Oil & Gas:

SAFE's Diamond discusses the politics of rising gas prices

Is there a viable short-term solution to rising gas prices? During today's OnPoint, Robbie Diamond, president and CEO of Securing America's Future Energy, discusses the political firestorm developing around climbing gas prices and potential short- and long-term solutions. Diamond explains why he believes instability in the Middle East could cause prices to continue to rise this year.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Robbie Diamond, president and CEO of Securing America's Future Energy. Robbie, it's good to have you back on the show.

Robbie Diamond: Thank you for having me.

Monica Trauzzi: Robbie, all eyes in Congress right now are focused on rising gas prices. What's driving the oil market and these rising prices that we're seeing internationally right now?

Robbie Diamond: You know, all I can say is to quote the John Fogerty song, "this is deja vu all over again." And I only hope that this time, unlike most movies where the sequel is a weaker version of the original, we actually have a stronger version and we actually deal with these problems. I mean these problems have been well known for a long time. When you have these supply problems, the supply situation is a mess in the world, whether it be Sudan or Libya or the situation with Iran, I think that is driving a lot of what we see today. Certainly the dollar and interest rates is another issue that impacts oil, as well as the demand now. What you see in the demand side, is in the developed world, actually a falling command. But in India and China, you're continuing to have some rising demand. So I think all those things coming together impact the price. At this point, Iran is definitely the most important and I think the real question for ourselves is do we -- one is will we act and two is will we actually deal with the fundamental problems of oil dependence as opposed to, you know, some of these short-term solutions, gimmicks that we tend to see during these problems.

Monica Trauzzi: And that does seem to be the critical issue, when Congress does act, it's reactionary to something that's happening in the market. Are there any short-term solutions that you've identified that you think could help the market along or are we really looking at a long-term approach that needs to start being implemented now?

Robbie Diamond: I think the country just has to finally admit that, that this is a long-term problem and we need long-term solutions. There's just nothing in the short term that's going to make a difference. As we showed in Oil Shockwave, which was our oil crisis simulation we've done many times, that in the short term, once you're in a crisis, there's not much to do. But there are a lot of good long-term solutions and you just have to get started working on them now. And I think that's really the point we're at and the problem is, is that these price spikes are becoming closer together and they're actually getting more severe. And at one point -- just think of Iran for a moment if something does happen, there's a conflagration between us and them or Israel and them, what the price will be and what that will do to our economy. Iran is the exclamation point of our oil dependence. If you think about that, what would we be doing differently today? The country seems to be united, both political parties, against denying Iran the idea of getting a nuclear weapon. But how are our hands tied? Because the world and us are all dependent on oil and Iran's ability in an asymmetrical way to drive prices up, despite really not doing anything except saying things at the moment. And if something actually did happen, how much worse it would get, how our economy would be driven into a hole, how Europe would fall off -- finally fall off a cliff. I mean just think about that. So this is the exclamation point and I think it's finally time for both the administration and Congress to do something.

Monica Trauzzi: So, this has the ability to become a very big political election-year issue and one of the things the Democrats are calling on the president to do is to move some oil from the Strategic Petroleum Reserves. Is that a solid move? Does that help? Does it only help for a short amount of time?

Robbie Diamond: I think, once again, all these things that we've heard so far are sideshows to the real issue of solving this. And, you know, what you have now and why it's such a political issue is people drive by the price of oil how many times a day on their way to work. And it's going to be a huge issue. And I think it's just going to get worse, especially, you know, depending on your views if something does happen with Iran. And so instead of talking about whether it be the tax issue with the oil companies, whether it be, as you said, the Strategic Petroleum Reserve, it's finally time we roll up our sleeves and do something, which is actually we have to put in a system to decouple ourselves from a liquid fuel market, hopefully through the electrification of transportation. We need to use more natural gas in the heavy-duty sector. Like I said, decoupling ourselves and, in the interim, we should be producing more at home, as well as fuel economy standards to reduce demand. But really, the only way to fundamentally get at this problem, I think, is decoupling yourselves from the global oil market.

Monica Trauzzi: The administration is making efforts to expand domestic oil and gas drilling, or at least they say that they are. Some Republicans would disagree with that. Why do Republicans continue to attack the president on that point if the rhetoric does seem to be in line? The Republicans do seem to be in line with the president on that.

Robbie Diamond: Right, all of them have called for an all-of-the-above strategy, but right now that's just rhetoric and I think until both parties put some points on the board and come together, it will just remain rhetoric. And I think what one has to think about when coming to domestic production, and even the demand problem, is what is the fundamental problem of our oil dependence? And that's really the volatility of oil markets in a -- priced on a global basis. So, yes, we should produce more at home. That is a good thing from a balance of payments perspective. But even if we became energy independent by producing all the oil we have at home, it would not solve the problem. The UK, Canada, and Great Britain all are energy independent. They all produce more than they need and yet they still pay the price that we pay and their economies are totally driven by this global price. And similarly on the demand side, right? I mean demand has fallen off a cliff in the last two months. We've used less gasoline in the last two months than we have since 2001. That's both the good and bad story based on economics, as well as the fuel economy standards. But, in the end, the price will drive ultimately if you are totally linked to one single fuel source. When it comes to the demand side, I would just note what is so disturbing is that we are using less gasoline, in some cases less oil than we've used, and yet we're paying more from a balance of payments perspective. So although things are getting better from our demand perspective, we're all paying more because prices are just naturally higher. You know, the last fact I'd say sort of getting back to your first question a little bit is about prices. You know the Saudi oil minister has said, "We believe the price should be at $100." So let's put aside all the problems in the world. Here you have a market that is decided by the lowest cost producers deciding how much oil they want to put on the market or take off the market. And he has said to us, "We believe the price floor should be $100. "So, in that situation, we know that our economy will be -- and the global economy will be saddled with a hundred dollar cost until the situation changes potentially and they want to lower the cost maybe to drive some of these alternatives out of the market.

Monica Trauzzi: Where do you come down on Keystone XL? Republicans really tout this as a big solution, not only on the jobs front, but the energy independence front. There's a lot of talk that much of the oil from that pipeline would be distributed internationally. So what are your thoughts on that project?

Robbie Diamond: You know, once again, I think we're supportive of the idea of producing more production, both in Canada and the United States, yet it's not going to solve the problem of oil dependence. So instead of creating these political issues where they become the cause celebre of each party, on one side you might have the Keystone, on the other side you might have, you know, another issue like the taxes for oil companies. Both those are not going to solve the problem. And I think until the American public hopefully stands up and speaks to this and our politicians are willing to work together to work on the things that they can agree on, right? I think it is very possible, especially if something happens in the world and prices rise much higher than they are today, to find ourselves with an energy proposal that does increase production in a real significant way, does continue to reduce demand through fuel economy standards and then drive some of these alternatives, whether they be natural gas or electric vehicles or biofuels or jet fuel. That is something where it does not get to the core ideology, against the core ideology necessarily allied to their party. And in a political crisis, things like that are bound to happen. And so I think that these things like Keystone or the taxes are really not helpful to finally setting the country on a course to reduce this dependence.

Monica Trauzzi: All right, Robbie, we'll end it right there. Thank you for coming on the show. Nice to see you.

Robbie Diamond: Thank you.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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