Research psychologist Penelope Leach is known for her best-selling guides on child development, including "Babyhood" and "Your Baby and Child." In her latest book, she explains what the latest research says about helping children cope with separation and divorce.
Turmoil and uncertainty in North Africa and the Middle East are leading to increased volatility in oil markets: What price spikes could mean for U.S. consumers and the global economy.
- Lucian (Lou) Pugliaresi President of Energy Policy Research Foundation (EPRINC)
- Steve LeVine contributing editor of "Foreign Policy" and author of the book, "The Oil and the Glory."
- Kate Gordon Vice-President for Energy Policy at the Center for American Progress
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. As the violence in Libya continues, the impact is hitting the oil markets and sending prices up. One source quotes this morning's price as $103 a barrel. Libya is the 18th largest producer in the world, making up just 2 percent of the oil in the world. It's been reported its production is down by as much as 75 percent. Joining me in the studio to talk about what this means globally and here in the U.S., Steve LeVine of Foreign Policy magazine, he's author of the book, "The Oil and the Glory." Kate Gordon is vice president for Energy Policy at the Center for American Progress and Lou Pugliaresi of the Energy Policy Research Foundation.
MS. DIANE REHMOf course, I do invite you to join us. You are seeing these jumps in prices at the oil pump. Feel free to call us, 800-433-8850. Send us your e-mail to email@example.com. And feel free to join us on Facebook or send us a tweet. Good morning to all of you.
MR. STEVE LEVINEGood morning, Diane.
MS. KATE GORDONGood morning, Diane.
REHMKate Gordon, why did the violence in Libya cause oil prices to go up?
GORDONWell, oil is a global commodity. And things like unrest in other countries, natural, manmade disasters, always affect the price. It's an incredibly volatile -- price goes up and down. People sometimes think why, if Libya is only 2 percent, is it having this kind of an impact? First of all, it's 2 percent, but it's a particular kind of oil. It's light sweet crude. And that's a particularly valuable kind of oil, especially in Europe, which doesn't have the ability to refine less high grades. But, also, people have to remember this is a world market. Even the United States sells some of our oil from the Gulf into the world market. Shocks across the world impact the market as a whole.
REHMSo, Lou, as you heard Kate say, Libya makes up only 2 percent. So why can't the other oil-producing nations make up what Libya's cutback has been?
MR. LOU PUGLIARESIYeah, I think there's two issues. First, there's a role of expectations in the world oil market. So if you go back to '73, '74, '79, it's not what happens necessarily in the prompt period, but it's what do buyers and sellers think is going to happen in the near future.
PUGLIARESISo '73, '74 -- Arab oil embargo -- we didn't lose that much oil. But the market knew that new production out of the Middle East was going to be much slower growth. So part of the price we're seeing now is the result of expectations that the Middle East, generally, is going to be a tough place to expand production for a while. However, you know, this can change relatively quickly. We do know that the Saudis are well aware of this problem. They're well aware of the light, heavy problem. And we're somewhat lucky in the sense that it's wintertime. They use light crude for direct crude burn, and they're likely to put the light crude onto the market, I believe.
REHMAnd turning to you, Steve LeVine, we're told that oil has slipped now to below $100 a barrel as trading began on the New York Mercantile Exchange after rising above $103. How much of Libya's economy depends on oil?
LEVINEMost of the economy relies on oil. It's 95 percent of the country's export earnings, 60 percent of the government's earnings. What it spends in the country comes from oil. I just wanted to add something, if I could, to something that the other guests said. And that's that -- that's the geopolitical quotient in it. It's the expectation. A couple of things have happened over the last 24 hours. One is that the Saudi kings -- King Abdullah came home. Saudi Arabia has been assuring the world for years and years, should there be a hiccup in world oil supplies, we will compensate for that.
LEVINEYou have King Abdullah come home. The first thing he does is announce a $400 billion three-year injection of money into the economy to give to ordinary people. And traders say, hey, wait a second. If the Saudis are completely stable, if there's no trouble there, why is King Abdullah coming home and granting all of this money? I think there is concern among traders that Saudi Arabia may not be as stable -- may not be as capable of replacing that volume as it has claimed in the past.
REHMKate, do you agree with that?
GORDONWell, I think this points to just a larger point, again, that these world events are incredibly important to our own oil prices and to not only our price at the pump, but the price of oil has a huge impact elsewhere. It has an impact on the price of goods moving around the world, huge impact on food scarcity, and something we're seeing -- at the same time we're seeing oil prices go up, we're seeing food prices around the world go up because of both transportation cost and petroleum inputs into agriculture. This has an impact every time something happens we can't control around the world, whether it's a geopolitical event, whether it's a disaster like Hurricane Katrina, whether it's a manmade disaster like the oil spill we just saw.
GORDONThis makes prices spike, and this is a very, very volatile situation. And I would argue we need to start thinking seriously about getting beyond it and getting to a less volatile situation.
PUGLIARESIWell, I think the real question is, how should we transition to the fuels of the future? And should we -- you know, we had a visit from the head of the Israeli authority in charge of their major natural gas find. And I said, this must mean that you're going to switch off your coal production to natural gas. He says, absolutely not. If we relied only on natural gas, if we had a system failure, we don't have the storage. We're going to keep our coal-fired facilities. And for the U.S., I think we want to inform the policy debate, how do we transition to the fuels of the future in a way that's robust under uncertainty?
REHMI don't think I'm there yet, Lou. I still want to concentrate on what's going on right here and now. And one of the things I'd like some clarification about is this difference between sweet oil and sour oil that can make a difference in how Europeans...
REHMOkay. Go ahead, Lou.
PUGLIARESIWe do a great deal of work in the downstream sector. And there is generally in the world oil market a mismatch between the product demand and the configuration of the world refining capacity. Part of it has to do with the fact that crude slate has become heavier. But a lot of it has to do -- is that there's been rising demand for lighter products -- middle of the barrel, distillate kerosene, jet fuel and, somewhat, gasoline. And the -- to the extent that that product slate does not well match the existing refining configuration, which can be fixed over time, we have the product markets leading the crude markets.
REHMThe product markets leading the crude markets, Kate.
GORDONWell, and I'm more of a layperson, so I had to simplify this in my own head to understand it.
REHMGo ahead. Me, too.
GORDONAnd I will say that I do know that Europe, for example, is having a particularly hard time with the current oil prices because of the Libya situation. Europe has the ability to refine sweet crude oil. We have the ability in the United States to refine a much broader range of types of oil, so we're able to actually refine less high-grade oil and export it. Europe is quite dependent on that light sweet crude, so they're sort of -- Libya is a small piece of the puzzle for us. It's a big piece of the puzzle for Europe.
PUGLIARESIBut the European refiners will now be bidding up the light sweet crudes. It's a world market. And so that's going to show up...
REHMAnd that's what's happening...
PUGLIARESIIt's going to show up worldwide. It's going to show up right here in the U.S.
REHMIs that happening all in anticipation? Or is it happening because it's an opportunity for oil companies to simply hike their prices?
LEVINEYeah, I think it's -- it is an opportunity, but it's not been an opportunity for the oil companies. I see -- I think what you're seeing are the traders, traders whose business, after all, is to seek out uncertainty. When there is real uncertainty, then the traders can earn a lot of money very, very fast in a single day or in a single week. For example, just today, another thing that we have to keep in mind is another presumption about the unrest in the Middle East was punctured today.
LEVINEThere was an attack of bandits on a Chinese oil facility, a CNPC oil facility in Libya. Until now, in the unrest in Egypt, in Tunisia, in Bahrain and also in Libya, the foreign oil installations have been immune from any kind of mischief at all. This attack now tells traders, it tells the world market, hey, all of these places, if there is trouble here -- Saudi Arabia, Qatar, Kuwait, the UAE, any of these countries -- the oil installations could be attacked. More oil supply could be restricted because of that.
REHMSteve LeVine, he's contributing editor of Foreign Policy magazine, author of the book, "The Oil and the Glory." Kate Gordon is vice president for Energy Policy at the Center for American Progress. Lou Pugliaresi is president of Energy Policy Research Foundation. And you, as always, are part of the program. So do join us, 800-433-8850. Send us your e-mail to firstname.lastname@example.org. Steve LeVine, do you expect other countries to step in and make up what Libya is not providing in the way of oil?
LEVINEI do. One is that there is not a shortage on the global market of oil. The United States is awash in oil, and there is enough volume on the global market. But, again, it's the expectation. Traders decide oil prices not on what's going on now but what's going on in the future.
REHMSteve LeVine of Foreign Policy magazine. Short break. When we come back, your calls, e-mail. Stay with us.
REHMAnd here are a few messages from Facebook. Sheila says, "Gasoline is already $4 a gallon in New York City. Can we expect a 25 percent rise across the board?" And Steven says, "It amazes me that higher cost for a barrel of oil equates to increased profits for oil companies. What's wrong with this picture? How about turning the oil companies into a utility and have non-oil company boards regulate the prices? Something needs to be done about all this." Kate?
GORDONWell, I think it's a good point about oil profits. Steve was saying earlier that the traders were really the ones profiting. But if you look at the Dow yesterday, the Dow was down in a number of areas because of higher prices. However, Exxon and Chevron were both up. So there is, in fact, an impact on oil profitability when you've got kind of price shocks. Now, that may not be true if this goes on and on and on and it continues to be this volatile. But, you know, we're looking at higher prices for a commodity sold by these companies. They will make a profit off of it. Absolutely agree that we need to start moving away from that, decoupling from that, get the oil companies to invest in alternatives and take away some of the subsidies they've enjoyed for a hundred years and put those into alternatives as well.
LEVINEWell, again, I think that the oil companies are not the ones bidding up prices. Traders are bidding up the price of oil, the price of products, the price of diesel and light products. They're earning a lot of money. But it is true that the oil companies, except for BP and Eni, all of their share prices went through the roof yesterday.
REHMIt's interesting. Here's another e-mail -- I'll get to you in one second, Lou -- this from Carol, who says, "How is the rise in prices via speculators unlike price gouging after a natural disaster?" Lou.
PUGLIARESIYou know, I mean, the question of what the price is, is a way to ration the supply in a market in which there is a supply shortage. But if -- and so, yeah, I think you have to look a little bit longer. Return on assets for oil companies are way down in the pack -- about half. Effective tax rate is very high. The real question is, how should we address this problem in terms of getting the price down? Here's an interesting statistic. If the long-run price of oil is $20 less than whatever you think your forecast number is -- 80 instead of 100 -- the value -- the present value savings to the United States, in imports alone, is a trillion dollars.
PUGLIARESIOil is very important to the American economy. So what we ought to do is look at strategy to change expectations going forward. And, I think, the president ought to release some oil from the SPRo. He ought to accelerate...
REHMFrom the strategic oil.
PUGLIARESIAbsolutely. He should accelerate the keystone permit to bring the Canadian oil sands down here. He should give Shell its permit to begin drilling in Alaska. He probably should open up ANWR. He should expand drilling on the outer continental shelf.
REHMAll of which the oil companies would like to see anew.
PUGLIARESIBut, remember, BP's biggest partner was never Anadarko. It was the federal government.
LEVINEYeah, the market already has built into it everybody in the world. The people who trade oil, they know that the strategic petroleum reserve exists. They know that the world is awash. There's over a billion barrels of oil sitting in tankers and in strategic petroleum reserves around the world. The oil price is being bid up not because there's not enough oil on the market. It's because of an expectation that, in an emergency in which produced oil cannot come on to the market -- meaning drilled oil -- that that cannot be replaced.
LEVINEThey're worried, specifically, about Saudi Arabia's ability to bring -- it says it has 4 million barrels a day -- spare capacity in an emergency that it can bring on to the market. Can it really? So the price of oil, in my opinion, is being mostly bid up because of uncertainty regarding Saudi Arabia's ability to bring that volume on to the market.
REHMRead for us that headline from the Financial Times.
LEVINEThe lead headline on the front page today, "$36 billion Saudi bid to beat unrest."
REHMNow, that's unrest within Saudi Arabia. They're concerned that what's happening in parts of Africa, in parts of the Middle East, Bahrain, could spread to Saudi Arabia.
LEVINEYou know, we don't know what is going through King Abdullah's mind. He came home after three months away of being very ill. But traders look at this, the world market looks at this and says, hey, King Abdullah came home. The first thing he did is throw a bunch of money at people he thinks could be troublemakers. Maybe there is more trouble there than we thought.
REHMKate, do you agree with that?
GORDONI think it's an incredibly important signal that we need to be paying attention to Saudi Arabia. People have been talking about Saudi Arabia already because the king has been ill for so long. A leadership change in Saudi Arabia could potentially change policies on oil. Anything happening there that could lead to wider unrest will have a huge impact on oil markets, so it's definitely something to watch.
REHMHere's an interesting e-mail from Jim in Archer, Fla., who says, "The last time oil prices increased -- gasoline went over $4 per gallon -- almost all food items at the grocery store increased as well, over 100 percent. When the oil prices came down, food prices did not. What's to stop the food manufacturers and distributors from doing the same thing again now with consumers left with few options but to stop buying food?" Kate.
GORDONWell, this is a really important point. The relationship between oil prices and food prices is very tight. Throughout the world, food prices go up when oil prices go up. We feel it in the United States, but, honestly, we don't feel it near the levels that people do in other countries. In Egypt, for instance, an average family spends 40 percent of their budget on food. When food prices go up there, it's a disaster. Here, it's obviously a disaster for a lot of families, but we don't feel it at the level that the world market does. It is an issue, though, and we do see oil prices go up and down fairly easily. Food prices, when they go up, they often stay up because the marketers are used to people being able to pay the higher prices. They don't tend to bring them down at the same kind of rate and with the same volatility. So it is an issue.
PUGLIARESII think, also, you can't discount the large volume of American biofuels, which are taking corn out of the market which could have gone to food production, and that volumes are very, very high now.
GORDONI would just argue with that a little bit. I mean, there clearly has been a big food-fuel debate in the last few years. The food that biofuels compete with the most specifically is food for animals. It's animal feed. That obviously does have an impact on our food prices as well. But the world biofuel market is one factor in food prices going up. Oil prices are a huge factor because, again, of petroleum inputs and things like fertilizer, because of transportation costs -- there's many factors here. I'd argue we can't turn our backs on advanced biofuels that don't have the same kind of food competition connection. We do need to keep looking at those alternatives, and we shouldn't turn away from them.
REHMSteve LeVine, this morning, Muammar Qaddafi spoke in another one of those rather rambling statements to his people and the world. He was blaming al-Qaida for the unrest. Time magazine reported yesterday that Qaddafi has ordered his own security forces to sabotage oil facilities, and a lot of people are worried about that. Do you see that as a possibility?
LEVINEWell, one, I did read that Time magazine report. I looked deep into it for the sourcing, and it wasn't clear that there was a good source for it. But, that said, the way he is speaking, where he said, when I order the military on the street, this place will burn, he's speaking in very extreme -- in a very extremist manner. And we don't know whether he'll really do what he says -- make the place burn, attack oil installations -- if that report is correct. But that sends jitters into the market. It has -- it is part of the calculation of why oil prices are going through the roof.
REHMIs it time for a gas tax, Kate?
GORDONThe 50 million dollar question.
GORDONPeople probably know Tom Friedman came out with an article yesterday, arguing for gas tax. He's done that before. You know, there's a couple of issues here. The first one is that the gas tax, currently, we use to pay for the highway trust fund, which is used to pay for repair of all of the roads and bridges and service transportation in the United States. That trust fund is running out of money. So if we don't come up with a new revenue stream for that trust fund -- whether that's a higher gas tax or a carbon tax or an oil import fee -- we will not be able to fix our roads and bridges. So there's actually an immediate issue with the lack of revenue for service transportation.
GORDONThe second point, though, that Friedman makes -- and I think it's a good one -- is, unless we start putting a cost on gas at the pump that has an actual relationship to sort of the volatility of this sector and starts to head just a little bit against that volatility and starts to build up, sort of, our ability to transfer money to other transits, to other types of fuel, allows us to get off this dependence in oil, we will continue to be this vulnerable to these shocks.
PUGLIARESIWell, I agree with Kate in the sense that if the roads need to be repaired, the people who drive on the road should pay for that, so we should have a gas tax. But what we really ought to do is look at our own policies. We need to have strategies that hold up well under uncertainty. And we are too preoccupied with mandates -- the ethanol mandate, the different kinds of mandates towards the automobiles -- and what happens is, when conditions in the world market change, we can't adjust to them very well.
REHMSo what do you want the U.S. to do?
PUGLIARESII think a gas -- gasoline tax. If we could have a gasoline tax and then pull back from these -- all of these mandates, which kind of lock us in and make it very difficult to adjust. If ethanol prices go very high, we can't substitute. If the market moves in one direction or another, the economy is very inflexible because we keep enforcing all these mandates. And the other thing is we probably should recognize that the petroleum era is going to be with us for a while, and we should open up our own domestic supply as much as possible.
GORDONI mean, I would agree that we don't want to choose a technology. Choosing oil has been part of the problem for the last hundred years. We don't want to choose the technology, but we do want to have a rational response through policy that recognizes we need to diversify. Look at the last big oil shock in the '70s. Europe takes that, decides to have smaller engines, decides to have higher gas prices, decides to invest significantly in renewables and alternatives.
GORDONGermany now has almost 20 percent of its electricity coming from renewables because of a lot of those policies have been put into place. Far more people take public transit. There's more investment in public transit in those countries. We had a similar response for about five minutes, started investing in solar panels, for instance, and alternatives. Soon as the gas prices came down, we went back to business as usual. We cannot keep doing that.
REHMKate Gordon of the Energy Policy -- she's vice president for Energy Policy at the Center for American Progress. You're listening to "The Diane Rehm Show." Steve, I know you want to get in on that.
LEVINEI just wanted to say that the impression one gets from the narrative that's out there from the news and the way people are speaking is that nothing is being done. We're in a blip, I think, right now of a very difficult period now and going forward over the next several years. But the United States and other countries, including China, are taking steps toward reducing their reliance on fossil fuels. The whole push toward advanced batteries, toward electric cars -- this is a trajectory that will take hold. It's a 20-year trajectory and, over time, over the next 10 years, 15 years, the world is going to start using less oil. And the kind of volatility that we're seeing now is going to be reduced.
GORDONNo. Absolutely, I agree with that, and I just would reiterate that that's partly because of policy. I mean, we saw the American Recovery Act put a fair amount of research and development money into the advanced battery sector. We have seen Michigan have a big increase in jobs from that. We're also now selling electric drivetrains to China. That's because of that innovation. That's partly because of policy. I am concerned because the current budgets being floated around Congress absolutely decimates our research and development budgets, including in advanced batteries, including in the applied research program at DOE. If we don't continue making those kinds of investments, we won't be able to innovate our way out of this. We'll be in a very difficult situation.
PUGLIARESII think one of the things you have to recognize is that countries are all going to respond a little differently. We're probably going to see more full electric vehicles in China, more fuel cell, gas-oriented kinds of cars in India. And in the U.S., we're going to have more -- advanced hybrids are going to do much better than full electric vehicles. But the real issue is what happens -- you know, how much of the technology that's mandated by the government is up against catastrophic financial risk? Because, as fiscal fatigue sets in and if the Iraqis produce -- which we believe they will produce -- we think the long-run price of oil may be substantially below $100 a barrel. And those programs will undergo serious financial stress.
REHMSo you believe we ought to stick with oil, find it wherever we can and, at the same time, investigate other forms?
PUGLIARESII think we should have a strategy that allows us to transition to the fuels of the future that maximizes economic growth of the Unites States.
GORDONOh, I agree with that statement. I just think that we need to do so in a way that really diversifies our fuel sources and the types of vehicles we drive and the ability for people to take transit. Look, you know, Ken Green at the American Enterprise Institute -- not usually a friend of my institute, but I'm quoting him -- has said even if we produced 100 percent of our own oil, we would be vulnerable to world price shocks because this is a global market. We cannot produce enough to affect the global market of oil.
GORDONThe second thing is that, you know, you hear a lot about opening up new drilling, about ANWR. Currently, the oil and gas industry has leases on 32 million acres in the West it has not yet developed. It's not as if there aren't opportunities right now on the table. We need to be looking beyond that. We need to be looking beyond this very risky and volatile sector to a range of other sectors.
LEVINEThe -- I agree with Lou that the policies -- the current policies we have are not going to be around forever because there will be fatigue on subsidizing advanced batteries, on subsidizing electric cars. But Moore's law, the law that technology doubles in efficiency every year, year-and-a-half, will take hold in batteries, in electric cars. I think that, over the next few years, batteries will become competitive with the internal combustion engine. We are -- the price of oil -- I agree with Lou -- is going to come down over the coming years, but electric cars are going to be able to compete with them side by side.
REHMSteve LeVine, he is contributing editor of Foreign Policy magazine, Kate Gordon of the Center for American Progress, Lou Pugliaresi of the Energy Policy Research Foundation. When we come back, we'll open the phones, take more of your e-mail, your messages. I look forward to hearing from you.
REHMAs far as oil price spikes around the world, we're getting lots of e-mails that are similar to this one from Armand who says, "What I'd like to know is why gasoline prices go up at the pumps almost immediately as prices of oil per barrel go up. How can gasoline distributors do this? Presumably, this gasoline has already been produced and paid for." How does this work, Lou?
PUGLIARESIWell, at the retail level, he's going to have to re-purchase his supplies as that goes down at a higher price. And, in fact, many times, the retail business -- many times, they'll purchase the next slug of gasoline at a high price, and the price will fall at the pump. And they'll be stuck with that inventory. So how it works in the marketplace is that the price is bid up through supply and demand, and it's rationed out exactly in real time.
REHMWhat if they've already bought it at a lower price? Why should they be allowed to boost that price immediately?
PUGLIARESIIf you're suggesting we should impose price controls...
REHMYeah, I'm wondering about that.
PUGLIARESI...I would suggest you go back to look at the period under the Nixon administration and what a disaster that was.
REHMSteve, you're shaking your head.
LEVINEYou know, that's right. That's right. It didn't work during the Nixon era. Look, it's very, very simple. The gas wholesalers can earn more money. The international price for gasoline, for oil, has risen. They can earn more money. So the gasoline sitting in those tanks underneath your neighborhood gasoline station is more valuable, so they're going to charge more for it.
REHMAll right. Let's open the phones to Orlando, Fla. Good morning, Lee.
LEEHi. How are you?
LEEI'm listening -- I'm thinking -- I'm listening to the battle of the institution and the corporate benefactors here. So let me give you the view, looking from the bottom up. I'm a long-haul trucker from Oregon (unintelligible). And, right now, I'm looking at about $6,000 a month just to buy fuel for my one truck. I'm here in Orlando, Fla. Fuel here has been jumped up about $3.68 a gallon -- that's cash price-- about $3.73 if credit. So just to fuel my truck today is going to cost me around $883, which, to me, is just -- both the 6 grand and $883 are staggering numbers. I mean, just -- it's unbearable. It's either going from excruciating to unbearable. I use the word unbearable 'cause that's pretty much what it is.
LEEAnd, I think, the answer to this is just (word?) the speculation. The -- you know, the commodity markets, which your guests seem to be defending, these guys live in their own world of their own creation and control where the sky is always falling and Chicken Little rules.
REHMLou or Steve, either one.
PUGLIARESIYou know, I'm somewhat sympathetic. And, I think, that the fundamentals, you can argue -- and we have our own debate even within our own organization, how much of these price spikes are driven by, let's say, herd instinct or financial manipulations (word?) ...
PUGLIARESI...or speculation. But the question is, do we want to eliminate the speculation because speculation can be quite valuable 'cause it allows for the transfer of supplies over time. It allows people to take positions over time. Let's take something we know a little bit about -- natural gas markets. The strip price for natural gas, which speculators operate in, for 2016 is now $6 instead of $8. So those same speculators who are allocating supplies over time in the liquids market are also doing it in natural gas. But why is the price falling by over $2 in the future for natural gas? Strictly because expectations of the market are that we have a lot of supply.
LEVINEAgain, I'm going to agree with Lou in one sense, and that's to say that speculation -- the trading market is necessary in order to reduce volatility. It creates positive -- there's a positive result in the market. However, there is a move here in Washington to make it more expensive to speculate, and I think that's a smart thing to do. A trader should not be able to go into the market at a very, very low price and trade and bid up the price of oil.
REHMAnd you see that that's what's happening...
REHM...prices being bid up, Kate.
GORDONI mean, I will leave it to the experts here on either side of me on speculation, but I will say I'd like to see Lee, and others like him, have more choices. I mean, I think, if oil is at a particular high, there should be an ability to have an alternative. There's great work being done on natural gas engines, especially for trucks like the one that Lee drives and for large vehicles with compressed natural gas. There's also biodiesel and advanced biodiesel that can be very effective in those large trucks, especially out in the Northwest. I'd love to see the ability to make a different choice when the price is too high.
REHMAll right. To Dallas, Texas. Good morning, Rick.
RICKGood morning. I'm curious why, historically, the price of gas per gallon is roughly double than Europe and most of Asia as it is in the United States.
REHMTaxes? Doesn't that make sense, you guys?
GORDONTaxes that were raised in -- for particular reasons. I mean, taxes that Europe has decided to raise to pay for things like public transit, for instance.
GORDONThere's a reason that so -- such a higher percentage of people working in urban areas in Europe take public transit than they do drive and than they do here. It's because there's a lot more investment going into that sector. Much of that comes from taxes.
PUGLIARESIAnd, actually, to get back to the trucker's question, the high taxes in Europe have been part of the motivation to move more towards diesel fuels than gasoline because diesel is more efficient. You can get an efficiency range anywhere from 15 to 30 percent with a diesel engine. And so, when the price of the transportation fuel is high, there's a tendency to move towards using distillates.
REHMIf the unrest that we've seen in the Middle East and Africa continues to spread, which countries will speculators be looking at, Steve?
LEVINEIt's already pretty clear. Speculators are looking at one single country, and that's Saudi Arabia. All eyes are on Saudi Arabia, and I just think that's where it's going to stay. It would be a good idea. We've received signals that Saudi Arabia is going to increase its output. It produces, now, about 8.6 million barrels a day. If it increased that, it would take several days to do it. But if Saudi Arabia announced we're going to start producing nine million barrels a day, I think that would go pretty far to calm the markets. I'd be interested to hear what Lou thinks about that.
PUGLIARESII agree. It may not totally fix the problem unless it's a light sweet crude. We do need, in the near term, more supplies of light sweet crude.
REHMDoes Saudi Arabia produce light sweet crude?
PUGLIARESISaudi Arabia does, in fact, but they use a lot of it internally, a lot of it into their own refining sector. But, because it is wintertime now, they use a lot of light sweet crude for direct crude burn in the production of electricity. But, because it's wintertime, they have the supplies, and they're well aware of this. And I believe they will put the light sweet crude on the market.
REHMAll right. To Wilmington, N.C. Hi there, Joseph.
JOSEPHYes. I would like to know if they know what the capacity is in Iraq and what percentage. You know, what are they producing now and whether they -- producing? Since we went over there and spent our money, I don't see why we can't make short-term solution and a long-term solution. And Iraq could be the short-term if they boost their production and make them use some of that money, some of the profits to put electricity in their (word?) and a decent sanitation system.
REHMAll right, Lou.
PUGLIARESIActually, I think Iraq is a fascinating story. We've been studying it. We've had a huge program on Iraq for over a year. We're going to send a team into Basra, and I can tell you the Iraqis have an amazing program. Now, whether they can meet it all remains to be seen, but they're hitting all their targets. And they have major infrastructure issues. And the notion that they could produce, say, 14 million barrels a day by 2017 or 2018 is probably unrealistic, but they might be able to produce half the amount.
REHMLet's go to Birmingham, Ala. Hi there, Lynn. Lynn, are you there? Lynn, are you there?
LYNNYes, I'm here.
REHMPlease go right ahead.
LYNNYes. I live in Birmingham, Ala., but we lived in Germany for a year, and I saw how efficient the use of mass transit -- especially the trains there. I don't understand why we have to keep depending on oil -- and we talked about this so many times -- when we could use mass transit and eliminate that need. Plus, by taxing these poor people that are trying to do their jobs and working, that's just making a hardship on our people here in the United States. And that...
REHMThanks for calling, Lynn. Kate?
GORDONLynn has a great point. And transit's a little bit more complicated in the United States for a lot of reasons. The European cities were built at a time where there weren't any cars, which means they tended to be built more densely. They tended to be built closer together. Their streets tended to be narrower. It's easier to do public transit connections in cities of that size. We built a number of our cities, especially in the west, around the automobile. So it's a very auto-driven culture. That doesn't mean that we don't have the innovation and entrepreneurship and ability to change that and to do better rail between cities -- high-speed rail especially -- and to do much better mass transit within our cities.
GORDONOur major problem -- and Lynn touched on this -- is a revenue problem. We need to be able to pay for those investments. Where do we get that money? The Highway Trust Fund has traditionally been where we get all the money for our transportation investments. It's based on the gas tax, and it's running short. And we need it to fix our roads and bridges. So where do we do that kind of investment? The president has tried to put a number of new investments into high-speed rail, and folks around the country know that a number of governors are now returning that money because high-speed rail has become a politicized issue.
GORDONGov. Walker in Wisconsin just returned the money from Wisconsin, saying he doesn't want high-speed rail between Madison and Milwaukee, the two largest cities in that state, 75 percent of the population of that state. That kind of attitude toward public transit is half of our problem, and the other half is simple a revenue problem, which kind of brings us back to that gas tax issue.
REHMAll right. To Chevy Chase, Md. Good morning, Craig.
CRAIGGood morning. I am more liberal and more -- less inclined to agree with the gentleman who seems to back the industry. But I have to point out that they're right on two things. With supply and demand, Diane, you even seemed to think it was unfair that gas goes up when the oil was refined a long time ago at a lower price. If the price of gold doubles today and I go to a jewelry store, all the rings will be more expensive tomorrow, even though the gold was purchased when gold was cheaper. And, similarly with the gas, it's -- there is a lead time because when the price of oil goes down, gas at the pump goes down even though the oil used to refine them might have been bought at a higher price.
REHMThere is one…
CRAIGSo the way we -- I'm sorry. We accept it in every other commodity...
REHMBut there's one difference, Craig. I don't...
REHM...have to buy gold. I do have to keep my car going, and that is...
CRAIGRight. You know what? I agree. If you want to change the whole structure and have it regulated or use it as a utility, I think that you have a reasonable argument. But since it is private companies laying out the money of their investors, it's also reasonable for them to expect a certain margin. If Apple has a chip that goes up in price, their profits are going to go up because their margins will go down if they keep selling their items at the same price.
REHMBut, you know, we have reached a point in this country, I think, where we have begun to worry less, far less about the consumer than we have the investor or the purchaser or the ordinary consumer. And that's what's gotten us into trouble. I think companies ought to be thinking a little more or -- put it in other way -- a little less about their investors and a little more about the consumers. Kate, any comment?
GORDONWell, it just would say, I think, there is a real difference between commodities we rely on and those that we don't. And, as I was saying earlier about the way that the United States, in particular, is designed, many people in this country absolutely rely on their cars.
GORDONEspecially in rural areas, there aren't a lot of other options. And most of those commodities we rely on are regulated more in some way.
REHMKate Gordon of the Center for American Progress. And you're listening to "The Diane Rehm Show." And let's go to Dallas, Texas. Good morning, Bob. you're on the air.
BOBGood morning, Diane.
BOBI have two questions for your panel this morning. Number one, if we impose a new highway tax, what guarantee do we have that Congress will not use it for normal general spending in their budget and not apply it toward repairing the highways? Secondly, why don't we convert cars to natural gas, which is the easier of the two methods, rather than electric, go natural gas as are the majority of all the new diesel trucks going to natural gas?
REHMOkay. Lou, go ahead.
PUGLIARESIFirst -- to the first question, the answer's simply, we have no guarantee. Congress does all kinds of crazy things, and there's no evidence that they'll stop doing crazy things. If they want to use the money for something else, they'll do it. That's a political process. On the natural gas, that's -- I think that's very interesting. Clearly, for fleet vehicles, it's working out, and it can be quite cost-effective and make a lot of sense. But here's the problem. We can't get people to make a left turn to save a nickel a gallon. And the natural gas, I think, has a lot of opportunities in the transportation sector, but it also comes with some burdens. It takes up a lot of space. It takes a long time to fill. There's a lot of infrastructure. But there is an interesting development out there.
PUGLIARESIThe value of natural gas, vis-à-vis the value of crude oil, has opened up. It's spread up a huge amount. And the opportunity for gas to liquids is now something that ought to be looked at very carefully.
GORDONWell, at first, on the Highway Trust Fund, I mean, technically, Congress can do whatever they want. But the fact is that the Highway Trust Fund exists. It's a vehicle we've already created. It's a congressional institution. It would be very hard to change its mandate. And, currently, higher gas prices would fairly automatically go into that trust fund, be allocated in a similar way that they are now. I'm not a fan of that allocation -- 80 percent of it goes straight to the highways, only 20 percent to mass transit. I think we should look at that. But, honestly, we can't even talk about the allocation till we get some more money in there.
GORDONBut the second thing on natural gas -- I agree with Lou. I think it is a very interesting -- and the caller -- it's a very interesting technology. There's actually an attempt right now, a bipartisan attempt in Congress to get a bill passed called the Natural Gas Act, that would make it far easier for especially fleet vehicles and large trucks to use natural gas. And I think that's a great investment.
LEVINEYeah, I would just -- to add to those really good answers, one is that I think it's -- you do all of these things. So the caller -- the very first caller, Lee, was talking about the high prices he was paying to fill up his truck.
ANNOUNCER"The Diane Rehm Show" is...
LEVINEHe -- but if he was using CNG, which is -- it's possible to use compressed natural gas for long-haul trucking for fleet trucking. That would reduce his price of transportation. And, in the same way, if we had high-speed rail on the East Coast, that would reduce the use of oil as well. And we should do both.
REHMSteve LeVine of Foreign Policy magazine, Kate Gordon of the Center for American Progress...
ANNOUNCERComes to you...
REHM...Lou Pugliaresi of the Energy Policy Research Foundation, thank you all so much.
REHMAnd thanks for listening. I'm Diane Rehm.
Most Recent Shows
More than half a million Americans have annual prescription drug bills of at least $50,000. Please join us to discuss what's behind soaring drug costs and the push for new pricing models.
For this month's Readers' Review: “Euphoria,” by Lily King, a novel inspired by events in the life of revolutionary anthropologist Margaret Mead.
Texas and Oklahoma have passed new laws that prevent local governments from banning hydraulic fracturing. Similar measures are being considered in three other states. We look at the debate over state efforts to regulate drilling.