Hawaii's Dependency on Oil
Price of Paradise · Hawaii Public Radio · aired 1993-12-01
Guests: Heidi Wild (Director of Marketing, BHP Petroleum Americas); Fereidun Fesharaki (Director, East-West Center Program on Resources: Energy and Minerals)
Duration: 0:26:08

[0:00:00] Randall Roth: Why is the And with me to discuss it are Heidi Wild, director of marketing for BHP Petroleum, and Feradin Fessarochi, director of the program on resources at the East West Center and president of the International Association for Energy Economics. Feradin, just how dependent are we on oil?

[0:00:18] Fereidun Fesharaki: Globally speaking, we are dependent in oil to the tune of about 42% of total energy consumption. But the dependence really is a relative concept. Many countries which are very dependent on oil are doing very well. You must remember that the Japanese and the Koreans, who are very heavily dependent on oil, they seem to be doing very well. So dependence itself is not always a factor for either doing well economically or not doing so well.

[0:00:47] Randall Roth: Are we getting more dependent all the time, or is the situation improving?

[0:00:52] Fereidun Fesharaki: The dependence on oil is falling slightly, but I think we are reaching technical limits where major drops in our dependence are unlikely. We may go down worldwide to maybe 38% or 40% of our consumption being dependent on oil in the next 10 years, but that's about the limit that we're going to face in the near term.

[0:01:12] Randall Roth: Now, I remember back in the 70s, waiting in long, long lines to get gasoline, and I remember being very, very concerned that OPEC had total control over the price of oil. Is it possible that we're going to see something like that sometime in the future, Feradin?

[0:01:28] Fereidun Fesharaki: Uh, I think it's quite unlikely that we see something like that in the next 10 to 20 years, uh, much further than that, I cannot say. But it's interesting that you brought up the issue of the long lines, because today the price of oil in inflation adjusted terms, uh, is something like, uh, what it was in 1975. The price of oil is really very cheap. People are not paying much for the price of oil while the price of everything else has escalated.

[0:01:57] Randall Roth: I see. So the the disruption in the 70s, for example, was kind of a blip that we've actually gone back to where we were before that?

[0:02:05] Fereidun Fesharaki: I think we have, and in case they are people who are interested to see how the Japanese and Koreans are doing because they have such a vibrant economy and currency, they in fact paying less for the price of oil than they paid before 1970. So whether you sit in Japan, Korea, or in the United States, in Honolulu, the price of oil is very cheap and is always very difficult, difficult to find alternatives which would compete with the very low price of a commodity.

[0:02:35] Randall Roth: Heidi, are are we more dependent on oil here in Hawaii than other people in other places in the United States?

[0:02:41] Heidi Wild: Um, Hawaii is the state that has the most dependency on oil. We are somewhere between 89 and 91% dependent on oil for all of our energy here.

[0:02:51] Randall Roth: That that seems like an awfully high percentage. If uh our our supply lines were disrupted, what would we do?

[0:02:58] Heidi Wild: Well, we feel that first of all, as Feradin has said, the supply lines are very long, yes, but there is plenty of supply out there. Um, there is a lot of different kinds of crude oils throughout the United States and parts of the Far East that can be brought to Hawaii to be run. So I don't believe that there is a real concern about running out of oil for Hawaii's needs.

[0:03:24] Randall Roth: What about the environment? Doesn't oil pose a a special threat to our environment?

[0:03:31] Heidi Wild: I think that the concern for the environment is a very real one, and the oil industry in Hawaii has done a lot recently to try to make sure that that threat is at a minimum. We have expended uh well over a million dollars for Clean Islands Council to have response equipment. We have brought the um MSRC, which is the Marine spill response group here to Hawaii with their equipment, and we've done a lot of different things such as reroute tankers so that they don't get go past Waikiki and have extra sys tugs at the moorings to make sure that on a preventative basis that those spills never occur to begin with.

[0:04:14] Randall Roth: Feradin, how concerned are you about the environment and in and oil's impact on the environment?

[0:04:19] Fereidun Fesharaki: I am very concerned, but if I may go back to the questions that you asked a little earlier. I think one question which needs to be answered right away is that the issues of concern over the environment should be separated from the issues concern supply security and the price. I think we know now things that we didn't know in the mid 70s. Um, the OPEC exporters know now that they can't do what they did before. They can't raise the price of oil because the demand will disappear. They will lose the customers. Moreover, the price the the volume of supply of oil, volume of reserves has increased significantly. And we are not looking at 10 years, 20 years, 50 years, we're looking at easily 100 years plus of resources being available.

[0:05:21] Fereidun Fesharaki: So we have a resource which is going to be available and we have prices which are going to be moderate. The question is if there is a crisis one part of the world, can we get access to oil in Hawaii? In my opinion, definitely yes. If there is an interruption some place, we may have to pay higher prices as much as anybody else. But the supply will be there. So the issue of supply security really is non issue anymore. The price is not going to escalate to the roof, and in itself, oil is much less harmful or much less damaging to the political and economic structure than it was. I think we have to clearly understand and absorb that.

[0:06:03] Fereidun Fesharaki: Let's not think of that as a precondition to move to environment or to move to other fields. These issues have to be kept separate from each other.

[0:06:12] Randall Roth: Well I I'm really concerned on a on a couple of levels. Uh first of all, I hear you say that oil's really cheap. It it doesn't feel cheap to me when I go to fill my car up with gas and I pay a $1.75 or whatever per gallon. It uh it seems expensive. But I know that it costs more in other parts of the world. Is it possible that it's too cheap here? Is it possible that the cost of oil to the the cost of energy to me a consumer should be higher, Feradin?

[0:06:37] Fereidun Fesharaki: Well, there is no doubt that among the industrialized countries, the US has the lowest energy costs. I think next to the United States is Australia and among the highest costs in the world for energy is in Japan. Uh, a price of gallon of gasoline could easily be double or triple what people pay in the United States in other parts of the part of the world. I'm sure Heidi can tell you the details about what's happening in in in Hawaii, but we can't forget two factors. One is that in Hawaii, the price of land is very high because of that, you end up with much higher prices than you would in the US West Coast or some other places.

[0:07:18] Fereidun Fesharaki: But at the same time, the, uh, people who are making the oil available in the United States, whether the oil companies in Hawaii or elsewhere, are not making a fortune. In fact, this is a pretty marginal business. The federal government and the state government is collecting and making much more in taxes than any of the oil companies do.

[0:07:39] Randall Roth: I see. Heidi, is that true? You're not making much money?

[0:07:44] Heidi Wild: That is correct. Um, I think that the industry as a whole has felt um real pinches in margins. Um, BHP in particular has not necessarily had very good years lately, um, but it's indicative of what the whole industry has done. And I think Feradin would agree that we have actually seen refineries closing down in the United States because of those economics. And a lot of that economics has to do with all the new environmental regs that are in place today. Um, a good example is that we are spending approximately $20 million right now to upgrade some of our equipment to have better control over air emissions and water problems. At the same time, we've spent over a million dollars to meet the new low sulfur diesel regulations that make diesel for on-road use a cleaner burning fuel.

[0:08:41] Heidi Wild: All of these kinds of costs as well as underground storage tank costs and land costs, as Feradin says at the gas stations, just have to be either passed on to the consumer or absorbed somehow, and that cannot always be absorbed by the industries. I think that it's a point that has to be made that BHP, Chevron, all the other oil companies are publicly owned companies. That means the shareholders are you and I, and we all expect to return on our investment as well. So it's important that we are allowed to make some profit, profit is not a bad word.

[0:09:18] Randall Roth: You're listening to the Price of Paradise radio show. I'm Randy Roth, and my guests are Heidi Wild, an executive with BHP Petroleum, and Feradin Fessarochi, director of the program on resources at the East West Center, and president of the International Association for Energy Economics. Well so far it sounds like this program must be sponsored by the oil industry. I have to wonder, um, this thing called externalities, which I know Heidi, you've written about in your chapter in the Price of Paradise, suggests to me as a non expert in this area that maybe the price of oil ought to be higher to take into account the damage that it does to the ozone layer or to take into account some of the other threats that it poses to the environment.

[0:09:58] Randall Roth: Do you feel that's already been factored in? You mentioned a lot of expenditures that your company's been forced to make. Do you think it's already been factored into the price of oil?

[0:10:06] Heidi Wild: I think some of those externalities have been factored in. There are a lot of other externalities that haven't. Um, just the the overall concern that somebody has about seeing a tanker full of gasoline driving down the road. But we also have to recognize that on every other alternative there's also externalities. And so if we want to try to take a look at the cost of externalities on oil, we must also recognize those costs on any other alternatives that are out there. And a lot of people have to take a look at what it is valued to them personally to have the convenience of a product, and energy at their fingertips. You don't always think about what it means to turn on a light, and yet you want it there, you want energy available to you when you want it, at the lowest cost possible.

[0:11:04] Randall Roth: Feradin, as a consumer, I I definitely want it there, and I like the lowest cost possible, but at the same time, it appeals to me to to develop alternative sources of energy, something other than just uh uh oil. Um, what are the economics? Uh is there something out there that that can give me a price close to what I'm currently paying so that that light goes on when I flip the switch?

[0:11:25] Fereidun Fesharaki: I think on several areas, there are, uh the alternative energy economics are very much tilted towards location. If you go to a remote island, uh you might find, uh solar or wind energy to become fully economical because the cost of bringing oil to there is too much. We have to keep in mind again that oil is going to set the price for, uh competition with other fuels. So if the price of oil goes up, then many other alternatives would become economical. If the price of oil remains the same or goes down, it is quite implausible I think to see that many alternatives come on stream. Today, you have hydro electricity is economical in many parts of the United States. Uh essentially the the electricity generated by uh dams from underwater, small dams, big dams, uh can work.

[0:12:25] Randall Roth: Can can that work in Hawaii?

[0:12:27] Fereidun Fesharaki: The opportunities in Hawaii are very limited because of the geography. Uh you have a geothermal which, uh at certain locations, it can work. Again, depends on the distance. This is all aside from in environmental objections to it. The simple economics of it is the issue of transportation of production to consumption.

[0:12:48] Randall Roth: Well and also we have the the cultural and and spiritual concerns.

[0:12:52] Fereidun Fesharaki: And you have of course all kinds of other concerns, which are the type of externalities that you you had referred to, and they all have costs. The issue really boils down that to to to this this thing. That today in the world, uh alternative energy sources make up about 5 to 6% of supply of energy. In Hawaii it's bit higher because of the biomass impact, but generally if you exclude Hawaii, you look at the world, really the only serious alternative energy source is hydro electricity. There is really nothing else which makes even 1% of the world energy supply.

[0:13:30] Randall Roth: Now when you say biomass, are you talking about uh the burning of of the sugarcane?

[0:13:36] Fereidun Fesharaki: Yes, indeed. And I think that that was pointed out by Heidi in the chapter, that that also may be on the decline because of the uh change in the situation of the availability and demand for for sugar.

[0:13:53] Randall Roth: So if if the sugar industry dies, for example, and we no longer have energy from the burning of of biomass, what I hear you saying is that we'll have even less energy from alternative energy sources than what generally is happening on the mainland?

[0:14:08] Fereidun Fesharaki: Unless the, well on the mainland, the dependence on alternative energy is much smaller than here. If you look at the Hawaii's dependence in fact of alternative energy by that we mean things such as biomass, solar, or hydro combined, Hawaii is doing reasonably well compared to the rest of the mainland. The problem Hawaii has is that Hawaii has no big consumption of coal or natural gas. Natural gas is the big player in the energy supplies in the mainland. The thing that we have to keep in mind again is that the externality issue being very important, the consumer, the society must make a decision to pay or not to pay. It is not possible not to pay and have the cleanest type of energy possible.

[0:14:58] Randall Roth: So if if we're willing to pay a lot more, then we can have energy that's produced by windmills or solar generation or some other way besides burning oil?

[0:15:10] Fereidun Fesharaki: Absolutely. If we make the price of oil by tax or by force to go up to double or triple where it is today, most of the alternative energy sources become immediately viable. But the consumer would have to pay the price. Essentially you cannot have it both ways.

[0:15:26] Randall Roth: So it becomes a a political decision.

[0:15:28] Fereidun Fesharaki: It becomes a societal and political decision. Yes, indeed.

[0:15:31] Heidi Wild: Well I think also, we have to remember that people really care about the use of the land. Hawaii doesn't have a lot of land to deal with. When we talk about the sugarcane production, the bagasse being used for uh energy generation, if sugarcane declines, the question becomes, what do you want to use that land for? Is it better used to take a look at other agricultural products that could be used for biomass power generation? Is it better to use it for windmills if somebody doesn't mind it being across the street or in their backyard? Should it be used for solar panels, which are not necessarily economical because the type of weather we have here. What should that land be used for? Housing?

[0:16:18] Heidi Wild: Should be used for other kind of development? The cost of land here is a real key issue on what kinds of alternatives you might be willing to have, and how much land and how much cost are you willing to pay for it.

[0:16:33] Randall Roth: Where do those decisions get made? Is this coming straight out of the state legislature? How do how do those decisions get made?

[0:16:41] Heidi Wild: I think one of the areas that we have been addressing as part of the energy and environmental summit is the need to make sure that land use planning and energy planning goes hand in hand. Because land use planning plays plays a very key factor in what kinds of energy are going to be economical for the future.

[0:17:05] Randall Roth: And this summit that you mentioned, that's sponsored by the state legislature?

[0:17:08] Heidi Wild: It is sponsored by the legislature. It was um basically set up by Representative Bainum. It involves a lot of different legislators and the key is to get all of the people that are involved from private citizen to industry to state departments together to talk about the problems of energy and the environment and to try to find solutions that we can take to the legislature as bills that are already bought into by all members of the community.

[0:17:36] Randall Roth: You're listening to the Price of Paradise radio show. I'm Randy Roth, and my guests are Heidi Wild, an executive with BHP Petroleum, and Feradin Fessarochi, director of the program on resources at the East West Center, and president of the International Association for Energy Economics. Feradin, I've been listening to Mayor Fasi lately on his radio program, and he likes to talk about H Power. Uh, how economic is H Power? Is that a good deal for the the voters?

[0:18:02] Fereidun Fesharaki: I think H Power faces the same sort of situation as many other alternative energy sources face. The price issue. If you want to compare the H Power today with the price of oil as it supplied in Honolulu by BHP or by Chevron, very difficult to make an economic justification of that.

[0:18:23] Randall Roth: Well what about the benefit of of uh not having so much to fill our landfills with uh?

[0:18:28] Fereidun Fesharaki: But that indeed is the externality again that you referred to earlier. We have to make a decision, how much are we prepared to pay? And philosophically, I have a a problem with uh coming up with schemes which hide the true prices from the consumer. This is, I think, uh, takes away from the consumer the power to say whether I want something or not. I think we have to come up with systems where planning takes place for alternative energy. People work together.

[0:19:00] Speaker 1: but right then legislators or the oil companies, let the market decide what the price should be. If the price is too high or if the price is too low, we are prepared, the society is prepared to subsidize something. That's perfectly acceptable, but the consumer must know what they are subsidizing. Many alternative energies and I suspect the same thing would be applicable today of H power would have costs which would be much higher than the cost based on direct oil fire power generation. And if the society wants to pay that price, that's perfectly reasonable, but the society must know what the subsidy implied in that kind of activity is.

[0:19:44] Randall Roth: So you don't have any objection to developing an alternative source that's going to be more expensive than than say oil, but you just want it real clear to people that they're paying more because we're getting the other benefits of this alternative source.

[0:19:59] Speaker 1: Absolutely. That's exactly my point. I think the society may decide that the society wants to pay a premium to have a cleaner environment. But the amount of subsidy that the society wants to pay must be made clear. I would like to to draw your attention to a recent development in California in the past two weeks, which is worthwhile for us in Hawaii to keep in mind. The California state legislature is well ahead of the rest of the nation in the most stringent environment to regulations. And within that context, they have introduced regulations which has created a major problem for the farmers, for the truckers in so far as the diesel fuel is concerned. Demonstrations have been held, the government has had to force suspension of the rules which came into effect October one because it was unreasonable and it did not tell the consumer what the real difference in price was.

[0:20:54] Randall Roth: I see. Heidi earlier you mentioned the summit on energy and the environment. Uh I was looking at a report from DBED, the Department of Business Economic development and development and tourism recently. And uh they do a lot so far as the development of alternative energy sources is concerned. Is that to be expected or is that something that that other states aren't putting as much resources into?

[0:21:19] Speaker 3: Well, I can't speak so much to the other states, but I do know that DBED and the state of Hawaii has tried to take an energy policy view that will recognize, you know, not only our our perceived overdependence on oil, but also trying to move forward what some of the alternatives for Hawaii are. I think that it's important that they are also taking a look at the efficiency, the use of the products that we have today. Are we using our oil products efficiently today? Are we using our other energy efficiently today? And if we're not, what can we do about that? There is a a lot of programs going on trying to take a look at demand side management, which says, should we be conserving the amount of energy that we use today? How can we do better at that?

[0:22:19] Speaker 3: Supply side management. Are we taking a look at bringing in the right products? Are we supplying that energy in the best way possible? So I think the state is really a step ahead of many other states, but I, and I think it's a very important thing to look at as long as they recognize the energy efficiency angle.

[0:22:38] Randall Roth: Faradon would you agree that our state government is doing a pretty good job with respect to energy policy?

[0:22:44] Speaker 1: I think Debed is doing a pretty good job and in fact, the type of work that they do is also extends to strategy for fossil energy, including oil, gas, coal. We have ourselves done, uh, been involved in studies which will become available in the next few months, significant major studies about what strategies lie ahead for the state of Hawaii in the next decade or so.

[0:23:07] Randall Roth: So people who who are very concerned about the threat that that oil poses to our environment, uh that they should be doing some lobbying, but recognize that it's going to increase the cost of living in Hawaii, increase the cost of energy. And that uh your point I think Faradon, is that that needs to be very clear to the consumer that that's the price of getting this environmental quality that we're after.

[0:23:31] Speaker 1: Yes indeed, you are you can have what you want if you prepared to pay for it.

[0:23:36] Randall Roth: I see. What about conservation? Is conservation something that that we in Hawaii have have done a very good job with? Uh Heidi mentioned that there are some statewide concerns about that. Are we doing what we could be doing?

[0:23:49] Speaker 3: I think that conservation is always a good thing to keep in mind. I think that the growth that we've seen in energy demand here in Hawaii has to be recognized. The amount of dependency we have on energy, especially on oil, you know, stretches from everywhere from bringing our tourists here to, you know, supplying our own needs here in Hawaii. We should always consider conserving that because if you don't conserve it, it won't last as long for the future.

[0:24:21] Randall Roth: So we are dependent, but we've got to learn to live with that dependency and do the best we can with it Faradon.

[0:24:26] Speaker 1: I think that's correct. Conservation costs money also, is not cheap. I think the cost of conservation is about the cost of a barrel of oil today. So everything has a cost, we have to live with it and we will.

[0:24:40] Randall Roth: Thank you, Heidi. Thank you, Faradon. Our guests this week were Heidi Wild and executive with BHP Petroleum and Faradon Fisher Rocky, director of the program on Resources at the East West Center. This week's show was produced by Jill Center with technical assistance from Mark Wagner. Your comments are always welcome. Address them to me in care of Hawaii Public Radio. You've been listening to the Price of Paradise Radio Show. I'm Randy Roth, Aloha.