We recently had a reader e-mail CleanTechnica asking us to share an idea. In short, they said the United States government should offer $500 e-bike rebates or other forms of electric micromobility. The idea would be to get more people out of cars, especially gas-powered cars. Reducing demand for gasoline could not only drop gasoline prices, but could also keep the US from needing to buy Russian oil, which funds Putin’s war against Ukraine.
In this article, I want to explore this idea further, and improve upon it a bit. Our reader’s heart is definitely in the right place, and e-bike rebates are a step in the right direction. This idea is a big part of the only sane and workable solution, not only for the United States, but for other countries facing Russia issues. We also need to consider methane (CNG and LNG), as this is an even harder problem.
One Counterargument: Increase Supply Instead Of Lowering Demand
When the Ukraine War started, and US gas prices shot up toward European levels, there were many differing takes on this. For some, it was seen as a good thing, because it could speed up EV adoption. For others, the pain was just too much and they wanted to do anything to get prices down. And then we had this take by Elon Musk:
Hate to say it, but we need to increase oil & gas output immediately.
Extraordinary times demand extraordinary measures.
— Elon Musk (@elonmusk) March 5, 2022
Yes, prices are set by supply and demand, and when the United States cut off imports of Russian oil (which accounted for maybe 3% of the overall supply), that hurt even more. But, we also have to keep in mind that the US supply of oil isn’t some knob or lever some greedy tycoon can pull or turn to open up the supply of oil, and that prices can be affected heavily by OPEC. Let’s take a look at why oil supply is more difficult to deal with than demand.
Increasing Production Is Challenging
Domestic oil comes from a variety of sources. Before we talk about them, let’s talk about simple oil wells. There’s a hole punched into the earth down to where the oil is, and a pump is used to suck the oil up and out. You’d think that when you close one of these down, you could just drive over and get it going again by opening the valves and hooking the pump back up, right? Well, not so much.
As Oilman Magazine points out, it’s not nearly that simple. When demand drops, and oil companies shut off wells to stay profitable, they can be placed in a variety of statuses.
Some are active, but are intentionally producing less oil than they can. These are the easiest to get more oil out of, because you just need to pump more oil (either by the well’s speed or how many hours per day you have it pumping). But in most cases, a well that they don’t want to get much out of will be inactive and they’ll just pump more at other wells to produce what they want to be more profitable. In other words, these aren’t common at all.
Among inactive wells, there are ones that are literally just turned off, those that have some of their equipment removed but are otherwise ready to pump, those that need some refurbishment work, and those that are abandoned and/or plugged up because the oil company decided to close it permanently or went out of business. Among the wells that are easier to put back into service, there are wells that are more expensive to operate, and thus aren’t profitable when oil prices are low, but can be reactivated when prices rise again.
When prices rise or some other factor leads to a rise in production, there will be some oil capacity that can increase pretty quick, but that isn’t much. Most wells will require weeks, months, or even years to get capacity going again.
So, let’s put ourselves in the oil man’s shoes for a bit. You’re deciding whether to reopen a well. Everyone and their dog wants the oil, even Elon Musk. So, you run the numbers on reopening some wells to give them the oil and make some bucks. The easy wells? Yeah, those are a no-brainer. But the wells that would take months or years to get going either for the first time or again, that’s a tougher financial decision. If you invest money in opening or reopening wells, and then prices drop again in a few months when the conflict eases up or demand drops, you’re going to be caught with your shorts down.
This problem is even worse for things like Canadian tar sands. The people crying for the opening of more US-Canada pipelines don’t realize that they’re fed by oil that isn’t profitable unless oil is very expensive. So, when prices drop, those sources of oil would shut off again, and the pipelines would be dry again until oil goes back up in price. So, that’s not a silver bullet, either.
In other words, if you want oil companies to make more oil, you’d better be able to prove to them that they’re not going to get hosed later. To do that, you’ll need to assure them that there will be strong demand and in many cases continued high oil prices to justify the production. The truth is, we can’t really assure them of that right now.
So, no, trying to control prices and keep from buying Russian oil isn’t a simple matter of opening the US oil spigots and filling the barrels and pipelines up. The price, time, and long-term profitability issues for oil wells makes increasing U.S. supply a less-than-ideal to unworkable solution to fixing the problem of Russian oil and price volatility.
What You’ll Find In E-bike Rebates Part 2
Pointing out that “Drill, baby, drill!” isn’t the answer really doesn’t answer the call of our readers who asked us to cover this. We also need to offer a solution. In Part 2, I’m going to expand on the idea of micromobility rebates or tax credits, and explain that oil is only a small part of American and European vulnerability to Russian energy.
Featured image by Jennifer Sensiba.
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