Amateurs Talk Tactics, Professionals Talk Logistics: Thinking About the Strategic Price of Oil
I have been involved in a debate with a good friend and fellow National Security expert over the role of DOD in biofuels. His argument is that since biofuels provided no clear operational advantage and are more expensive than fossil fuels, DOD should not be spending the vast sums that they are on this obviously inferior product. From a tactical stand point, I cannot argue that point. From a strategic standpoint the arguments for government intervention are more clearly defined. Think, “winning the battles, but losing the war”.
The syllogism goes like this: If an alternative to oil in in the vital national interest AND the market will not allow an alternative to arise, how do you address this interest?
Three of the four most profitable companies in America are oil companies, according to Fortune. Not energy companies, oil companies. The moment a commercial enterprise produces a cost competitive, drop in replacement biofuels, one or all of those three will drop their prices to drive the competitor out of the market. How long could a fledgling biofuels company stand up to the capital resources of Exxon Mobil, Chevron and ConocoPhillips?
If market forces will not allow a product that is in the vital national interest to arise, government intervention is required, and soon. Why soon? Because Iran, China, Cuba and Venezuela are all seeking biofuels solutions to overcome their own critical vulnerabilities as a result of a dependence on refined oil products for their transportation networks.
Will importing Venezuelan biofuels technology make us any less vulnerable than importing their crude? America must not be just competitive in this technology, we must dominate. That requires government intervention and investments.
The best arm of government to undertake this is the Legislature. Unfortunately, the Legislature has failed to act and, apparently, cannot act in a timely manner. Therefore, it falls to the Executive branch to act. The appropriate agency of the Executive to take this action would be the Department of Energy. Unfortunately, the DOE has been repeatedly hamstrung by the Legislature. The only other department with the capability of acting in this arena is the Department of Defense.
The critics of this argue that the DOD cannot afford to “waste” money on this program in a time of dwindling resources, especially with the imminent application of sequestrations, the Congress suicide pact and brand of shame that will cut the DOD budget by half a trillion dollars over the next decade.
The Navy is the biggest offender, in the eyes of the critics, for the $170M they have committed along with the DOE, DOT, USDA, DOT and Maersk Shipping to procure biofuels. My counter to this is that one day’s steaming for a carrier battle group is about $3M, so if the United States did not have to protect Chinese and Japanese oil flowing through the Straits of Malacca for only 56 days, 15 hours and 59 minutes, the Navy would get back their investment. If you could cut steaming days in the Straits of Hormuz, you can get it done in half the time!
If America develops the technology for a drop in replacement fuel, perhaps we can repay our Chinese debt in energy and lead the world in the new energy economy. That seems to be worth the investment.
Another way to evaluate the cost versus the opportunity is to consider the impact of a change of a single dollar in the price of a barrel of oil. For every $1 increase in the price of a barrel of oil, DOD and the American taxpayer incurs an additional $130 million in fuel costs. The tax payer is defrauded because that money was allocated to the operating budgets of the various services, tax dollars appropriated for the operation, maintenance and training of the forces and that is now going to offset the vagrancies of OPEC price setting.
If OPEC had to compete with a biofuels industry, what impact would that have on the price of oil?
What should have become another great challenge for America industry has become a political football. Politicians who clearly know better are arguing against reducing the vulnerability of this Nation to a commodity we cannot control. Their tactical arguments are true, but their unwillingness to address the strategic questions is an act of betrayal. If they accept the premise that an alternative to oil for transportation is in the vital national interest of the Nation, as each of the occupants of the White House has said going back to Nixon, then they must present an option.
We can no longer afford to just say no; we must have an alternative to oil or the vulnerability that it represents will be used against us and we will have no alternative.
Dan Nolan is an Operation Free Veteran.