The increasing price of oil is destroying future growth potential of small islands-and it’s going to get worse

I have been wondering just how long island economies and their residents-who depend on imports of all kinds-can weather the economic abuse of having to cope with ever increasing energy costs related to imported oil-a crisis the economies the world over have never before experienced. Sooner or later a tipping point will be reached as a result of the increasing cost of oil where many of the amenities of 21st century living with modern conveniences begin to be weighed against the tradeoff of accepting lower living standards. It is already happening.

The principle ingredient in providing a desired standard of living for many is of course reliable electric energy at a reasonable cost. This is central to enjoying many of the amenities one takes for granted in making life comfortable and rewarding. I wonder at what point in the price structure of a utility corporation does full cost recovery for imported fuel oil for their generators become an unsustainable burden for many island businesses and residences to bear?

Currently there is talk about the possibility of gasoline, a derivative of petroleum, increasing to $9 a gallon in the U.S. If that were to occur, can you imagine what the cost would be on islands situated in the western Pacific? It may be that there will be some islands where the cost of living will become so prohibitive for many that the allure of living on a relatively isolated island will become increasingly difficult to accept. There can be no doubt that a major factor influencing such decisions will be the price of oil. Contracts for oil futures, including light crude, for June 2012 are $104.55 per barrel

It should be obvious that continued reliance on oil is not the answer to the CNMI’s long-term power dilemma particularly as several energy experts have predicted the price could go as high as $200 a barrel. For those non-islanders, not in a privileged position, to remain on island will require increasing sacrifices and adjustment as oil prices increase. For some, a return to subsistence farming and fishing may soon be a viable option as imported food prices increase to reflect shipping costs, which in turn are influenced by the price of oil. It all goes back to oil. In my mind the analogy with cancer is fitting-you can leave it be and die or cut it out and live. So it is with continued reliance on oil as a future source of energy.

Until the late ’50s almost all electric power in the world was produced by coal fired, steam driven turbine generators. When Middle East oil fields were developed and oil prices were $2.50 a barrel private firms and utilities switched to this cheaper fuel and abandoned the use of coal. Now oil prices hover around $100 a barrel and in my judgment it is worthwhile considering the viability of a return to the use of coal with due consideration given the environmental impact, with a willingness to accept tradeoffs-something environmental “purists” are loath to accept.

The discharge from the stacks of coal burning facilities into the atmosphere can be controlled by new, existing technology called “scrubbers.” This equipment cleans the vaporous discharge as it is released into the environment. Ideally a generating plant should be situated to take advantage of the prevailing winds and adjacent to or near the port. Wind powered generators also offer promise with fallback on an alternate energy source when the wind either subsides or is otherwise so strong during storms that the blades must be feathered and energy production temporarily curtailed.

According to a report by the International Monetary Fund, China’s GDP is expected to rebound strongly this year, propelled largely by increased domestic consumer consumption. This translates into an increase in the demand for oil. This is important since the Chinese also need reliable energy sources to continue their remarkable, economic boom. China needs to procure oil supplies from around the globe to facilitate growth and this is a factor in increasing the cost of oil for everyone. The greater the demand, the shorter the supply, the higher the price.

Add the factor of living in dangerous times as evidence of the situation with a recalcitrant North Korea and the powder keg in the Middle East. Both cause unstable world conditions, contributing to a degree of economic uncertainty as in the case of increases in the cost of a barrel of oil. This is very much the stuff over which world powers wage wars.

Editor’s note: The author studied the “Economics of National Security” from the Industrial College of the Armed Forces (now the Defense University) of which the allocation of national resources was a component.