerry Taylor, director of natural resources at the Cato Institute, who recently went car shopping. "Nobody cares about fuel economy when fuel is relatively cheap."
Still, a lot of people are betting on hydrogen fuel cells as the power for future transportation.
"People won't accept vehicles that are not better than what we have today, but they will buy them for the same reason people buy CDs instead of record albums. They are better. That time is coming, sooner than most people think," said Mr. Denner.

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