February 1, 2009

Oil—Unsafe at Any Price

Steven F. Greenwald and Jeffrey P. Gray

Those Who Can Not Learn from History...

History teaches that oil is anything but a one-dimensional "economic commodity." Its price movements reflect more than just changing balances of supply and demand. An early and repeated lesson has been that oil prices fluctuate dramatically with global geopolitical events. The lesson of this decade has been that oil is subject to wild and unpredictable price gyrations for the same vagaries, uncertainties, and perhaps manipulations associated with derivatives and other financial instruments.

The biggest lesson for the U.S. must be that we can not again be seduced by seemingly low fossil fuel prices. We must not again postpone to some future, more convenient time the pursuit of renewable resources and transmission facilities on the basis that fossil fuel resources are "less expensive." The long-term economic, political, and environmental costs of fossil fuels demand that the nation’s commitment to "green energy" not be discarded as outdated political campaign rhetoric.

We must seize this reduction in oil prices as an opportunity, and not again foolishly persuade ourselves that $2 gallon prices can be the long-term solution. President Carter’s energy admonitions are truer today than when they were spoken over a quarter century ago: "It is a problem we will not solve in the next few years, and it is likely to get progressively worse through the rest of this century. We must not be selfish or timid if we hope to have a decent world for our children and grandchildren."

—Steven F. Greenwald (stevegreenwald@dwt.com) leads Davis Wright Tremaine’s Energy Practice Group. Jeffrey P. Gray (jeffgray@dwt.com) is a partner in the firm’s Energy Practice Group.