CNN’s Frank Sesno on oil: Where’s the price?

With the energy debate heating up, CNN chimed in on the issue over the weekend. The hour-long CNN Special Investigations Unit program, “We Were Warned: Out of Gas,” provides alarmism worthy of its title. Anchor Frank Sesno begins the program with a scenario of terrorists — shortly following a devastating hurricane in Houston that had destroyed oil facilities in Texas — blowing up Saudi Arabia’s two largest oil export terminals, sending oil above $150 a barrel and the world into an energy tailspin.

MATTHEW SIMMONS, OIL ANALYST & AUTHOR, “TWILIGHT IN THE DESERT”: I hear a gong. I heard a ticking clock during the 90s…

SESNO: What is your worst case scenario?

SIMMONS: My worst case scenario is so bad that you don’t want to go there.

SESNO: Tell me?

SIMMONS: We would basically end up having a series of energy wars over who gets oil. And they are wars between you and your neighbor, and they are wars between one town and another, and ultimately one country and another.

SESNO: Chaos.

SIMMONS: It’s just total chaos.

The program, however, is much more than just a scare-mongering exercise, and does get across some important points. One is the fact that higher oil prices make oil resources outside the Middle East more competitive.

SESNO: Fort McMurray, Alberta, lies in the frigid remoteness of northern Canada…

SESNO (voice-over): It has been put on the map by these oil sands, 58,000 square miles of them, 174 billion barrels worth of recoverable oil, giving Canada, America’s quiet neighbor to the north, the second-largest oil reserves in the world, right behind Saudi Arabia…

CHARLES RUIGROK, CEO, SYNCRUDE: And we take that oil sand and add warm water to it, and extract from it this very, very heavy oil.

SESNO: They turn that into high quality synthetic crude, explains Charles Ruigrok. He is CEO of Syncrude, the largest producer in the region.

RUIGROK: At the end of the day, this is what we are in business for, right? We want to end up with this stuff.

SESNO (on camera): This is selling for how much a barrel?

RUIGROK: We are at $60 a barrel right now.

SESNO: That’s the money-maker.

RUIGROK: We produce 250,000 barrels a day of that stuff.

However, Sesno focuses more on the fact that such sources cannot entirely replace Middle Eastern oil.

SESNO (voice-over): And it never stops. The operation churns 24-7. It’s an industry in overdrive, in 10 years production is expected to triple to 3 million barrels a day. The problem is world demand is expected to increase by 20 million barrels a day.

So in the event of a crisis, this is not the place to look.

(on camera): As impressive as this is, if there were a revolution in Saudi Arabia, for example, Canada can’t bail out the world.

A tall order that! And an unrealistic expectation.

Sesno then points to Brazil’s adoption of ethanol as a potential model to follow toward energy independence. He acknowledges that Brazil’s ethanol program began as a concerted, and very expensive, government effort, but fails to address the very different conditions that make sugar cane-based ethanol, which predominates in Brazil, much more economical than the corn-based variety, which predominates in the U.S.

So what to do? Rather than government deciding what are to be the energy technologies of the future, I suggest letting prices work their crucial function. Yes, oil prices are high, but it isn’t so high as to force consumers to seek alternatives yet. Were that day to come, prices would convey the news — and provide the incentives for developing any alternative energy sources if those ever came to be needed.