The 6 Myths About Oil

Every American consumes an average of three gallons of oil a day. Republicans and Democrats call this reliance on oil an “addiction”—an irrational, self-destructive habit that must be broken as soon as possible. This year's BP oil spill disaster is only making the chorus to “end our addiction to oil” louder. But if we examine the most common arguments for this idea, we see that they are myths. Oil is a vital, viable, and desirable part of our energy future.

Myth #1: America’s reliance on oil is an “addiction”—an irrational, self-destructive habit.

“America is addicted to oil.” –George W. Bush, 2006

The Reality: America’s use of oil brings indispensible value to our lives.

“Addiction” implies an intense desire for something harmful, such as heroin. But we do not desire oil irrationally; we consume it because it is a beneficial, life-sustaining product. Oil is unmatched as a concentrated, safe, and affordable source of portable energy. And our lives depend on such a source of energy.

- Oil powers the industrial farm equipment that brings us abundant food; oil powers the mobile machinery that we need to extract the raw materials like iron, lumber, uranium, or natural gas from the earth.

- Oil powers the construction equipment we need to build new buildings, dams, levees, factories, and homes.

- Oil powers the hundreds of millions of vehicles that move people, materials, and products around the world to make possible the efficiency of our integrated, global economy.

- Oil is also the vital raw material for thousands of different petroleum products: from the carpet on your floor to the insulation inside your walls; from the synthetic rubber of your tires to the asphalt of the roads; from the pesticides and fertilizers that magnify crop yields and make food affordable to billions, to the pharmaceuticals that save millions of lives.

We are not "addicted" to oil any more than we are addicted to the myriad values it makes possible, like fresh food, imported electronics, going to work, or visiting loved ones.

Without oil, or something just as potent, abundant, and affordable, life as we know it would be impossible.

Myth #2: There are “green” technologies that are just as good, or better, than oil.
“The way to bring gas prices down is to end our dependence on oil and use the renewable sources that can give us the equivalent of $1 per gallon gasoline.”
“…we can start right now using solar power, wind power …”
– Al Gore, 2008

The Reality: There is zero evidence that any “renewable” can replace oil in any foreseeable future.

For decades, the Al Gores of the world have claimed to know how to supplant oil. In 1977, Jimmy Carter proclaimed that in order to combat “too much demand for fuel that keeps going up too quickly,” America would “develop permanent and reliable new energy sources. The most promising, of course, is solar energy, for which most of the technology is already available.”

Since then, solar, wind, as well as biofuels—fuels derived from vegetable and animal sources—have received extravagant subsidies in America and throughout the world. And yet America uses more oil than ever, while Americans get less than 2% of their energy from solar solar and wind combined, and less than 4% of their energy, including transportation fuel, from biofuels and other plant and animal sources.

Why? Because solar, wind, and biofuels have proven utterly incapable of matching two of oil’s key virtues: low price and enormous abundance. They are expensive and nearly impossible to scale—largely because they all use highly diluted sources of energy that take far more land and equipment to process and transport than does oil (or other fossil fuels).

To attempt to implement these on a large scale would bankrupt Americans through home and business electricity costs alone—to attempt add a new generation of electric cars to the mix would make the costs and scarcity that much greater.

To make matters worse, solar and wind cannot even provide reliable, expensive electricity, because they use inherently intermittent sources of power--sunshine and wind gusts. Whereas coal, natural gas, and nuclear can generate the massive, precise, and reliable flows of power a modern economy require, wind and solar cannot—which is why they are always used as auxiliary, not primary, sources of power on electric grids. Think about it: Would you want your parent’s hospital room powered by the wind?

As for biofuels—fuels generated from crops or animal waste—they are generally very expensive because it costs a lot of money to extract diffuse energy from piles of manure or ears of corn, vs. the highly concentrated energy in a barrel of oil.

Biofuels typically require hundreds of gallons of water per gallon of output produced, while a gallon of oil requires five gallons of water. Further, they are very difficult to scale because they require massive amounts of expensive land, and the best ones require the best cropland. This is why Brazil, home of the most efficient and in-demand biofuel production (sugar-cane ethanol), produces the oil equivalent of less than 1.5% of the US’s consumption.

By far the most viable, large-scale non-CO2-emitting energy source is nuclear power, which environmentalists have set back decades and kept expensive through scare-mongering and a nearly insurmountable approval process. Thus, while dependence on nuclear power will likely grow in the coming decades—right now it supplies only 20% of U.S. electricity—it would take decades before it could economically replace a large percentage of the energy now supplied by coal and natural gas plants, let alone the 40% of U.S. energy supplied by oil.

Calls to cap 80% of oil (let alone all fossil fuels) and replace it with sunshine, wind gusts, vegetables, and manure piles are tantamount to economic suicide. This would drain the lifeblood of our civilization without offering a transfusion.

Myth #3: Because oil is finite, it will inevitably run out.

“The amazing exhibition of oil is a temporary and vanishing phenomenon, one which young men will live to see come to its natural end.” –State Geologist of Pennsylvania, 1885.

Reality: There’s a lot more oil than you think—and if we have a free market in energy we will ensure that we find superior substitutes long before we run out.

Since the beginning of the oil industry, oil doomsayers, including prominent geologists, have been claiming that oil was running out, and would soon would run out or go scarce; in every case, oil supplies in general have increased.

A typical example: in 1939 the Department of the Interior forecast that U.S. oil supplies would be exhausted by 1952; 30 years later, not only had oil production not run out, it had tripled.

The year 2009 was one full of talk of “peak oil,” and yet some of the most momentous, unexpected oil finds in history, especially in Brazil, followed each announcement.

Why are the “experts,” so often wrong, and what can be expected for the future?

One reason is that the “experts” routinely neglect or underestimate the capacity of the human mind to discover better methods of locating and extracting oil. In industry parlance, they falsely equate “proven reserves”—the amount of oil that is known to exist and be extractable in the present—with future production: the amount of oil that will be known and be extractable in the future.

This is a fallacious tactic. As a rule, in the future companies will have the knowledge and economic incentive to discover and harness oil that they do not have the knowledge and incentive to discover today. Oil companies locate new oil supplies as and when it makes sense to do so given their production projections and given market supply and demand. They have no way of knowing the total amount of oil that exists in the earth, and no need go to the expense of finding and validating any given new deposit until it is profitable to do so.

Over time, as demand increases and/or previous reservoirs becoming exhausted, the industry locates new oil and discovers new and better ways to extract it. For example, oil companies can now discover deposits thousands of feet below the ocean floor using 3-D magnetic imaging; they can extract many times the oil from a reservoir that they once could, using methods such as horizontal drilling or high-pressure gas and water injection; today’s “easy oil” was yesterday’s “impossible” oil.

The upshot? Despite decades of doomsaying, and even despite major restrictions on drilling in the U.S. and in other countries, the state of affairs is still one of growing production and ample supplies for decades to come. As oil economist Michael Lynch explained, as of 2009
…the consensus among geologists is that there are some 10 trillion barrels out there. A century ago, only 10 percent of it was considered recoverable, but improvements in technology should allow us to recover some 35 percent -- another 2.5 trillion barrels -- in an economically viable way. And this doesn’t even include such potential sources as tar sands, which in time we may be able to efficiently tap.

But surely oil supplies will run out or go scarce at some point? No—because at the same time that entrepreneurs have every incentive to develop more oil, they have every incentive to develop substitutes for oil (especially as oil prices rise). Oil itself was originally a substitute lamp oil for whale oil and animal oil, and then was replaced by the superior electric light-bulb. Oil was once a major source of electricity; it was superseded by coal and natural gas, which were better sources for fixed power generation.

To the extent it becomes expensive to extract oil from the earth in sufficient quantities, we can be sure that entrepreneurs will work to make substitute sources of fuel based on legitimately promising technologies, such as natural gas or coal, or that they will seek to create battery-powered vehicles charged with nuclear power or some yet undeveloped technology—to the extent that the government refrains from its policy of heavily restrict mining, drilling, and nuclear technology. It is government policy, not the finite quantity of any given raw material, that is the real threat to future energy supplies.

The upshot: we will never run out the energy we get from oil--unless we run out of freedom.

Myth #4: Because oil is mostly in other countries, they can cut us off at will and create an economic catastrophe.
“…think of the instability and the impotence you feel knowing that every day we have to have a lifeline from places half a world away that could cut us off in a minute.” –Bill Clinton, 2006.

Reality: International trade makes our energy supply more secure—and far more affordable.

Two-thirds of the oil Americans use is imported from other countries. This state of affairs is often derided as America’s “dependence on foreign oil,” conjuring up thoughts of being helplessly at the mercy of Saudi Arabia. But our relationship with foreign companies is not some helpless dependence—it is trade that is vital to the interest of all involved. Canada, Nigeria, Saudi Arabia, and Mexico do not sell oil to the U.S. and other countries as an act of charity that they can effortlessly revoke; they do it because it is economically vital to their survival.

The idea that we are perpetually at the mercy of Saudi Arabia simply shutting off its spigots, which would be complete suicide for a country whose whole economy relies on oil, is absurd.

By the same token, it’s crucial to realize that we buy oil because it provides the value it does cheaper and better than anything else—and we buy oil from foreign countries because given present knowledge and technology, it is far, far cheaper to do that than to try to produce all of Americans’ oil consumption domestically. (However, this is no way justifies America’s anti-development drilling restrictions in Alaska and on the Outer Continental Shelf, which should be lifted.)

To be sure, temporary supply disruptions are possible, whether due to political machinations or natural disasters—but in such cases free, international trade is the solution, not the problem. Higher oil prices resulting from decreased supply would spur new production (of oil or viable substitutes) among trading partners worldwide and limit consumption to its most valued uses.

In general, trade with other countries vastly increases our economic well-being and security. It affords us access to the cheapest oil sources in the world, and offers us more options in the event that some production is stopped. During Hurricane Katrina, our “dependence on foreign oil” was vital to getting much-needed supplies of gasoline to the Gulf Coast when U.S. refineries shut down.

This is not to say that the current possession of oil by unfriendly or outright militant dictatorships is an ideal state of affairs--but the foreign policy mistakes that brought it are not solved by withdrawing from international trade.

Myth #5: Because oil money funds hostile dictatorships (Iran, Saudi Arabia) by using less oil we can make them poorer and make ourselves more secure.

“If President Bush made energy independence his moon shot, he would dry up revenue for terrorism [and] force Iran, Russia, Venezuela and Saudi Arabia to take the path of reform…” --Thomas L. Friedman, The New York Times, 2004

Reality: Direct threats to America must be fought through direct and decisive military action—not through multi-decade, sacrificial schemes to lower oil prices.

Iran and Saudi Arabia use ill-gotten profits to spread totalitarian Islamic ideology around the world and terrorize us with their minions. This, however, in no way justifies any attempt at “energy independence”—that is, renouncing international trade in energy, including the two-thirds of our oil we buy on the international market.

If, say, Iran's money is the problem, then the solution is to cut off Iran's money directly--for example, by organizing a global economic boycott against Iranian oil (not "foreign oil"). Why on earth should we give up two-thirds of the oil we need, an incalculable economic sacrifice? It is self-sacrificial and xenophobic to try to end our reliance on foreign oil as such and retreat into some kind of oil subsistence farm, in the hopes that this would someday lower Iran’s oil revenues. (This is especially dubious given skyrocketing oil demand from India and China.) It is an undeniable fact that Iran was an active, blossoming sponsor of terrorism when oil was at $10 and $20 a barrel (as was Saudi Arabia)—can anyone possibly believe that focusing on lowering oil prices over a period of decades would accomplish anything besides giving Iran more time to develop nukes, while undermining America’s economy and military?

Myth #6: Because the burning of oil produces CO2, oil is a deadly pollutant that must be severely capped.

“As President, I will set a hard cap on all carbon emissions at a level that scientists say is necessary to curb global warming-- an 80% reduction by 2050.” --Barack Obama, 2007

Reality: Carbon-caps, not carbon emissions, are the real deadly threat to human life.

It is taken for granted that any negative impact that results as a byproduct of burning oil and fossil fuels is a justification for limiting fossil fuels—even by the U.N.’s widely-accepted figure of 80%.

But this utterly evades the benefits we get from oil and fossil fuels that cannot be substituted for on any foreseeable timetables by the “green” technologies favored by environmentalists. (See Myth #2.)

Fossil fuels supply 85% of our energy—the energy that makes the difference between a 40-year life expectancy and an 80-year life-expectancy, the energy that protects men from thunderstorms, rising sea levels, temperature extremes, drought, etc. Whether or not global warming proves substantial, these are problems that confront any society, and only industrial-scale energy is capable of solving. Thus, we need to factor into our thinking the benefits of increased CO2 energy and the harms of slashing oil and fossil fuel use by 80%. And, as we have seen, there is no evidence of any viable “green” substitute for oil.

Loose talk of a “climate change catastrophe” evades the fact that industrial energy makes catastrophes non-catastrophic. In Africa, a drought can wipe out hundreds of thousands of lives thanks to that continent’s rejection of capitalism and resultant lack of industrial energy.

In America, we irrigate so well that deserts have become the most desirable places to live (think Southern California and Las Vegas).

Economic freedom, not climate, is the fundamental determiner of human well-being. Left free to discover and harness energy, human beings can adapt to any change in weather. But there is no adapting to a mass, government-created drought of energy. There are already 1.5 billion people in the world who live without electricity. What they need is not a stagnant average global temperature; they need capitalism, including cheap, affordable fossil fuels.

The 6 myths about oil all count on the fact that we have not been taught to truly value or understand oil, the oil industry, and the capitalist system that have made them so prominent.

How often do we hear that oil is a source of incredible value to human life, past, present, and future? How often do we hear about of the forward-looking ingenuity of the oil industry and other energy industries to keep finding new and better ways to harness raw materials from the earth. How often do we hear about the great benefits of international trade in energy? Almost never.

It’s time to start talking about these positives and talk about liberating, not restricting, oil production. Otherwise, in the name of being “clean” and “green” we will adopt policies that will sentence ourselves and our children to energy poverty.

Alex Epstein is a fellow at the Ayn Rand Center for Individual Rights, focusing on business issues. The Ayn Rand Center is a division of the Ayn Rand Institute and promotes the philosophy of Ayn Rand, author of “Atlas Shrugged” and “The Fountainhead.”