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The Truth About Oil Prices

by Editors

THE TRUTH ABOUT OIL PRICES:

 

gas prices

 

The debate is like that  tale told by an idiot-

 full of “Sound and Fury” and signifying nothing.

 

The Answer is still “Blowing in the Wind”

 

Intro:  In the following article, DI Foreign Policy Editor, Dusty Schoch, and Staff Writer, Len Carrier, respond to DI’s In-House Neo-Conservative Republican Atlanta contributor and writer,  Foster Musgrove  regarding the price of oil. Foster has forwarded for our consideration an article captioned “The Truth About Oil Prices” as derived from recent debates in the Senate’s Judiciary Committee between Democrats and Republicans on the subject of oil prices in America. 

 

Foster Musgrove, on forwarding the (obviously Republican-spun reporting on the debate) offers:

 

 

“Heard this morning that gas is now $4/gal.  It is good that you have a sail boat and that the Government has not yet figured out how to tax the wind. I don’t know this guy, but it is interesting reading.”

 

 

DUSTY’S DISSENT (AN OPEN LETTER
TO FOSTER MUSGROVE) and LEN CARRIER’S
“CLINCHERS” TRAIL THE
FOLLOWING REPUBLICANS’ REPORTING

—– Original Message —–
From: <krwark@primusonline.com.au
Sent: Sunday, June 01, 2008 9:12 PM
Subject: FW: Fwd: Fw: THE TRUTH ABOUT OIL PRICES

It is interesting to have some reliable statistics and facts on the ‘Oil Industry’ who currently seem to be the party all Governments and consumers wish to blame for high Oil prices. Although the following pertains to the USA, some of the info is global, and there is a parallel in Australia, the difference being significantly higher government excise, tax and GST take. I know I am biased on this issue, however this info will provide a starting point for the next time I am asked for an explanation on ‘Oil Pricing’.

Kerry

May 21, 2008

Oil Executives Try to Educate Senate Democrats, But Democrats Appear Hopeless.

Earlier today, the Senate Judiciary Committee summoned top executives from the petroleum industry for what Chairman Pat Leahy thought would be a politically profitable inquisition. Leahy and his comrades showed up ready to blame American oil companies for the high price of gasoline, but the event wasn’t as satisfactory as the Democrats had hoped.

The industry lineup was formidable: Robert Malone, Chairman and President of BP America, Inc.; John Hofmeister, President, Shell Oil Company; Peter Robertson, Vice Chairman of the Board, Chevron Corporation; John Lowe, Executive Vice President, Conoco Philips Company; and Stephen Simon, Senior Vice President, Exxon Mobil Corporation. Not surprisingly, the petroleum executives stole the show, as they were far smarter, infinitely better informed, and much more public-spirited than the Senate Democrats.

One theme that emerged from the hearing was the surprisingly small role played by American oil companies in the global petroleum market. John Lowe pointed out:

I cannot overemphasize the access issue. Access to resources is severely restricted in the United States and abroad, and the American oil industry must compete with national oil companies who are often much larger and have the support of their governments.

We can only compete directly for 7 percent of the world’s available reserves while about 75 percent is completely controlled by national oil companies and is not accessible.

Stephen Simon amplified:

Exxon Mobil is the largest U.S. oil and gas company, but we account for only 2 percent of global energy production, only 3 percent of global oil production, only 6 percent of global refining capacity, and only 1 percent of global petroleum reserves. With respect to petroleum reserves, we rank 14th. Government-owned national oil companies dominate the top spots. For an American company to succeed in this competitive landscape and go head to head with huge government-backed national oil companies, it needs financial strength and scale to execute massive complex energy projects requiring enormous long-term investments.

To simply maintain our current operations and make needed capital investments, Exxon Mobil spends nearly $1 billion each day.

Because foreign companies and governments control the overwhelming majority of the world’s oil, most of the price you pay at the pump is the cost paid by the American oil company to acquire crude oil from someone else:

Last year, the average price in the United States of a gallon of regular unleaded gasoline was around $2.80. On average in 2007, approximately 58 percent of the price reflected the amount paid for crude oil. Consumers pay for that crude oil, and so do we. Of the 2 million barrels per day Exxon Mobil refined in 2007 here in the United States , 90 percent were purchased from others.

Another theme of the day’s testimony was that, if anyone is “gouging” consumers through the high price of gasoline, it is federal and state governments, not American oil companies. On the average, 15% percent of the cost of gasoline at the pump goes for taxes, while only 4% represents oil company profits. These figures were repeated several times, but, strangely, not a single Democratic Senator proposed relieving consumers’ anxieties about gas prices by
reducing taxes.

The last theme that was sounded repeatedly was Congress’s responsibility for the fact that American companies have access to so little petroleum. Shell’s John Hofmeister explained, eloquently:

While all oil-importing nations buy oil at global prices, some, notably India and China , subsidize the cost of oil products to their nation’s consumers, feeding the demand for more oil despite record prices. They do this to speed economic growth and to ensure a competitive advantage relative to other nations.

Meanwhile, in the United States , access to our own oil and gas resources has been limited for the last 30 years, prohibiting companies such as Shell from exploring and developing resources for the benefit of the American people.

Senator Sessions, I agree, it is not a free market. According to the Department of the Interior, 62 percent of all on-shore federal lands are off limits to oil and gas developments, with restrictions applying to 92 percent of all federal lands. We have an outer continental shelf moratorium on the Atlantic Ocean, an outer continental shelf moratorium on the Pacific Ocean, an outer continental shelf moratorium on the eastern Gulf of Mexico, congressional bans on on-shore oil and gas activities in specific areas of the Rockies and Alaska, and even a congressional ban on doing an analysis of the resource potential for oil and gas in the Atlantic, Pacific and eastern Gulf of Mexico.

The Argonne National Laboratory did a report in 2004 that identified 40 specific federal policy areas that halt, limit, delay or restrict natural gas projects. I urge you to review it. It is a long list. If I may, I offer it today if you would like to include it in the record.

When many of these policies were implemented, oil was selling in the single digits, not the triple digits we see now. The cumulative effect of these policies has been to discourage U.S. investment and send U.S. companies outside the United States to produce new supplies.

 

As a result, U.S. production has declined so much that nearly 60 percent of daily consumption comes from foreign sources.

The problem of access can be solved in this country by the same government that has prohibited it. Congress could have chosen to lift some or all of the current restrictions on exportation and production of oil and gas. Congress could provide national policy to reverse the persistent decline of domestically secure natural resource development. Later in the hearing, Senator Orrin Hatch walked Hofmeister through the Democrats’ latest efforts to block energy independence:

HATCH: I want to get into that. In other words, we’re talking about Utah, Colorado and Wyoming . It’s fair to say that they’re not considered part of America ‘s $22 billion of proven reserves.

HOFMEISTER: Not at all.

HATCH: No, but experts agree that there’s between 800 billion to almost 2 trillion barrels of oil that could be recoverable there, and that’s good oil, isn’t it?

HOFMEISTER: That’s correct.

HATCH: It could be recovered at somewhere between $30 and $40 a barrel?

HOFMEISTER: I think those costs are probably a bit dated now, based upon what we’ve seen in the inflation…

HATCH: Well, somewhere in that area.

HOFMEISTER: I don’t know what the exact cost would be, but, you know, if there is more supply, I think inflation in the oil industry would be cracked. And we are facing severe inflation because of the limited amount of supply against the demand.

HATCH: I guess what I’m saying, though, is that if we started to develop the oil shale in those three states we could do it within this framework of over $100 a barrel and make a profit.

HOFMEISTER: I believe we could.

HATCH: And we could help our country alleviate its oil pressures.

HOFMEISTER: Yes.

HATCH: But they’re stopping us from doing that right here, as we sit here. We just had a hearing last week where Democrats had stopped the ability to do that, in at least Colorado.

HOFMEISTER: Well, as I said in my opening statement, I think the public policy constraints on the supply side in this country are a disservice to the American consumer.The committee’s Democrats attempted no response. They know that they are largely responsible for the current high price of gasoline, and they want the price to rise even further. Consequently, they have no intention of permitting the development of domestic oil and gas reserves that would both increase this country’s energy independence and give consumers a break from constantly increasing energy costs.

Every once in a while, Congressional hearings turn out to be informative.

 

Dusty’s Dissenting Opinion

 

Foster-

 

For this “situation” of high gas prices, I can only say two things for sure: (1) Any one who thinks it’s our gasoline “tax” that’s causing the problem is…part of the problem and (2) We need to look at $6-a-gallon gas as a blessing rather than a curse.

 

$4 is apparently not nearly high enough to get America’s head out of the sand (of Arabia and oblivion).

$4 is getting Detroit’s notice (too little too late) as evidenced- thank god for small favors- by the obscene Humvees’ becoming history.

 

Foster, have you noticed the weather recently?  The 1000 percent increase in lightning and tornadoes are the tip of the globally-warming ice berg (melting poles). If we care about anything, why isn’t it the saving of the globe, which is a gone planet (as far as ecosystems go) in under 12 years unless Kyoto Protocols are literally adhered to by that time.  More recent models make that tipping time closer to 8 years.

 

When gas hits $6 to $10,  we’ll then have the situation we did when we started the “Manhattan” project. When our trucks stop, America will stop. We’re nearing that point now as evidenced by the price of tomatoes. Necessity is a mother. And dollar-driven necessity is the only thing that’s gotten this indolent, fast-food fed, fat-corporate-cat-dominated society of ours to remove its head from its lazy rear since Hiroshima.

 

This noise about Exxon Mobile execs being smarter than politicians on issues of energy and oil…What could be idler chatter?  Everyone knows they’ve pocketed greater profits in the precise period it took for oil to rise from $1.50 to $4 than ever before. If that’s not traitorous war-profiteering there’s never been any.  But, again, it’s all micro-trivia compared to the macro (global/survival)  issues:  US (and all industrial nations’) dependence on fossil fuel was doomsday dumb from the start. Today’s chapter is simply the final one in the  story of man’s wedding to oil.  It was an OK idea when there were fewer than a billion of us on the globe, but with over 6 billion, it’s a doomsday scenario. The sooner gas prices bring America to its knees the sooner America will rise. Giving those ignorant Arab sheiks the bulk of our nation’s wealth for the past half century has created the Armageddon scenario only a minor part of which is our twin towers’ toppling.  Now, from Dubai, they are running the international banks and multi-national corporations running the world. Hell, last year we sold them (unwittingly) our harbors.

 

All the trivial pursuits covered by the neo-con chant you forwarded in Republican ditto-headed reflex fashion will be mooted when (if) America gets focused on remedies instead of problems. Oil prices are a problem we need to make an end-run around. Bite the bullet and  pay the money until we eliminate the need. Don’t look for new places in pristine  and off-shore places to purloin the same globally-warming and culturally-addicting substance.   Put the Arab OPEC bastards out of world-dominating business.  Wind and solar power, with today’s technologies,  end the tyranny of oil and oil peddlers. Without oil as currency, there would be no problem (much less a U.S.- run wars) in the Middle East. We can steer India and China around the same problem we’re in only by example. We can’t demand- we can only lead.  The technology is here already (see my DI article here linked: “The Answer is Blowin’ in the Wind” –

 

Let’s quit staring at the hole our heads seem perennially stuck in and start working on the doughnut.

 

Best,

 

Dusty

6-9-08

 

 

Clinchers by Leonard Carrier

 

 

Dusty,

 

It really ticks me off when oil-company execs lay our gasoline-price increases at the door of government.  What they want to do is drill in the ANWR and in other off-shore locations–something that will bring them even more enormous profits, to the detriment of our environment. These companies are already being subsidized, while at the same time they are profiteering.  The solution to that is to eliminate all subsidies for oil companies and give them to alternative-energy companies–wind, solar, ocean, as well as to promote fuels that can be made from grasses and turkey guts. Also, raising the tax on gasoline and using the proceeds to repair our roads and bridges, as well as improving our public transportation system, is something that has worked in Europe, but has yet to be tried here.

 

Another annoying thing about Big Oil is that they refer to the “law of supply and demand” to justify the high prices for their products. This is arrant nonsense.  There is no such “law.”  Laws are physical necessities.  There is no necessity to engage in greed.  If these companies were interested in the well-being of our citizens, they would voluntarily cut their prices and therefore cut their profits.  “But the shareholders will complain,” might go their whinge.  I say, let them complain.  Tell the shareholders that part of their dividends are going toward the good of their fellow citizens, and toward our economy.  After all, if people can’t afford to drive their cars, the whole economy suffers, oil-company shareholders along with the rest.

 

I’ve said this before.  When you find yourself in a hole, the best thing to do is stop digging.  We were warned by Jimmy Carter back in 1973 that we should practice conservation and resort to alternative energy sources.  Big Oil and Big Coal didn’t listen, and they just kept drilling and digging.  And we listened to the Republican siren song that there was plenty of cheap oil to be had. Now that climate change has been shown, beyond a reasonable doubt, to be exacerbated by the burning of fossil fuels, we need to get off our addiction to oil and coal, and do it quickly.

 

Are these Big Oil execs so smart, as the article in question would have us believe?  No, they’re not so smart, because they want to continue doing what they’ve been doing for years:  keeping us addicted to fossil fuels as they turn a blind eye on the pollution of our atmosphere. This is not being smart.  It is sacrificing everything of value on the alter of “the bottom line.”

 

It is my hope that come this November there will be a Progressive Congress and President.  That means unseating Republican oil and coal lackeys such as James Inhofe and Mitch McConnell, and not letting John McCain, who promises to resurrect all of Bush’s failed policies, anywhere near the White House.

 

Best,

 

Len

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