Wednesday, September 29, 2004

Gas Price Thuggery

I was driving home last night, and I made the mistake of turning the radio onto Michael Savage. The radio station usually puts up some good shows, but pheeeww, not Tuesday!

Savage’s initial rant, before I changed the station, was about what he would ask President Bush in an interview, had he the chance. Savage claimed that the reason Bush is not on his show, is because Bush is soft and spineless, laughable claims on their face, but especially when Savage proceeded to explain his opinion. Mr. Savage expects President Bush to demand the government of Mexico give the United States “20 million barrels of oil a day for free”, because in his opinion, the United States is feeding and caring for 20 million illegal immigrants a day. Such an asinine statement, coming from someone who is not Michael Moore, nearly gave me apoplexy.

I would call Mr. Savage an unprincipled moron, except that it’s technically wrong on both words. Savage has principles; they’re very much like the principles of a mugger – he does what he wants, and thinks of no one else. And he is very smart, certainly smart enough to know that his “solution” to the oil problem is a crock from the start, and goes downhill from there. Please excuse my rant, because I need to vent, then I will proceed to address this issue as a sane man does.

First, stating the obvious: If there is one thing, one absolutely stupid, arrogant, clueless thing a President could do, it would be to tick off our neighbor to the South, by demanding they do anything. Mexico is a sovereign nation, something President Bush is well aware of, and far too many people seem to miss. Second, we’re importing 12.9 million barrels a day for the whole country. No one is in a position to give us 20 million barrels a day, even if they wanted to do so, and Mexico less than most nations. Third, the problem is not one of getting more oil imported, but a multi-level issue of energy sources, process and distribution methods, and a comprehensive policy for stable reserves. Small wonder a punk talk-show host is clueless.

OK, enough of that. Michael Savage, for those still unclear on my opinion, is a myopic thug, who has sadly been allowed a national stage for his spit and venom. Sad to say, there are worthless Conservatives out there, and Mikey Spitwad is one of them. The issue of oil, specifically gasoline prices and production, is worth more examination.

America loves oil. And they should; our industry thrives on the stuff. Besides the obvious utility of gasoline for trucks and cars, oil drives some of our power plants, factories, and petroleum by-products go into almost every conceivable product, from food to medicine to toys to tools to clothes to construction, manufacturing, and marketing. In fact, there is not a successful nation on the planet (defined by a reasonable standard-of-living) which doesn’t need oil.

The Liberals, we know, hate Oil. They figure we went to war for Oil, they figure Bush is making money off Big Oil, and they especially hate Vice-President Cheney, who dared to suggest that when making an Energy Policy, they meet with people in the business, like meeting with Doctors to discuss Health Care, or meeting with Rocket Scientists to discuss Space Travel. For some reason, Liberals don’t want to discuss the UN Oil for Food scandal, and they don’t want to consider that Iraq's oil revenue is being used to help build Iraq. But then, what can you say about people who drive their cars to 'anti-Oil' rallies, anyway?

There is some honest confusion about the price at gas pumps. For most folks, the price of Regular gas is around $1.90 a gallon. Well according to the Department of Energy, in January 1980, it averaged $1.13 . So, compare that to what’s happened to things like bread, milk, cars, houses, and so on, and a rise of only 77 cents a gallon over 24 years is not too shabby. What’s more, in 2004 dollars, the 1980 price would have been $2.36, so in “real dollars”, the price of gas has come down and has done so steadily. At the same site, go back all the way to 1919, and the price in 2004 dollars is $2.78, so the trend is pretty much constant all the way back to when they started tracking. Interesting, isn’t it, that an industry maligned as being all about profits, is one of very, very few industries where the price for customers has been constantly reduced, in real dollars, for decades?

If you think about it, it’s not hard to see how the industry has been able to keep prices down, and it also reveals the means for addressing the concerns about supply.

Gasoline, of course, starts as petroleum, normally found in underground lakes which can only be found through exploration and drilling. News flash to Liberals, exploring for oil is difficult and expensive, and only private companies are willing to do this. So, right from the beginning, there has to be speculation and investment in start-up companies, to find oil at all, even in a country like Saudi Arabia or Nigeria. And there has to be some sort of reasonable arrangement between the companies searching for oil, and the countries where they will be looking. Got it? The US Government can’t control that, period. Even in a country friendly to the US, there still needs to be private negotiation and agreement for oil exploration companies to find the stuff. And even in a country with large oil production, there is no such thing as just sticking a pipe into the ground and pumping out the oil.

Of course, a lot of people don’t understand the countries where oil is most commonly found. It’s true that 27.2% of our imported oil during the first half of 2004 came from OPEC countries, but if you dig deeper to the specific countries who supply the most oil to the US, most people couldn’t tell you that Venezuela is #3, Mexico is #2… and CANADA is #1, at 2.1 million barrels a day. Sorta changes the picture, eh?

So, you can lay off blaming OPEC for pump prices. Also, you War-for-Oil tinhat crowd, I guess you figure we’ll invade Toronto next?

Next, let’s talk about how the price of gas is determined. According to the Department of Energy (again), in 2003, 44% of the price of gasoline came from Crude Oil, 15% from Refining Costs, 14% from Distribution and Marketing, and 27% from Federal and State taxes. Yes, that’s right, after the cost for Crude Oil, the next highest cost comes from an arbitrary tax placed on gas by the Government. The US Government, in fact, makes more money from gasoline, than any Oil exploration, production, distribution, marketing, or retail company, almost as much as ALL Oil companies in ALL aspects of gasoline, put together! In fact, the US Energy Information Administration (yeah, me too, I’d never heard of them before now either), says “Retailers do not benefit from higher prices at the pump, and usually suffer from them” (their emphasis). Ouch.

For all of that, we could insure better supply and lower prices, if we simply build some more refineries. The same USEA warns “Since 1980, the number of refineries in the U.S. has shrunk from 320 refineries with the capacity to refine 18.6 million barrels of crude oil every day to only 150 domestic refineries with production capacity of 16.5 million barrels per day. At the same time, motor fuels consumption has increased from 115 billion gallons per year to more than 160 billion gallons per year” Note that the per-refinery production capability has risen by 89%, even while their number has been reduced by 64%. So, why would refineries be shut down like this? In a word, environmentalists.

States have to license refineries, and the problem is, their very efficiency makes them unattractive to states looking for big tax pockets and large payrolls. So, states like California have all but outlawed refineries, supposedly for environmental reasons, but really for financial gain. How can I say that? States traditionally grandfather large factories with emissions violations, but refuse to allow refineries to operate on the same level, even to keep vital systems running, and they drive companies out of states like California, even as the states blame the companies for problems the states themselves cause.

As I said about Michael Savage, I would like to pretend they are simply ignorant or na├»ve, but in point of fact, the states’ conduct is essentially nothing but thuggery.

In the end, things won’t be likely to change much, anytime soon. But at least if President Bush is re-elected, we’ll have a VP who understands the problem. If Kerry somehow gets into the Oval Office, it will only get worse, from a man who blames the very people most willing and able to fix the trouble. In the meantime, be nice to the guy at the window when you get your gas; for sure, he’s not making a fortune off the pump.

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