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Must read from the WSJ:
Gasoline prices are through the roof and Americans are angry. Someone must be to blame and the obvious villain is “Big Oil” with its alleged ability to gouge consumers and achieve unconscionable, “windfall” profits. Congress is in a vile mood, and has dragged oil industry executives before its committees for show trials, issuing predictable threats of punishment, e.g. a “windfall profits tax.”
But if there is a villain in all of this, it is Congress itself. That venerable body has made it impossible for U.S. producers of crude oil to tap significant domestic reserves of oil and gas, and it has foreclosed economically viable alternative sources of energy in favor of unfeasible alternatives such as wind and solar. In addition, Congress has slapped substantial taxes on gasoline. Indeed, as oil industry executives reiterated in their appearance before the Senate Judiciary Committee on May 21, 15% of the cost of gasoline at the pump goes for taxes, while only 4% represents oil company profits.
To understand the depth of congressional complicity in the high price of gasoline, one must understand that crude oil prices explain 97% of the variation in the pretax price of gasoline. That price, which has risen to record levels, is set by the intersection of supply and demand. On the one hand, world-wide demand has accelerated mainly due to the rapid growth of China and India.
On the other hand, supply has been curtailed by the cartel-like behavior of foreign national oil companies, which control nearly 80% of world petroleum reserves. Faced with little competition in the production of crude oil, the members of this cartel benefit from keeping the commodity in the ground, confident that increasing demand will make it more valuable in the future. Despite its pious denunciations of the behavior of U.S. investor-owned oil companies (IOCs), Congress by its actions over the years has ensured the economic viability of the national oil company cartel.
It has done so by preventing the exploitation by IOCs of reserves available in nonpark federal lands in the West, Alaska and under the waters off our coasts. These areas hold an estimated 635 trillion cubic feet of recoverable natural gas – enough to meet the needs of the 60 million American homes fueled by natural gas for over a century. They also hold an estimated 112 billion barrels of recoverable oil – enough to produce gasoline for 60 million cars and fuel oil for 25 million homes for 60 years.
This doesn’t even include substantial oil shale resources economically recoverable at oil prices substantially lower than those prevailing today. In an exchange between Sen. Orin Hatch (R., Utah) and John Hofmeister, president of Shell Oil Company during the May 21 Senate Judiciary Committee hearing, the point was made that anywhere from 800 million to two trillion barrels of oil are available from oil shale in Colorado, Utah and Wyoming.
If Congress really cared about the economic well-being of American citizens, it would stop fulminating against IOCs and reverse current policies that discourage, indeed prohibit, the production of domestic oil and natural gas. Even the announcement that Congress was opening the way for domestic production would lead to downward pressure on oil prices.
There is an historical precedent for such a step: Ronald Reagan’s deregulation of domestic crude oil prices at the beginning of his first term. At the time, thanks to the decision by the Organization of Petroleum Exporting Countries (OPEC) to curtail output, the price of oil was at a level that in real terms is only now being matched. Domestic price controls ensured that the OPEC cartel would face little or no competition in the production of oil.
Price controls were exacerbated by other wrongheaded policies stimulated by the two “energy crises” of the 1970s. One of the most egregious was the infamous “windfall profits” tax, designed to punish oil companies for alleged profiteering. But since it applied to even newly discovered oil, its main impact was to discourage the exploration and drilling that would have increased oil supplies.
Although the energy problems of the 1970s were traceable to government policies, Reagan’s decision to deregulate oil prices was ridiculed by policy makers, especially those who had served in the previous administration. For instance, Frank Zarb, who had been Jimmy Carter’s “energy czar,” predicted that decontrolling the price of crude oil would lead to gasoline prices of $10 a gallon. Instead, the world price of oil plummeted, helping to fuel the extraordinary economic growth of the 1980s.
Reagan’s deregulation of crude oil prices created incentives for domestic producers to invest in exploration and to increase production. The threat of increased output by non-OPEC producers destroyed the discipline among OPEC members necessary to restrict production to maintain high prices. Facing the likelihood that an increase in supply would lead to lower future prices, OPEC producers increased output in the hopes of maximizing profits before prices fell. The cascading effect caused oil prices to tumble.
As in the 1970s, U.S. energy policies have essentially restricted the exploitation of domestic sources of energy. Curtailed supplies have combined with rapid, world-wide energy demand to increase the price of oil and other sources of energy. This provides leverage to foreign producers and threatens U.S. energy security. Freeing up domestic energy resources will do today what President Reagan’s decision to deregulate oil prices in 1981 did then: cause oil prices to fall, thereby enhancing U.S. energy security.
May 29, 2008 - 09:04 PM on May 29th, 2008
If only our worthless bunch of CONgressmen from the demacrook party would quit listening to the lies of the greens and OPEC we would have such high fuel prices its time for those yellow bellies to finaly get us off our dependence on OPEC and drilled in the ANWR and if wealthy green freaks like LEONARDO DECAPRIO would STRAT WALKING TO HIS AWARDS SHOWS and we FED THE GREENS TO THE POLARBEARS KILLER WHALES AND SKUAS
May 30, 2008 - 05:50 AM on May 30th, 2008
Liberals never learn. All they know is to punish the successful, except for their money sources in Hollywood.
It is almost time to forcefully push aside any watermelon in any public forum.
May 30, 2008 - 06:24 AM on May 30th, 2008
Anwar is a bandaid. Here’s a thought. Let’s solve the real problem of energy dependence that every Congress since the 60’s has been paying lip service to. Instead of blaming Hollywood, the Right, the Left, whatever. I know that’s a departure for some.
David
May 30, 2008 - 06:35 AM on May 30th, 2008
David- A much needed band aid. Drilling in ANWR should be the solution, but a part of the solution. As we said in other discussions, use ours and at the very same time, let’s get moving on the alternatives in a smart way. Let’s not repeat the fiasco we are paying for with ethanol.
The point the author made should be noted. His point was that this Congress seems to want to blame everyone but themselves for the prices. Our Congress has a long history of bad decisions on this. We are where we are because of Congress.
May 30, 2008 - 09:13 AM on May 30th, 2008
David, a whole box of “band-aids” are needed on the way to the real solution you allude to. Frankly, your post sounded very Obama-esque: good sounding rhetoric but no solutions, and no recognition of even partial or temporary solutions.
Blame needs to be placed squarely on the shoulders of those who deserve it, and here’s why: because until they are held responsible, they won’t get out of the way. They won’t see the light until they feel the heat.
So we need blame, lots more of it. Blame away!
May 30, 2008 - 12:26 PM on May 30th, 2008
Ouch! I’ve been called Obama-esque and that hurts. All I hear in Anwar as an answer. Here’e the Liberal Solution. I don’t really care about the supposed eco issues with ANWAR, more then if they go ahead with drilling, gas comes down to $2.50 a gallon and then everyone goes about their business. OK, so here’s the plan:
1. Restrict imports of oil by 20%, via tarriff.
2. Give the go ahead to drill where ever there is oil, including Al Gore’s back yard.
3. Put tax credits in consumers hands to implement solar and wind solutions. Let them make the decisoins about if, when and how much and from who..
4. Allow at least 5 more nuclear power plants to be built, per year.
Anyone care to add to this?
David
May 30, 2008 - 12:30 PM on May 30th, 2008
Pam - Yes, Congress is part of the problem. And http://www.rightvoices.com will be the solution.
.
David
May 30, 2008 - 12:42 PM on May 30th, 2008
…OR…we could all start using LESS oil/gas.
I know, I know, it’s crazy…but…
May 30, 2008 - 12:57 PM on May 30th, 2008
That will happen, because the reduction in oil imports will cause gas to go to $5/gal and want to conserve. this is better then telling the automakers to produce a mandatory 30 MPG (or whatever)into their cars. it will be market driven.
David
May 30, 2008 - 02:36 PM on May 30th, 2008
David when I said “Obama-esque” I meant it only as a characterization. I was not in any way try to be insulting.
This is the new kinder, gentler RV…
The oil market right now is in an artificial bubble mode. The speculators are driving it. Short term, it will correct. Congress could immediately take steps to make that happen but Congress collectively is too stupid/incompetent/corrupted/all of the previous to do what even an intelligent high-school senior could figure out to do.
So what do we do long-term, what we should have already done?
1. Start drilling anywhere and everywhere (including Al Gore’s backyard, right on David!).
2. By Executive order if possible, emergency legislation, whatever, immediately fast-track Nuclear power plant applications. By statute prohibit obstructionist lawsuits; keep the Sierra Klub and their money-grubbing lawyers completely out of the picture.
3. Announce a Manhattan Project to commercialize the Hydrogen fuel cell and build the infrastructure to support Hydrogen as a transportation fuel (generated at night by the nuke plants).
4. Switch to Hydrogen for fuel for stationary plants (boilers, industrial processes, etc.) freeing up nat gas for use as transportation fuel.
5. We are not far from developing battery technology that can make a true electric vehicle possible for commuting use of less than 100 mi r/t. The nuclear energy could charge them at night. Spend the money to develop the battery technology.
We do those things, oil will be $20/barrel. The only uses for oil will be for lubricants and as a source of hydrocarbons for industrial chemicals. We will solve the CO2 problem (for those who care).
The only thing I can think of as a downside is we won’t need Al Gore and the legions of ecofrauds who have made quite an industry out of obstructionism. Aw shucks!
May 30, 2008 - 08:51 PM on May 30th, 2008
No offense taken on the Obama-esquness. Even us Libs can take a joke.
Your price of oil may not be entirely accurate because we haven’t taken Pam’s car into account… $25?
Now, what to do with all my Carbon Offsets… oh yeah, I never bought any.
Seriously, I’m doing reasearch on it and every time I trace one down and investigate its sponsoring company, it ends up bing a shell game.
DK-David
May 30, 2008 - 10:06 PM on May 30th, 2008
14 Hey, I made fun of a Hummer driver today!
I have been very good about not wasting gas! I started a journal and everytime I go somewhere I log it and then review it..it forces me to to watchful of what I am doing. It’s a trick that dieters use and since I’m on a mission to shed some gasoline bills, I figured it couldn’t hurt.
May 30, 2008 - 11:39 PM on May 30th, 2008
NY-David, it would be very interesting to hear about what you find out tracking down these carbon offset people. I have always wondered, who issues these offsets, who tracks them, and how is the whole process validated? Otherwise anyone could just announce Carbon offsets for sale and run a nice scam. (I think it is a boondoggle/scam anyway).
Pam, I have eliminated just about all the fuel usage I can. I even use trains and light rail for business-purpose travel when I can.
The problem is even as we temporarily cut down demand by conservation the demand overall continues to rise due to population increases. And as the rising wealth of the populations in India and China demand more of the lifestyle we have, worldwide demand will continue to rise.
The nerve of those Chinese! They are supposed to get only a bowl of rice a day and a little rat meat once or twice a week. Why are they getting so uppity? And the Indians—what the cows aren’t good enough? They were fine for centuries cooking over cow dung fires. Now they want radar ranges? The nerve of them!
May 31, 2008 - 08:31 AM on May 31st, 2008
My biggest gas guzzles for the summer will be Disney trip, which is round trip flights and boating at the cottage…I managed to get the 26 in town family members on the same flight and we have a layover in Chicago which is where we pick up my sisters family of 4. I am glad we don’t have 3 different planes taking us to the same location.
My Dad hasn’t really cut back on his flying. He complains about how much he pays to fuel his plane, but it hasn’t stopped him from going up for fun.
I never really use much gas for the boat because I like to drop the anchor and eat a picnic lunch and fish or read and swim off the boat.
May 31, 2008 - 10:54 PM on May 31st, 2008
Not any cut back would be necessary if Congress would do it’s job and allow companies to drill for oil. This should have never happened to us as a country that gives to everyone else and does good for anyone. Why haven’t we made Iraq pay us back in oil? Why do another thing for them in any way? I’m sick of this racist election, the crooks in Congress and the lying politicians - that are NOT suffering one bit in all this crap they got us into. They never will either, as long as we are foolish enough to elect them. Obama need NOT ever tell me how much electricity to use or gas. OBAMA IS GASEOUS!
June 1, 2008 - 12:38 AM on June 1st, 2008
A smarter person then myself pointed out that speculation is pushing the price up higher and I think it is one thing doing it. The other is just plain old demand. If they gave the goahead to drill in Anwar, I don’t think it will cause that much of a change in prices that people expect.
As far as extracting oil from Iraq as payment. While this rings true like a “good thing”, the world would see it as a “bad thing” that we ultimately did invade their country to get at the oil. As much as I think starting the war was a mistake, I don’t share my fellow Democrat’s view that we need to pull out tomorrow. We need to finish what we started. Its as much as we’d expect from anyone else. Its certainly withing our realm and power to do so as its been recently proven.
David
June 2, 2008 - 12:58 AM on June 2nd, 2008
Converting coal to liquid and burning it is the best short term solution. We have the technology and the coal to use it. Drilling everywhere that we have oil is an excellent midterm solution and will require the construction of multiple refineries as we are currently operating at above safe capacity. Conservation may help, but unless you’re going to tell people born after a certain date that they aren’t allowed to own a car unless someone dies and leaves them one in their will, it’s NOT the panacea so many liberals think it is. The production of oil has simply not kept up with increasing demand. We have enough oil in the ground and in oil shale to power most of the country for 50 years, we simply need to drill and pump it. Anyone care to guess which political party has stopped that production because of environmental groups refusing to accept that we have to have the oil and that Solar and wind are not economically viable YET. In 50 years, that will in all likelihood no longer be the case. At least as long as the economy doesn’t crash because of the high fuel prices. When oil prices get too high, farmers won’t be able to farm their land, plastic manufacturers won’t be able to make anything, utility costs will put a number of businesses under, the transportation industry will go south. The Automotive industry has already taken its first hit with Ford closing its truck and SUV plants. I expect GM and Nissan to follow suit soon enough. Depending on the outcome of the elections in November, I expect the economy to go into a Carteresque tailspin. 45 MILLION people unemployed, 15+% inflation, etc etc. That 45 million unemployment number is the number of jobless if the unemployment rate gets to within a point of where it was when Carter was in the oval office. If it actually hits the high water mark during his administration, it will be closer to 50 million. Just something to think about before casting your votes for people who have said they intend to raise taxes. That’s YOUR money they intend to take.