Mail
Magazine 24...
Heritage
Foundation: The Truth Behind High Gas Prices
by Gary
Halbert
March 18, 2012
As noted
earlier, being in the business I am people frequently ask me why
gasoline
prices are so high. More recently, people have also been asking me if
President
Obama has any idea whatsoever about how the energy markets work. As it
turns
out, the Heritage Foundation just released an excellent report that
addresses
both questions. It also lists five specific actions that Congress and
the Obama
administration should undertake to increase energy production in this
country.
Enjoy.
QUOTE: The
national average for gas prices is almost $3.60 per gallon, increasing
40 cents
from a year ago and jumping 20 cents from just one month ago. Prices
are
already surpassing $4 per gallon in some states and could threaten the
country’s economic recovery. Higher gas prices drive up production
costs for
goods reliant on transportation, and more money spent at the pump means
less
money spent at restaurants and movie theaters. Buying fewer goods and
services
tightens the economic vice and holds back job creation.
Almost 70
percent of the price of gasoline comes from the price of crude oil,
with excise
taxes, refining costs, and retail/distribution making up the other 30
percent.
Exporting refined petroleum products comprises a small percentage of
total
domestic gas production and marginally impacts prices. Despite demand
for oil
falling in the United States as a result of a weaker economy and a warm
winter
curbing the use of heating oil, the industrial rise of China and India
continue
to put upward pressure on the price of oil. The threat of Iran
restricting oil
exports to Europe is also driving up the global price, impacting gas
prices in
the U.S.
President
Obama addressed these issues Thursday, February 23, in a speech on gas
prices
in which he continued to take many facts out of context. While the
President
said that there is no quick fix to high gas prices and the nation
cannot drill
its way out of the problem, he creates a false dichotomy that suggests
that
micromanaging the solution from Washington by subsidizing uneconomical
technologies and sources of energy would work. This approach would do
little to
provide America with new, reliable, and economical sources of energy
and in
fact would cause more harm than good to the consumer and taxpayer.
America
knows what works to effectively combat high gas prices: allowing the
market to
work by opening access to the country’s own oil and gas reserves,
reducing
onerous regulations, and allowing producers and consumers to respond to
energy
prices without Washington’s interference. Here are five half-truths
that one
continually hears about gas prices and five actions that Congress and
the
Administration can take to effectively combat high gas prices.
Half-truth
#1: Oil production is the highest it has been in eight years.
Increased
oil and gas production in the U.S. is a great development, but this is
a result
of increased production on private lands in North Dakota, Texas, and
Alaska. On
federal lands and offshore, the story is much grimmer. Production on
federal
lands and offshore could have yielded more output, increasing supply
and
therefore putting downward pressure on oil prices. Poor administrative
decisions—such as refusing to open areas to exploration and production,
cancelling or delaying lease sales, and the offshore drilling
moratorium and
subsequent “permitorium”—significantly reduced oil production,
destroying jobs
and reducing economic activity in the process.
If there is
an economic interest to produce this oil, Washington should allow
companies to
do so. In North Dakota, oil production is booming and unemployment is
low.
There should be more stories like this.
Half-truth
#2: Increasing oil production takes too long and would not impact the
market
for at least a decade.
This has
been the mantra of the anti-drilling crowd for years, and the longer
politicians listen to the message, the longer the nation’s oil
resources will
remain undeveloped. If access to areas that are currently off limits is
increased, it will take time to explore and extract that oil. But that
does not
change the fact that the nation needs it today and also in the future.
Furthermore, some of this oil can reach the market in much less than a
decade
if the permitting process is streamlined and the Keystone XL
pipeline—which
could bring up to 830,000 barrels of oil per day from Canada to the
Gulf Coast
refineries—is built.
Half-truth
#3: Oil is not enough. America has only 2 percent of the world’s oil
reserves.
President
Obama frequently uses this number to push federal investments in
alternative
sources of energy that cannot stand the test of the market. The reality
is that
he uses this number deceptively. According to the Institute for Energy
Research:
Although
the U.S. is said to have only 20 billion barrels of oil in reserves,
the amount
of oil that is technically recoverable in the U.S. is more than 1.4
trillion
barrels, with the largest deposits located offshore, in portions of
Alaska, and
in shale in the Rocky Mountain West. When combined with resources from
Canada
and Mexico, total recoverable oil in North America exceeds 1.7 trillion
barrels, or more than the world has used since the first oil well was
drilled
over 150 years ago in Titusville, Pennsylvania. To put this in context,
Saudi
Arabia has about 260 billion barrels of oil in proved reserves.
One reason
to view “reserves” estimates with caution is the fact that they are
constantly
in flux. In 1980, the U.S. had oil reserves of roughly 30 billion
barrels. Yet
from 1980 through 2010, it produced over 77 billion barrels of oil. In
other
words, over the last 30 years, the U.S. produced over 150 percent of
the proved
reserves that it had in 1980. If the massive quantities of U.S. oil are
made available
to explore and produce, the current estimated reserves of 20 billion
barrels
would certainly increase, providing much more production over decades
to come.
In other words, reserves are not a stagnant number.
Half-truth
#4: Oil is not enough. The country needs an “all-of-the-above” approach
to
reduce its dependence on oil.
President
Obama mentioned this approach in his 2012 State of the Union address,
saying,
“This country needs an all-out, all-of-the-above strategy that develops
every
available source of American energy.” But a market-based strategy is
the only
all-of-the-above approach. It allows all energy sources to compete,
drives
innovation, and results in the best possible supply and pricing. Sadly,
all-of-the-above is often just an excuse to subsidize uneconomical and
politically preferred technologies and energy sources, which leads to a
“pigs-at-the-trough” strategy.
Whether
they are for biofuels, electric vehicles, or natural gas vehicles,
subsidies
for alternative fuel and vehicle technologies waste taxpayer dollars,
misallocate labor and capital, and create a dependence on government
that
promotes crony capitalism. The world petroleum market is a
multi-trillion-dollar one; whatever technology can capture a portion of
that
market will not need help from taxpayers.
Half-truth
#5: Speculators are driving up the price of gas, and they need to be
reined in.
Finger-pointing
at speculators and investigating prices at the pump ignore the real
cause of
rising gas prices: supply and demand. Oil futures markets can affect
prices at
the pump by changing the amount of gasoline delivered to gas stations.
If
producers anticipate higher prices in the future, they might take some
oil off
the market today and wait to sell it later. This may be happening to
some
degree (although there has been little historical evidence of this),
especially
given Iranian threats to cut off supply to European markets, but it
would cause
only a marginal short-run increase in prices, because at some point
businesses
have to unload the inventories they accumulate.
Five
Actions for Congress and the Administration
Congress
and the Administration should:
Get moving
on permits. As the only country in the world that places a majority of
its
territorial waters off-limits to oil and gas exploration, the U.S.
should at
the very least be drilling in the areas where access is permitted.
Removing the
de facto moratorium on drilling would immediately increase supply,
create jobs,
and bring in royalty revenue to federal and state governments.
Require
lease sales when ready. Congress should open areas that are off-limits:
the
eastern Gulf of Mexico, the Atlantic and Pacific coasts, Alaska’s
offshore, the
Alaska National Wildlife Refuge, and lands out West. Congress should
require
the Secretary of the Interior to conduct lease sales if a commercial
interest
exists to explore and drill. Congress should also provide the funding
necessary
to lease new onshore and offshore areas to oil and gas companies.
Although it
would take time for the federal government to lease these areas and for
the
energy companies to develop them, at least the process could begin.
Create a
sensible review processes. Placing a 270-day time limit on
environmental
reviews would ensure a quick review process for energy projects on
federal
lands. Construction projects on federal lands take an average of 4.4
years. The
270 days would allow for a thorough environmental review process but
would not
prevent investments from moving forward.
Remove
regulatory delays and limit litigation. Environmental activists delay
new
energy projects by filing endless administrative appeals and lawsuits.
Creating
a manageable time frame for permitting and for groups or individuals to
contest
energy plans would keep potentially cost-effective ventures from being
tied up
for years in litigation while allowing the public and interested
parties to
voice opposition or support for these projects.
Approve the
Keystone XL Pipeline. Congress should use its authority to regulate
commerce
with foreign nations to accept the State Department’s conclusion that
construction of the pipeline would pose minimal environmental risk.
Approving
the pipeline would create jobs and increase energy production—both of
which the
nation desperately needs—from a friendly supplier and ally.
Let the
Market Work
The market
would respond if Congress and the Obama Administration allowed it to
work. Oil
companies would respond by increasing their production, and consumers
would
switch to more fuel-efficient cars without any need to mandate more
fuel-efficient trucks and cars. If the price of gasoline continues to
rise, it
will make alternative technologies all the more economically
competitive. But
policies that restrict oil exploration, refining, and production should
not
artificially drive that price higher. END QUOTE
Source:
investorsinsight.com
Read this
and other articles at Mail Magazine 24
|