Tuesday, April 25, 2006

America's absurd "energy policy" and the bashing of the oil companies 

Regular readers know that I think that even at $3 to the gallon, gasoline remains a great value. But, if you are one of those who purports to be outraged by high gasoline prices, this editorial from Tuesday's Wall Street Journal quite specifically fingers the guilty.

There's been unconscionable behavior all right, most of it on Capitol Hill. A decent portion of the latest run-up in gas prices--and the entire cause of recent spot shortages--is the direct result of the energy bill Congress passed last summer. That self-serving legislation handed Congress's friends in the ethanol lobby a mandate that forces drivers to use 7.5 billion gallons annually of that oxygenate by 2012.

At the same time, Congress refused to provide liability protection to the makers of MTBE, a rival oxygenate getting hit with lawsuits. So MTBE makers are leaving the market in a rush, while overstretched ethanol producers (despite their promises) are in no way equipped to compensate for the loss of MTBE in the fuel supply. Ethanol is also difficult to ship and store outside of the Midwest, which is causing supply headaches and spot gas shortages along the East Coast and Texas.

These columns warned Republicans this would happen. As recently as last year, ethanol was selling for $1.45 a gallon. By December it had reached $2 and is now going for $2.77. So refiners are now having to buy both oil and ethanol at sky-high prices. In short, the only market manipulation has been by politicians.

There's more where that came from.

In related news, George Bush has ordered an investigation into whether the oil industry has been fixing prices. This is absurd pandering, the demon spawn of Bush's abysmal political position and the American voter's belief that gasoline should be a negligible expense. The oil industry -- at least that part of it downstream from OPEC -- cannot be conspiring to fix prices. It is way too fragmented. A conspiracy like that would require far more people than the usual cabal, probably thousands, and it would be in the interests of any number of the participants to break it. As the WSJ pointed out,
the FTC has an entire crew that pores over weekly average gas prices in hundreds of cities, looking for evidence of gouging--to no avail. Perhaps this is because no oil company controls enough of the market to exercise enough power to raise prices. The Hastert-Frist call for an investigation is nothing but short-attention-span political theater.

It was even less defensible for the President, who knows that such a conspiracy is impossible, to order an investigation into it. Not only is he wasting taxpayer dollars and reinforcing the ludicrous idea that American consumers have anybody to blame other than themselves and their government for high oil prices, but he is bashing an industry that should earn our praise, not our scorn. The accomplishments of the oil industry in the years since the Arab oil embargo are absolutely astonishing. It has run tremendous financial and human risk, probably more than any other industry, to bring a constant flow of oil into the United States. This oil usually comes from the most politically, geographically and climatically dangerous places on Earth, and it has flowed -- so far -- in ever greater quantities. The oil is then refined under staggeringly complex regulatory requirements for a fragmented internal market (what other product has to be manufactured differently for sale in different states?). What does the oil industry get for this? Profits, yes, but not particularly high ones over long periods of time. Mostly, though, the petroleum industry gets the scorn of the American people, who refuse to see the great gift that its ingenuous engineers, workers, and, yes, executives have given to the American economy and its ungrateful consumers these last sixty years.


By Blogger Fabio, at Tue Apr 25, 08:26:00 AM:

As a chemical engineer, I am one of those who will work hard but risk to reap scorn (besides a rather generous paycheck).

I've read some papers about the MTBE issue, and the real problem is not MTBE itself, but the leaking underground tanks. Gasoline leaks are an economical and environmental problem with or without MTBE anyway.  

By Anonymous Anonymous, at Tue Apr 25, 10:47:00 AM:

I work in the IT arena, and one thing I know from that experience is the the computer systems required to collect the business data, and calculate the tax burden for the oil business, are among the most complicated and industry-specific in the world. Beyond the fact that a good part of our military budget can be viewed as supporting the oil inductry (note there is new pipeline in Afganistan and Osama is still hanging out around there somewhere) we give them special breaks all over the place. Talk about tax simplification - start there.  

By Blogger Georg Felis, at Tue Apr 25, 11:36:00 AM:

Don’t forget that the oil market is GLOBAL. Our misguided politicians making gas formulation changes will not affect the global price of oil, which is popping over $70 a barrel. Unlike the supposed housing bubble, the global oil market has an unprecedented level of reserves with historically high oil prices due to speculation, all the indicators of an upcoming oil price crash. My guess is about $45-50 per barrel by the end of the summer.  

By Anonymous Anonymous, at Tue Apr 25, 01:11:00 PM:

I LOVE it! Blame everyone but Bush. Iraq oil production is down because of Bush's lying war. Iran's oil production is down because of Bush's warmongering threats. Nigeria's oil production is down becuse Bush is proping up a corrupt regime that greedily keeps its oil $Billions from the people. Venezuela's oil production is down because Bush wants to overthrow the democratically elected government. And Gulf production is down in the aftermath of Katrina. I don't blame the last one on Bush - but ethanol is just an oil company Red Herring! Wake up folks. You are paying $3 a gallon because of Bush's total and complete incompetence! He's screwing us like he screwed over the investors in his bankrupt oil companies.
Bush - complete, total, miserable FAILURE! And we're paying the price.  

By Blogger Fabio, at Tue Apr 25, 01:28:00 PM:

Anonim-anus, I think you may find further interesting reading material here  

By Anonymous Anonymous, at Tue Apr 25, 01:33:00 PM:

OH my Gawd! It's not the $75 oil, it's not the $Billions in oil profits - it's the ETHANOL! The sky is falling! Or maybe you just got hit on the head with too many corn cobs.

Reality check: Current production of 5.5 billion gallons of ethanol a year represents about 360,000 barrels / day. Thats 1.7% of the country's total petroleum consumption - or about 5.2 cents out of a $3 gallon of gas. Yup, those $Billionaire farmers are really sticking it too the poor, poor oil companies, aren't they? I mean, if we're not careful, we'll have to give Exxon's retiring CEO another $100 million or so just to pay for the ethanol in his Honda Insight.

Get real! You're being scammed by the oil companys and Bush again.  

By Anonymous Anonymous, at Tue Apr 25, 01:51:00 PM:

And who is "in charge"?

House - Republican majority. Texan Tom Delay was Majority Leader when bill passed - and nothing passed without his OK.

Senate - Republican majority. A Bill Frist 'success'?

VP - Dick Cheney - Texas oil man, Halliburton war profiteer, and Republican.

White House - George W Bush - Failed Texas oil man and Republican - signed the bill.

And the WSJ blames farmers.

It took 'em 5 years, but what did you expect? Clinton oil prices?

I get more laughs out of you wingnuts than a Simpson's marathon.  

By Anonymous Anonymous, at Tue Apr 25, 02:02:00 PM:

In my admittedly layman's opinion, I think there are many factors that tie into the current price of oil:

Increasing demand by the growing economies of India and China

No new refinery capacity built in the last 30 years (and previous overcapacity shut down in the 80s?)

All the different fuel blends required by different states across the country, when refineries can only manufacture one kind of fuel at a time

People still choosing to not purchase fuel-efficient vehicles when their gas-guzzler is not a necessity

No nuclear power plants built in the US to ease the demand on fossil fuels

Speculation in the oil markets because of the uncertainty in the Middle East

There are plenty of places to lay blame.....  

By Anonymous Anonymous, at Tue Apr 25, 02:10:00 PM:

For some interesting facts about the oil industry and prices, you might wish to go to this link:


Adjusted for inflation, prices today are still lower than the all time "inflation" adjusted price of $3.11/gallon of gas in 1981.


By Anonymous Anonymous, at Tue Apr 25, 02:24:00 PM:

Oh, and I forgot about these two:

Fight over drilling in ANWAR

Florida Congressional delegation blocking any drilling of the coast of Florida  

By Anonymous Anonymous, at Tue Apr 25, 04:52:00 PM:

Bringing up the topic of drilling in the Florida coastal waters, and ANWR, is a waste of time. These reserves are paltry at best, IF they can be extracted successfully AT ALL.

The main problem we're seeing here is that, all of a sudden, our gas prices are leveling with the rest of the world (sort of). A gallon of petrol in the UK would cost on the order of $8! Not that I advocate that cost structure here, but it's telling as a comparison.

ANWR and the Florida Gulf are useless wastes of time an money. They will yield worthless amounts of oil.

We might possibly have escaped some of this price shock if the Idiot In Chief hadn't stirred up horrific political turmoil in the world at large. But then, he is indeed an idiot, isn't he? On the other hand, it's been a long time coming -- if not an Idiot In Chief, we do have millions of Idiots in SUVs.

As to an energy policy, strident Republican dogma does not make a policy. Bush does not have, and never has had, a credible energy policy. If he had, those SUVs would not exist in such numbers in the first place, and automakers long would have been required to meet aggressive economy figures. But that would have cost money and required forward thinking. Not possible in this country, even when Dems are in charge.  

By Blogger Dawnfire82, at Tue Apr 25, 07:54:00 PM:

*sigh* If you can't come up with something more constructive and meaningful than "President Bush is a stupid head" and "I know through my psychic powers that the Alaskan Oil Fields are empty" (*ahem* "The geologic indicators are very favorable for the presence of significant oil and gas resources in ANWR, but the limited data means that there is a high level of uncertainty about how much oil and gas may be present. Consequently, current estimates represent the best scientific guesses. However, most geologists agree that the potential is on the order of billions of barrels of recoverable oil and trillions of cubic feet of recoverable gas and that these resources may rival or exceed the initial reserves at Prudhoe Bay." from, anwr.org) then please, don't say anything.

Aside, the price of oil started rising quickly when? Last September or so? Which was right when we invaded... no, that's not right. Civil war broke out in... no... An Iranian dissident group declared that there was a secret nuclear... hmm... What happened in September 05?

Oh right. Two big ass hurricanes that just happened to hit the part of the country that refines approx. 80% of this country's petroleum. I forgot about *THAT* stirring up of horrific political turmoil in the world at large. The price has risen since then based on, wait for it... speculation! The price of oil *could* rise later if, say, war breaks out with Iran, Venezuela, et cetera, so the price rises now instead because people scramble for it. As per Georgefelis, above.

Congratulations on your self-deception. You sound convincing.  

By Anonymous Anonymous, at Wed Apr 26, 12:07:00 AM:

Yes, I agree, speculation. No question.

Let's look for a moment at what else you're trying to say here. If the yield at ANWR amounts to billions of barrels, you haven't refuted my point.

In order to make a meaningful impact on our oil demand, the yield would have to be TRILLIONS of barrels of EASILY EXTRACTED oil, not the oil on offer under the tundra up there. This will be a very challenging store to extract. It will be very expensive.

If each year we can only extract a portion of that total reserve, optimistically pegged at billions of barrels TOTAL, that may only amount to millions of barrels per year. Most estimates are right about 2% to 5% of our CURRENT annual consumption. (NOTE: this takes into account ALL our oil consumption. Your ANWR website notes that the North Slope currently accounts for about 25% of US production, which in turn is a relatively small proportion of our overall oil demand)

As to price volatility, major fluctuations (trending heavily upwards) began in about March of 2003. What major world events can you think of that were happening then? Of course, the war with Iraq, for just one. All this drives speculators to, well, speculate. They are speculating now, and were then, that effectively Bush is going to do something to jeopordize oil trans-shipments either diplomatically or economically, and he has certainly delivered. If you were a speculator in oil, wouldn't you be licking your chops if an oil-addicted nation waged war on an oil-producing nation, while simultaneously encouraging wastefulness at home?

This is not to say that other world leaders, including Chavez, Ahmadenijad, etc. aren't doing their part in the moron circus as well. And of course, as you mention, Katrina has caused even more severe price spikes recently, which would have occurred no matter who the president was.

Meaningful and constructive offerings were on the plate nearly seven years ago now; reasonable environmental policy (which IS energy policy by the way) was in place or slated to become law. All that was hastily and ill-advisedly thrown out in a fit of anti-Clintonian pique. Much the same as anti-Clintonian pique caused the White House to ignore strong warnings about the risk posed by Al Qaeda, the White House under Bush ignored warnings about the increasingly tight oil markets and sensible suggestions on how to level off demand.

In both cases, the predictable (and predicted) outcomes have come to pass.

The best confirmation of that fact is that Bush today is so publicly reversing himself in suggesting an investigation.

It's a bad idea for a RW person such as yourself to *sigh* at ANYONE these days. Doing so while glibly quoting a website devoted to promoting exploration of ANWR does nothing to aid your credibility.

It boils down to this: Bush, who really really does not know what he is doing, has now had to publicly reverse himself in the same vein as his father did when he had to raise taxes. I just can't believe you don't see it.  

By Blogger lazerlou, at Wed Apr 26, 12:56:00 AM:

So Bush has decided not to deposit in the strategic reserves to diminish demand temporarily? What happend to free markets? I love how spineless hypocritical and wantonly political Bush is.

Gas should be about twice as expensive as it is, and the added price should be tax revenue, not profit for a handful of massively powerful nearly fully vertically integrated corporations. The big oil players can fix prices and limit capacity at a number of stages along the supply chain.

The lip service Bush gives to oil addiction is laughable. Anything but use government to regulate and curb consumption, right? No collective action problems here! Disgusting.  

By Blogger viking kaj, at Wed Apr 26, 01:51:00 PM:

The biggest threat to our national security is our continuing dependance on foreign oil. It forces us to wage war and develop foreign policies that are dedicated to stabilizing an inherently unstable polity in the Middle East.

If we have not already squandered the greatest technological advantage in the history of nations by exporting our manufacturing base to China, we need to engage our best and brightest in the quest for alternate forms of energy and develop a program to achieve energy independence within the next 5-10 years, no matter how much this hurts.

Our future security depends on this alone.  

By Blogger Dawnfire82, at Wed Apr 26, 07:53:00 PM:

#1, I don't qualify as right wing. Unless of course, the requirement is simply that I don't think like you.

#2, what source would be more likely to print supporting facts of X than a source who wants X to happen? Should I only listen to opponents of X, assuming that only they know the truth? That's retarded.

#3 You lefties (which you MUST be, since you disagree with me, a right winger) get pissed because Bush never changes his mind, and then you mock him for finally doing so. "Bush, who really really does not know what he is doing, has now had to publicly reverse himself..." Make up your minds. I'm thrilled that the President has ordered these probes. Even if the companies come up clean, it'll scare them into NOT gauging prices in the future. Yay.

#4, I dont' recall what Clintonian energy policies were thrown out the window (except Kyoto, which was the most worthless, self defeating, stupid rag anyone has ever tried to get this country to sign). I didn't really keep track of these kinds of things at the time. Though I will speculate that if said policies were examples of extra regulation, special taxes to coerce certain kinds of behavior, and so forth the Republican government would oppose them on political principle.

"Gas should be about twice as expensive as it is, and the added price should be tax revenue, not profit for a handful of massively powerful nearly fully vertically integrated corporations."

Increased revenues are already taxed more heavily. By percentage. It's called a progressive tax. So the more money companies and people make, the more they pay in taxes. If you want additional taxes put on the product itself, the consumers will have even higher prices. Way to go.

And I thought that liberals (which you must be, since you don't think like me) were supposed to be against fascism and intrusion of the government into daily life? But here, you seem to advocate restricting my consumption of a product that I have to have to maintain my lifestyle to an arbitrary level. Isn't that like rationing food? Aside from being intrusive, it would play havoc with the free market that you seem to favor and cross a political line that we don't want to approach. Shall we ration clothing as well? People really do spend too much on clothes and it just feeds vanity and social injustice, right? How about cars? Electronic and luxury goods? Medicines?

CCCP forever.  

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