State of the Union, Oil Addiction and Action verses Words
By J. Peter Lynch
February 08, 2006
After hearing President Bush give the State of the Union speech the other
night I came away thinking that at least he has recognized that there is a
problem. It may not sound like much, but it is a step (a very small step) in
the right direction. Unfortunately, these initial “words” must be followed
by significant “actions” and this is precisely where every U.S President
since Richard Nixon has failed miserably. In fact, since U.S. Presidents
first started talking about “getting off oil” the amount of oil we import
has DOUBLED, not a particularly promising trend.
So now that we have taken our “first small step”, what America and the world
needs now, is a plan. A short term plan and a long term plan (50years) that
lays out the problem and what we have to do go get the planet off of oil and
other fossil fuels and on to various renewable sources of energy – solar,
wind, biomass etc.
Unfortunately, it is becoming quite apparent that the current administration
does NOT have a plan and is therefore taking a very shortsighted approach to
“financing” our energy future. We are depleting our “energy capital” (oil,
gas and coal) by utilizing them at a far greater rate every year, with very
little thought given to the long-term (50+ years) consequences.
The major problem in the current energy focus is that our current primary
energy capital (fossil fuels) is NOT replaceable; it is by its very nature
“non-renewable”. As a result, our responsibility as managers of our planets
future and its energy portfolio is to create an “energy balance sheet” that
has the proper mix of fossil fuels and renewable energy sources to allow
growth for all the world’s inhabitants over the long term.
It should be obvious that we should not be using “limited” fossil fuel
assets for jobs that can be done by “unlimited” renewable assets.
A simple but accurate example: fossil fuels should NOT be utilized for
applications, such as home or commercial building heating. Does it seem
logical or a “good idea” to burn something at thousands of degrees to
produce heat at 75 degrees for your house? This task could be much more
efficiently accomplished with a simple solar panel that produces 160-degree
heat, with zero emissions as an additional benefit.
The main problems, as I see it, are: lack of leadership and lack of
1. Lack of Leadership - America’s failure, to assume a leadership position
to organize the world’s resources to address and solve this problem.
Obviously the world cannot address a problem of this magnitude without the
assistance and cooperation of the world’s richest country and consumer of
25% of all the energy on the earth. What we need is a well thought out Long
Term Energy Plan and, in the short term, a new “Marshall Plan” for Energy.
To date the current U.S. administration has done virtually nothing to give
the impression that they consider this to be a serious crisis. Yes they do
say a few “key” words every now and then, but to date I have seen no
commitment and no real action. There is a growing feeling that much of the
rest of the world sees a problem and the U.S. does not. This has to change
and hopefully the current administration or perhaps the next will awaken to
the critical nature and magnitude of the problem we are facing.
As one of the great men of the 20th century and one of our greatest
Presidents said 99 years ago:
“We have become great because of the lavish use of our resources and we have
just reason to be proud of our growth. But the time has come to inquire
seriously what will happen when our forests are gone, when the coal, the
iron, the oil, and the gas are exhausted, when the soils shall have still
further impoverished and washed into the streams, polluting the rivers,
denuding the fields, and obstructing navigation…The natural resources I have
enumerated can be divided into two sharply distinguished classes accordingly
as they are or are not capable of renewal…The minerals do not renew
themselves. Therefore in dealing with the coal, the oil, the iron, metals
generally, all that we can do is try to see that they are wisely used. The
exhaustion is certain to come in time”. Theodore Roosevelt
If Theodore Roosevelt saw the handwriting on the wall in 1907 what is the
problem with the current administrations vision? To not tell the American
people the full story and to not move forward with a well thought out long
term plan to effectively address this approaching crisis is a colossal
failure of leadership, which could result in a series of cascading economic
2. Lack of education - I truly believe that people will “do the right
thing”, IF they are apprised of the true facts and costs of all the
alternative courses of action.
However, the American public is not getting
nearly enough accurate information on this crisis and the media, in general,
puts little, if any, focus on this subject. As a result, the public is very
poorly educated on this critical subject.
For example, current polls tell us that the three top concerns of the
American people are:
- The Economy
I would agree that this is a fairly accurate picture of what Americans are
concerned about and that these are all valid concerns and pressing problems.
But are they the KEY problem that Americans should be focused on and
1. Terrorism - Terrorism is rooted in the mid-east (where most of the OIL
that is left remains). We are there because of OIL and we spend hundreds of
billions per year “protecting” our oil supply.
2. Iraq - Iraq is the third largest producer of OIL in the world. I realize
that Saddam was a dictator, but so are half of the rulers in the third world
and we are not “liberating” their countries, because they have no OIL.
3. The Economy - The economy is growing at this time. But if you want to
cause a major problem with the US economy just cut off its supply of OIL.
Everything in our economy is dependent on fossil fuels and our supplies of
oil are much more limited, much less secure and the margin of error today is
razor thin. This is a very dangerous position both economically and
strategically for our country to be in.
Before a solution to a problem can be applied, I think it is very important
to understand the “true cause” of the problem. It is my opinion that the
“true underlying cause” of all three of these problems is: the world’s
current total dependence on fossil fuels. As a result, this dependence is
really our number ONE problem and the most serious by far.
All of this is the result of us failing to properly understand how to
balance our worldwide energy portfolio and how to properly structure our
energy balance sheet to include assets that will grow (renewable sources of
energy) and not only assets that will decline (fossil fuels). We all have to
recognize the fact that there are major problems in the energy area and we
must face them directly and move to solve them.
These “natural” resources are finite in nature and by their very definition
are NOT renewable. As a result, we are presently trapped in an upward price
spiral which cannot cease unless the basic laws of supply and demand change
(unlikely) or we shift our strategy and thinking to one of energy capital
preservation, rational energy utilization and developing renewable assets.
Our thinking in the U.S. is to use as much as we want, based upon the FALSE
premise there will always be enough or we will just find more. There is
little thought given to conservation or the welfare of future generations.
This is precisely the thinking that got us into this tenuous situation and
it will certainly NOT be the thinking that will get us out of this
“We can’t solve problems by using the same kind of thinking we used when we
created them”. Albert Einstein
As long as we insist on being dependent on a non-renewable energy sources we
will continue to have price increase after price increase. It is like
building a house in a valley that floods every time it rains. When it rains,
the basement floods (big surprise), complaining about the flooding will do
nothing to solve the problem. It is a much better idea not to build your
house in the valley, but to move to higher ground. We must take immediate
steps to preserve our energy capital and rapidly expand and develop our
energy assets from renewable sources such as solar energy, wind and biomass.
We must “wake up”, face reality and change the current path we are on. If we
do not take responsibility for our current situation, and move swiftly to a
financially stable and environmentally sustainable path we will suffer the
consequences of our shortsighted and financially irresponsible actions.
“To each generation comes its allotted task; and no generation is to be
excused to perform that task.” Theodore Roosevelt
I think it is abundantly clear what the current allotted task is the current
generation and I am also sure that it is equally clear that the problem will
NOT be solved magically by mere “words” but that focus, sacrifice and
committed action will be required.
The ball is in our court and the whistle to start play has just sounded.
J. Peter Lynch has worked, for 29 years as a Wall Street analyst, an independent equity analyst and private investor, and a merchant banker in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977. He is currently a financial and technology consultant to a number of companies, among them Daystar Technologies, Inc., which is listed in the article. He can be reached via e-mail at
Peter Lynch is an independent columnist for this web site and may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment. InvestorIdeas.com Disclaimer:
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