For SmartPlanet this week, I surveyed the latest message from the American oil and gas industry: We either need to pay more for oil to sustain the boom in unconventional production (from tight oil and tar sands), or find ways to do without it.

Read it here: America’s oil choice: Pay up, or get off

The oil industry has an important message for you, America: You’re not paying enough for fuel. And if you want to realize the fantasy of “North American energy independence,” you will have to pay more for it — a lot more.

Getting drivers to go along with this notion will not be easy, so the industry has couched this message in much more careful language.

Its new media campaign began with a Feb. 5 editorial in the New York Times by Christof Rühl, group chief economist of BP. After claiming victory for optimists over peak oil pundits like me and trumpeting “North America’s oil and gas renaissance” — new “tight oil” production from shale formations like the Bakken in North Dakota and the Eagle Ford in Texas — Rühl explained how the “expected surge of new oil will lead to increased supply overall and continued market volatility.”

He wrote: “If history is any guide, OPEC will cut production and forego market share in favor of price stability.” (Emphasis mine.)

The United States and Canada have an important policy choice to make, Rühl asserted. “Nations with abundant resources must decide whether to follow the path of open markets, including foreign access and competitive pricing,” or “opt for restrictive investment regimes that risk becoming less rewarding.” (Emphasis mine.)

In other words, North American oil prices need to be higher. And the way to do that is to export crude to the rest of the world.

An editorial in the Financial Times the day after the Times piece, written by the head of the International Energy Agency (IEA), Maria van der Hoeven, echoed this message.

Under the subtitle “Conditions expose misalignment between resources and regulations,” she explained how “logistical and policy hurdles above ground” are “depressing domestic oil prices and curtailing investment.” The glut of oil at U.S.’s primary delivery point in Cushing, Oklahoma, caused by new tight oil production have driven the price of some varieties of mid-continent crude as low at $50 to $60 a barrel, well below the primary West Texas Intermediate (WTI) benchmark price of $96. The main European benchmark grade, Brent, currently trades at more than $117.

The industry has a choice to make, van der Hoeven wrote: “Either U.S. crude is shipped abroad, or it stays in the ground.”

That’s right: The United States needs to become an oil exporter to “avoid [the] shale boom turning to bust.”

Elected officials in Alberta, Canada, have complained similarly in recent weeks about the glut, the “bitumen bubble.”

Tar sands oil is fetching just $50 to $60 a barrel due to a lack of export capacity, which is why the industry has been pushing for the approval of the Keystone XL pipeline. The discount from global prices will cost the Canadian province an estimated $6 billion in lost royalties this year, and the provincial government is anxious to find export routes for its crude.

A Feb. 17 article in the New York Times put a finer point on the dilemma: “If the Keystone pipeline is not completed, energy experts say, weak prices will make the economics of future oil sands projects questionable.”

As indeed they are. Two weeks ago, tar sands giant Suncor Energy wrote down a $1.5 billion investment in an $11.6 billion upgrade project that was to be built north of Fort McMurray, the heart of the tar sands development. Without Keystone XL, “the province seems fated to face continuing steep price discounts, as a captive in an oil-glutted North American market,” opined the Globe and Mail, and the upgrade project could be cancelled altogether.

In the red

Canada’s glut owes to a physical lack of export capacity, but in the United States it is more of a policy issue. At their discretion, U.S. presidents have banned crude exports overseas under the Export Administration Act of 1979. Only crude oil exports by pipeline, to Canada and Mexico, have been permitted. Overseas exports of refined products such as gasoline and diesel have not been so restricted.

It may seem strange to suggest that the United States should become a crude exporter, when it remains the world’s top oil importer. In 2012, the country imported an average of 7.7 million barrels per day, or about 41 percent of its oil demand, according to EIA data. The second-largest importer is China, which currently imports 5.6 million barrels per day, according to Platts.

It seems even stranger to suggest that oil prices aren’t high enough, when California drivers already pay more than $4 a gallon for gasoline. National gasoline prices have risen for 32 straight days, according to AAA, and consumers are not happy about that trend. Prices are usually low this time of year. And weren’t we just promised that gasoline prices would go down thanks to the tight oil boom?

Oil and gas producers, along with their government cohorts, are stumping for crude exports for the same reason they have been fighting for natural gas exports: because domestic prices are too low to sustain the boom in production. Fracking shale for gas and tight oil is expensive. A single tight oil well, which might produce an average of 100 barrels a day for the first few years, costs upward of $10 million.

I estimated last year that the global minimum price for crude producers was $85 a barrel. If tar sands and tight oil operators are only able to command $60 a barrel, they’re in trouble. Likewise, the low-cost gas producers need at least $5 per thousand cubic feet to turn a profit, but gas has been priced below that threshold for three years now. In the words of ExxonMobil CEO Rex Tillerson last June, gas producers “are losing our shirts…It’s all in the red.”

Short of crude exports, the only way for U.S. tight oil producers and Canadian tar sands operators to command higher prices is for domestic demand to pick up. But American oil demand is in a long-term structural decline, mostly due to the nation’s ongoing economic contraction, and to a lesser extent due to increasing vehicle efficiency.

Refined tastes

If oil prices are so low, then why aren’t North American consumers seeing lower prices for gasoline and diesel? Indeed, we’re seeing higher prices for pretty much everything, as higher fuel prices continue to work their way through the broader economy.

The simple answer is that it’s because of our open market policy toward exports of refined products. We participate in a global market for those fuels — the “foreign access and competitive pricing” that Rühl advocates — and they are sold to the highest bidder. Since 2005, that bidder has been China and the world’s other developing economies. In what has become essentially a zero-sum game in world oil demand, their gain necessitates our loss. We will never catch up with them in vehicle efficiency, and they will always be able to pay more for fuel.

Discounted oil does give us slightly cheaper gasoline than we would have if WTI prices were closer to Brent prices, but most of the crude price differential simply goes into refiners’ pockets in the form of higher profit margins.

Contrary to political promises, our booming production hasn’t reduced American oil imports from the Persian Gulf much, as Javier Blas noted in the Financial Times this week. Instead, it has primarily displaced similar grades of crude from Nigeria and Angola, since refiners don’t need more of those particular grades.

If the United States and Canada were to ban exports of refined products as well as crude, that would reduce gasoline prices for a little while, but eventually this policy would drive refiners out of business and prices would rise even higher due to the overall reduction of world supply. It would also come with an unpalatable array of geopolitical problems, and almost certainly spark a trade war. That’s not an option.

A strategic choice

So I agree with Rühl, van der Hoeven and the experts cited by the Times: Crude prices would have to rise for the boom in unconventional oil and gas to continue. Their production growth has already slowed as prices have faltered.

But I disagree that the answer is to open up U.S. ports to crude oil exports. This isn’t really a principled argument about misalignment between resources and regulations, or open trade policy. It’s a strategic choice about whether or not the United States wants to remain committed to oil.

Instead of asking ourselves if we want more oil from increasingly dirty and environmentally damaging sources, we should be asking what kind of an economy we want.

From the standpoint of national security and the economy, it makes little sense to export crude oil and natural gas when the United States is still a net importer of both. (That’s right: Despite the ballyhooed boom in shale gas, the country still imports a net 6 percent of its gas.)

Higher prices may bring more supply, but it will also hasten the nation’s economic contraction, and merely keep it dependent on fuels that will eventually go into global production decline. Peak oil is here, costumed as oil prices that are too high for comfort, yet still not high enough. To repeat, I expect the global decline of oil production to commence by 2015.

The right policy choice is to switch to renewables and more efficient modes of transportation as quickly as possible.

We can eliminate a great deal of our oil demand permanently by moving car and truck traffic to rail, and relying more on bicycles and renewably powered electric vehicles. It will be expensive, but as I calculated in October 2011, the cost of maintaining our current transportation regime is about $1.6 trillion a year; at that rate, the transition could pay for itself in 30 years.

It will take decades to transition to renewables and alternate modes of transportation, but there’s no time like the present to get started.

C. Gil Mull, a 78-year-old career petroleum geologist who worked for Atlantic Richfield (now ARCO), Exxon, the U.S. Geological Survey, and Alaska Geological Survey and Division of Oil and Gas, shared his perspective with me recently. Mull was fortunate enough to be working at the discovery well when the Prudhoe Bay field was found on the North Slope of Alaska in 1968.

“I was proud to be associated with the group that found the largest field in North America, but we’ve squandered it, pouring it into SUVs and all the rest,” Mull told me ruefully. “We’ve squandered it for 40 years without making much progress toward a more sustainable energy future. No doubt that the fractured shales have given us a huge increase, but there’s no way it’s going to make up for the decline of conventional resources. It can buy us more time but I hope we don’t screw this one up!”

I couldn’t agree more. It’s time we did something about our oil addiction, for real. Exporting crude is not the way to do it.

(Photo: The author, in front of a sculpture made from two oil tankers at Burning Man in 2007.)