The president and chief executive officer of one of the world’s largest corporations called for reform of America’s role in global energy markets during a Thursday speech at the Cato Institute.
“[We] did some very careful analysis of the energy situation, and we came to the conclusion that the oil market is indeed not a free market,” said Fred Smith, the president and CEO of FedEx Corporation. “More importantly, the dependence of the United States on imported petroleum from unstable and in many cases unfriendly parts of the world had created, after nuclear proliferation and biological weapons, probably our largest single economic and national security risk.”
Speaking at the Cato Institute hosted event “Monopolistic Global Oil Market,” Smith recommended a three-pronged approach to shifting American use and production.
“First and by far the most important was to maximize United States and western hemisphere oil and gas production to reduce the dependency of our economy on oil from these unfriendly and unstable parts of the world,” Smith said. “The second recommendation … was to use less petroleum, to reduce the amount of petroleum as a percentage of our GDP. … The third recommendation was to the extent it was economically feasible to do so, try to develop cost effective alternative power systems to diversify the U.S. transport sector away from petroleum.”
His speech coincides with the release of the study “Competition in Global Oil Markets: A Meta-Analysis and Review.”
The report is written by Andrew Morriss and Roger Meiners, and published by Securing America’s Future Energy (SAFE), a “nonpartisan organization dedicated to reducing America’s dependence on oil by educating policymakers and advocating for comprehensive energy reform.” SAFE is a partner of the Energy Security Leadership Council (ESLC), the organization co-chaired by Smith.
Morriss and Meiners found that the Organization of the Petroleum Exporting Countries (OPEC) “is successful in imposing artificial scarcity, it forces demanders to move up the demand curve and, more importantly from the suppliers’ perspective, increases profit margins for the oil producing countries.” This market manipulation causes Americans to pay unnecessarily high prices for oil.
Smith argued Thursday that OPEC’s cartelization necessitates U.S. energy independence, a realization that led Smith to join the ESLC.
“In 2006, I was contacted by General P.X. Kelley who along with the CEO of SAFE, Robbie Diamond, had come up with the idea of putting together a group of former military officers … and business CEOs whose enterprises used a great deal of petroleum,” Smith said.
Smith has a stake in this fight: By his account, FedEx uses “over 1.5 billion gallons a year in the various FedEx operating companies.”
“Accordingly, we were exceedingly interested in the seemingly inexorable rise in the price of fuel that had begun in the early part of this decade,” he said.
This rise in fuel prices, and subsequent increase in the cost of doing business, is attributed in large part to the outside influence of OPEC. The recommendations Smith provides are intended as a response to the issues Morriss and Meiners identified in their study.
Morriss said he and his co-author feel there is a “broad understanding” that OPEC is a “clumsy cartel.”
However, not everyone sees OPEC as a hindrance. It may be a “clumsy cartel,” said James Smith, the Cary M. Maguire chair in Oil and Gas Management at Southern Methodist University and the final panel member, but we should not “lay the blame for [oil price] volatility at the foot of OPEC.”
Rather, he said, OPEC “[has not] been unstable enough to cause price volatility entirely,” pointing to natural gas as an example of a commodity that has been “much more volatile, and there’s no cartel in natural gas.”
Smith concluded his remarks by noting, “In retrospect, the ESLC’s recommendations have been effective and we feel quite strongly that they are the continued courses of action that this country should take to mitigate these national security and economic risks.”