Former Federal Reserve Chairman Alan Greenspan testified before the Senate Committee on Foreign Relations today. A few quotes:
“Even before the devastating hurricanes of last summer, world oil markets had been subject to a degree of strain not experienced for a generation. Oil prices had been persistently edging higher since 2002 as increases in global oil consumption progressively absorbed the buffer of several million barrels a day in excess capacity that stood between production and demand. Today world oil production stands at about 85 million barrels a day, and little excess capacity remains. Just how much excess capacity, and of what quality oil, is a matter of debate. But no matter what the precise answer, the buffer between supply and demand is much too small to absorb shutdowns of even a small part of the world?s production. Moreover, growing threats of violence to oilfields, pipelines, storage facilities, and refineries, especially in the Middle East, have increased the private demand to hold oil inventories worldwide. Oil users judge they need to be prepared for the possibility that at some point a raid will succeed, with a devastating impact on supply.
“[...] American oil?s historical role ended in 1971, when rising world demand finally exceeded the excess crude oil capacity of the United States. At that point, the marginal pricing of oil abruptly shifted?at first to a few large Middle East producers and later to market forces broader than they, or anyone, can contain.
“[...] higher oil prices will inevitably move vehicle transportation to hybrids, and despite the inconvenience, plug-in hybrids. Corn ethanol, though valuable, can play only a limited role, because its ability to displace gasoline is modest at best. But cellulosic ethanol, should it fulfill its promise, would help to wean us of our petroleum dependence, as could clean coal and nuclear power*. With those developments, oil in the years ahead will remain an important element of our energy future, but it need no longer be the dominant player.”
[*Actually, the U.S. has already weaned electricity generation off of oil. Unlike in the 1970s, today only 2% of our electricity is generated from oil. So nuclear, solar, wind, etc, really have nothing to do with reducing our dependence on oil. Additionally, the Electric Power Research Institute estimates that there is enough nighttime reserve capacity to charge up to 30% of the U.S. vehicle fleet.]