The Mix: The Crisis in Egypt

Length 7:12

Created 02.07.11

Air Date 02.06.11

Video Transcript (opens in a new window)

[McGINNIS] A week of historic uprising in Egypt, and it could have a huge impact on the world's oil supply. Hello, I'm Susan McGinnis. Welcome to "energyNOW!", a weekly look at America's energy challenges and what we're doing about them.

What is happening in Egypt may seem far away, but this crisis, how far it might spread, and how the world reacts could bring it close to home quickly. While Egypt exports only a small amount of oil, it's home to the Suez Canal, and about 3% of the world's oil traffic goes through the canal and a parallel pipeline. A shutdown means that oil must go around the tip of Africa to get to Europe and the U.S., adding more than two weeks to the trip, which could drive up the price of gasoline at our pumps.

And if the unrest in Egypt inflames other Middle Eastern nations, what could that mean for the U.S.? Joining us now for this week's MIX are two energy market analysts, Phil Flynn, from PFGBEST in Chicago, and Peter Beutel from Cameron Hanover in Stanford, Connecticut. Good to see you both again.

[FLYNN AND BEUTEL] Thank you.

[McGINNIS] We're talking about ripple effects on U.S. shores. We're talking about the crisis spreading from here, and also the disruption of shipping routes. Phil, how big a deal is this?

[FLYNN] I think it can be a huge deal. It can be a huge positive or turn out to be a huge negative. If you look at what's happening in Egypt and throughout the region right now, this could be a Berlin Wall moment falling down, or it could turn out to be another Tiananmen Square. This is a very critical area that I think transcends your normal supply-and-demand fundamentals for oil. We're really talking about the stability of the region, possibly the future of democracy in north Africa, in the Middle East. And it could have a huge impact on oil prices and our oil future.

[McGINNIS] Peter, you're not as worried about this disruption, the impact. What do you think is the worst case for America?

[BEUTEL] Well, I do agree with what Phil said here, but the worst-case scenario is that Yemen, Egypt, other countries, Sudan, potentially Algeria, maybe even on the Arabian peninsula -- Saudi Arabia or Kuwait or the UAE -- that some of these countries could follow -- that's our worst-case scenario. Egypt only produces about 685,000 barrels a day, most of which it uses itself. Only 3% goes through it. But right next-door to it are millions of barrels -- 20% of the world's daily oil supply right there in the petroleum gulf.

[McGINNIS] Phil, what is the worst case for U.S. oil and gas prices?

[FLYNN] Peter hit the nail on the head. If we get into some of these other countries like Saudi Arabia, if we see these uprisings spread, we could be talking all-time highs on oil -- $1.50 very easily. We could be talking over $4.00 a gallon for gasoline. But this could go the other way as well. We could see this create democracy in the region, more stability, and that could actually lower prices. So it depends on how this plays out, and we really don't know at this point. We can talk about all the doomsday scenarios, and there's quite a lot of them, but you really have to watch this on a daily basis, and its impact on energy and the economy overall can be huge.

[McGINNIS] Phil, what is the worst-case scenario for America if this spreads to other countries?

[FLYNN] I think they're really reflecting this general uncertainty in the world. And it can turn out to be a wonderful thing. Maybe the economy's going to grow a little bit better. If we get more stability in the region, that's going to be a good thing, but then, on the other hand, if we get some governments that are not going to be as friendly to the U.S., if we get some governments in that area that are not as friendly to Israel, for example, that could flame up the region, and then, of course, prices could go through the roof.

[McGINNIS] Now, Peter, you say the U.S. is insane for allowing this sort of recurring theme to happen every so often, and it brings us back to the major theme that we talk about a lot here on "energyNOW!" -- U.S. dependence on foreign oil.

[BEUTEL] We have been going through this every couple of years for my entire adult life now. I got interested in this back when we had the Arab oil embargo, and then during the Iranian hostage crisis. And it basically has become a story that's repeated itself every few years, through every administration during my life. And insanity is doing something and expecting different results. And this is what we're doing. We fail, time and again, to make energy a priority. We seem to have, in Washington, people so busy seeing blue or red that they can't see clear with the low-hanging fruit that they could both work together on building better energy security for the United States.

[McGINNIS] Phil, is that realistic? How do you think we need to stop this recurring theme?

[FLYNN] I agree with Peter absolutely. My take on this is that the U.S. does not need an energy policy, they need to get rid of their anti-energy policy, and that really is. I think the government so many times has stepped in the way of progress in this world. I know Peter's very excited about the Pickens plan and natural gas -- that's probably one of the great hopes for U.S. energy, but, really, I don't think the government needs to help it. I think we're moving in that direction anyway. The government needs to get out of the way. And I think you're going to see a major shift in U.S. oil dependency over the coming years. We're seeing the beginning of it. I think we're going to see more. You know, when Peter started in business, the Arab oil embargo, we went through a period where we changed everything. Our oil demand didn't get to the same levels that we saw during that time period, after we became more efficient, for another 30 years, and I think we're getting into that same type of mode where the U.S. is going to be a lot more efficient. They're going to use a lot less energy, and we probably won't see demand explode too much over the next few years and we're going to probably be a lot smarter how we use it.

[McGINNIS] Peter, final word -- what's the next U.S. move here?

[BEUTEL] Well, I agree, we need to open up a lot of the things that the government is stopping. I personally want to see more drilling. I do want to see more nuclear. The beautiful thing right now about the price of oil is it's high enough so we can afford to have an environmentalist following every single roughneck around, saying, "Oops, you dropped that, pick up that drop. Don't do that." There's enough room to get environmentalists involved at every step, and still produce oil. We've got the very exciting shale oil prospect, that we've seen what it's done with the shale gas. Ethanol -- I mean, the list goes on. I just want to see us start working together, left and right, and red and blue, and starting to build what we can here that will give us a stronger energy security. Because these problems only get worse every time they recur, so we need to do something and we need to do it fast, I think.

[McGINNIS] Peter Beutel with Cameron Hanover and Phil Flynn with PFGBEST, thank you for being with us.

[BEUTEL AND FLYNN] Thank you.

The civil unrest in Egypt by opponents of President Hosni Mubarak may seem far away to Americans, but it could have huge implications on the global oil market and gasoline prices in the U.S. Three percent of the world’s oil traffic flows through Egypt’s Suez Canal and any shutdown could spike prices. But the crisis could also be a transformational moment for both energy prices and policy in the United States, according to energy analysts Phil Flynn of PFG Best and Peter Beutel of Cameron Hanover. Appearing on this week's edition of “The Mix,” the two analysts spoke with Susan McGinnis about the worst-case scenarios for U.S. energy prices and how the nation can change its policies to minimize the threat from similar crises in the future.

Flynn believes the crisis could transform the world and the region. He says it has the potential to be as good for democracy as the fall of the Berlin Wall, or as bad as the massacre in Tiananmen Square. He says it could affect the stability of the region, as well as the future of democracy in North Africa and the Middle East. He says if supplies from nearby oil producing countries are disrupted because of similar problems, oil prices could surpass $150 per barrel and U.S. gasoline prices could top $4 per gallon. But he says there is potential for good to come out of the situation. He says if it's peacefully resolved, it could help the economy to grow.

Beutel says his worst fear for energy prices is that the revolution could spread to other countries like Yemen, Sudan, Algeria or Saudi Arabia. He says Egypt's oil output is negligible, but 20 percent of the world's oil supply comes from nearby countries, and disruptions there would be devastating.

Both analysts agreed the crisis exposes underlying U.S. dependence on foreign oil, a problem of failing “time and again to make energy a priority.” Flynn believes the U.S. does not need an energy policy to solve this problem, but rather needs to end its anti-energy policies. He predicts a major shift in U.S. oil dependency over the next few years and thinks America will become more efficient and use less energy.

Expanded domestic production is necessary to finally create energy security, said Butell. But it could be safely done, because high oil prices mean companies can afford to have environmentalists involved in every step of the oil production process and still have it be profitable.