May 18, 2016

Talent Op-Ed: Oil market manipulation is alive and well

Oil market manipulation is alive and well
By Jim Talent
Published by The Hill
May 12, 2016

Opponents of the Renewable Fuel Standard (RFS) claim that the free hand of an unrestricted marketplace will guide biofuels into our fuel supply, driving economic competition and giving consumers better options at the gas pump. In an ideal world, they would be right; biofuels, which are not subsidized by the government, are highly competitive with gasoline as an automobile fuel. But ours is not an ideal world, and the global oil market remains a top target for manipulation by forces unfriendly to U.S. interests.

Many of us remember the early 1970’s, when long lines at the gas pump proved that foreign producers were prepared to use energy as a weapon. This might seem like the distant past, but the threat remains as real today as it was when Richard Nixon took office.

On April 17, ministers from Russia, Saudi Arabia, and other members of the Organization of Petroleum Exporting Companies (OPEC) oil cartel met in the Qatari capital of Doha to explore options for restricting global energy supplies and pushing up the price of oil. An eleventh-hour flare up between officials from Saudi Arabia and Iran prevented negotiators from reaching a final deal, but officials from Venezuela and other major producers are hopeful that OPEC’s next meeting on June 2 will produce a global supply freeze. The goal is simple. These nations seek to push fuel prices back to levels that could strangle the U.S. economy and force American drivers to send billions more of their hard-earned dollars overseas.
Even today’s relatively modest prices can be traced back to a November 2014 meeting among OPEC members, when wealthy Gulf states implemented a global strategy to temporarily flood the market with oil and drive out competition from U.S. oil producers. Many of these U.S. businesses were poised for dramatic growth, investing every dollar of available capital towards new production and hiring thousands of new workers. In a dramatic reversal, the number of U.S. workers employed in oil and gas extraction and support activities dropped by more than 100,000 from October 2014 to January 2016, according to the U.S. Bureau of Labor Statistics. Boom towns in North Dakota and Texas ran dry, and rampant bankruptcies in the once-emergent fracking sector created an economic drag that still reverberates across the United States. At every turn, hostile nations seek to twist market forces and cheat U.S. consumers out of more affordable energy options. Fortunately, a tool exists to break the monopoly of oil producers and power our existing transportation infrastructure without expensive imports. Policymakers saw the need in 2005, and implemented the RFS, a bipartisan policy I championed in the Senate. The law requires that each year, an increasing percentage of biofuels be blended into our fuel supply. It insulates our economy from foreign manipulation and provides stability in a market that would otherwise be subject to the whims of OPEC oil ministers.

It is precisely because energy is a national security issue, and the price of oil is controlled by a foreign cartel, that the RFS was passed.

As a result, billions of dollars have been invested into the domestic biofuels industry. Ethanol and other advanced biofuels now make up more than ten percent of our motor fuel supply, and technological advancements continue to drive innovations that make our biofuel industry the most successful in the world. With the RFS to combat foreign manipulation, U.S. biofuels have become more than cost-competitive with conventional gasoline, they produce dramatically fewer emissions, and displace toxic gasoline additives linked to cancer and groundwater contamination. Moreover, the domestic biofuel industry is a proven crucible for innovation, supporting more than 852,000 high-tech American jobs across manufacturing, engineering, science, research and development.

Unfortunately, largely due to its successes, our most successful strategy for combating energy dependence is under siege. Oil companies fight vigorously to defend their monopoly on transportation fuels. They spread disinformation about biofuels and prevent gas stations from offering consumers higher ethanol blends at the pump. In Congress, short memories make it all too easy for critics to seize on any dip in oil prices as an excuse to undermine renewable fuel goals. Last year, the Obama administration bowed to this pressure, restricting the amount of biofuel that can be sold, rather than expanding it, as the law required.

If these short-sighted strategies are successful, we will have squandered our only effective tool to take the levers of power out of the hands of hostile nations. The RFS is a roadmap to energy security. It provides a vital balance against the designs of Russia and OPEC members working to fix prices, and it does so in a way that creates jobs here at home and reduces pollution. Most importantly, it works. We’ve just got to keep it on track by guarding against the forces that seek to profit from our dependence on oil.