The hard truth about oil

No matter what the president says, conservation is America's only route to energy independence.

By Nelson D. Schwartz, FORTUNE Europe editor
February 9, 2006: 11:15 AM EST


NEW YORK (FORTUNE) - Presidents going back to Richard Nixon have been talking about energy independence. It's one of those vote-getting platforms that no one could possibly be against -- like world peace, mom and apple pie. It gives us the illusion of control over our energy destiny, which we don't have, at least in a fossil-fuel based economy.


The only way we're ever going to be able to boost oil supplies here at home is through conservation, and that's something the government is going to have push aggressively, at least until technological advances like cellulosic ethanol, hydrogen and other alternative energy forms become available.

Don't take my word for it. Just listen to what Big Oil has to say.

It's not every day that an industry best known for keeping its head down takes issue with the President of the United States on the subject of ending our dependence on foreign oil. But that's exactly what happened on Tuesday when an Exxon Mobil (Research) exec had the courage to say aloud what every oil insider in the world knows -- America isn't going to be 'energy independent' anytime soon, if ever.

"Realistically, it is simply not feasible in any period relevant to our discussion today," Exxon Senior V.P. Stuart McGill told the crowd at a Houston energy conference, according to Reuters.

Referring to the gap between imports and domestic production -- which is about 10 million barrels, or half our daily consumption, McGill said, "Americans depend upon imports to fill the gap. No combination of conservation measures, alternative energy sources and technological advances could realistically and economically provide a way to completely replace those imports in the short or medium term."

McGill's remarks got top billing on the popular Drudge Report Web site on Wednesday, which suggests they're shocking, or at least surprising. They shouldn't be.

A declining oil province
Nearly five years ago, then-CEO Lee Raymond of Exxon told FORTUNE that finding all the oil we need here at home "was a failed notion under Richard Nixon, and it's certainly a failed notion today." Raymond, who retired at the end of last year, was the most successful oilman of his generation, as Exxon's record $36 billion in profits last year shows. But he had no illusions about the United States as an oil producer. "We're a declining oil province and have been for 25 years," he said.

To be fair, President Bush did take some very valuable-and significant steps forward in his State of the Union address. Like noting the high cost of depending on the Middle East and other volatile regions for our crude, and being bold enough to actually use the word addiction, which many politicians have studiously avoided. And talking up the potential of cellulosic ethanol, which FORTUNE recently wrote about (click here to read that story), but needs much greater investment and support.

Getting OPEC's attention
Ironically, conservation is the one way we can have some say over our energy security. While OPEC leaders may know better than to take our talk of energy independence seriously, a serious push for conservation would get the attention of the energy markets and drive prices lower.

If you don't believe me, just look at how oil prices have dipped from near $68 a barrel a few weeks ago to $63 now. Natural gas prices have come down even more. This is because warm weather in the U.S. has meant that we've consumed less energy than anticipated, leading to a surge in supplies.

But this episode was a matter of good luck, with perhaps a little help from global warming. Imagine if through conservation, we could achieve the same kind of reduction in energy consumption. Or if the government began pushing Detroit and foreign automakers to increase fuel efficiency. We'd get a lot more oil that way than by drilling in Alaska. And while conservation won't end the need for imports, it could ultimately get us a lot closer to energy independence than any of the President's other suggestions