Big Oil

[Dr. Shane]

There is a train of thought that goes like this...

Whenever ay resource becomes scarce, the price will rise, causing concumers to conserve and stimulating exploration for and development of new supplies. The higher price also provides a financial incentive to discover and market alternatives to the scarce resource. This tends to be true regardless if we are discussing oil, gold, milk, rubber or grapefruit.

An increase in profits for the suppliers (and potential suppliers) of a sudden scarce commodity should be welcomed. Only when profits rise can companies amass the immense amounts of capital necessary for new exploration. Only then will outsiders be given the incentives to undertake the substancial costs of entering a business. So the faster profits rise, the faster more supplies of a commodity come to the market.

Consider this: recently a subcontractor that works for me was doing a job for an oil company where they spend $75 million drilling only to discover nothing. I suspect that is not the only time they have spent $75 million on one hole and come up dry.

[Bravus]

In economic terms, your analysis is correct. I'm sure we'll still have fuel, although more expensive, for some time yet as the higher prices drive exploration and innovation. And for those of us who enjoy travelling, driving and flying, that's a positive thing.

If we did 'triple bottom line' accounting, though - accounting that includes the social and environmental costs and benefits as well as the economic ones - the picture might be different. Scarce resources lead to wars and other consequences, in the social column. And fossil fuels lead to air pollution and global climate change, in the environmental column. It's not easy to balance across all three dimensions.

[Dr. Shane]

Price increases hurts each of us personally in the pocket book. Yet saddly that seems to be the only way to get most of us to conserve. More people should be driving small four-cylinder cars. More trucks should be using biodeisel. More cars should be manfactured to use E85 and E85 should be more widely available. These things only happen when the cost of fuel increases. As long as gas is cheap, there is no economic incentive to conserve. So while in the micropicture (our household budgets) increasing fuel prices hurt, in the macropicture (overall society) the prices seem to help.

Do increasing fuel prices cause wars? I will concede they have the ability to. However I cannot think of one they have caused in the past 50 years although I know tensions have been high among the nations around the Caspian Sea since oil was discovered there.

It is simular to ice cream in Mexico. Ice cream is an expensive comodity in Mexico so most Mexicans sastisfy their sweet tooth with fruit instead of ice cream. Americans on the other hand tend to eat more refined sugar products.

[Dr. Shane]

Now Pres. Bush is going to looking into the Oil boys price gougeing which I predict will...

acomplish...

abosolutly...

NOTHING!!!!!

[Neil D]

Ah, but it will accomplish something, Shane....

If the price of oil does NOT come down, then the auto makers willl start looking at alternative cars which will spur the alternative fuel market...

Bio-diesel may make a comeback....Of course, in Europe, I am told that this is the most popular fuel that is transporting people.

Hydro-electric cars may come into vogue finally. Of course, my uncles says that currently, it cost $4.00 per gallon to make....I suspect the price to come down...but only after a large percentage of people start using it. That may be in YOUR life time, but prolly not mine...

nuclear electricity may be used to power cities....Of course, the thermal pollution could just wipe out the fishing/tourism industries....

And the best thing that King George will promote, while "shaking" down the oil industry....It will continue to make him appear innept....And he can "appear" to be doing something , all the while doing absolutely nothing....Then he can take a 3 week 'vacation' to work on his wannabe "ranch".....

[Dr. Shane]

I am not sure how a useless investigation into the oil companies is going to result in any of those things but I will be pleasantly surprised if it does.

[Neil D]

Phony War on Gas

Attacks on 'price gouging' make good politics, but they don't help consumers much.

Thursday, April 27, 2006; Page A26

NO DOUBT IT makes everyone feel better when the president states his concern for Americans, who are now paying more than $3 a gallon for gasoline. Unfortunately, the measures President Bush chose to announce this week to combat high prices are either meaningless or possibly dangerous in the long run, even if they do offer a bit of temporary relief. For example, just talking publicly about "price gouging" can spook gasoline providers into slightly lowering prices. And maybe it's useful to inspire state officials to start looking harder for crooks, given that price gouging is defined at the state level, not by the federal government. But in the long term, such talk encourages the public to believe that evil price gougers are responsible for higher pump prices, when the real culprits are global economic growth, increased demand and Americans' own large cars.

The president's other tactics seem no less dubious. Stopping the filling of the Strategic Petroleum Reserve won't increase supply by much, and it sets a bad precedent: The reserve, after all, is meant for national emergencies, which this is not. Temporarily waiving fuel blend or environmental requirements could help with spot shortages in a few places but won't have much effect on the long-term price. Calling for the construction of more refineries is unnecessary. Although the president is right to state that "there hasn't been a new refinery built in 30 years," it is also true that the oil companies have expanded refineries every year since 1996 and are expected to continue doing so through 2025, according to Energy Department statistics.

The president has, of course, had plenty of opportunities over the past five years to shape a more rational energy policy, one that would have provided incentives to move away from oil and toward other energy sources. He could have lobbied harder to remove the oil industry tax benefits from the energy bill he signed. He could have insisted that Congress add more tax breaks for hybrid cars, as he now says he wishes it had done. He could lift the tariffs on Brazilian ethanol, which would help address some of the ethanol shortages across the country. He could have endorsed a tax on oil and coal, which of course would not lower the price of gasoline but would, again, begin to reduce demand while encouraging investment in new technologies.

And he could have used his statutory authority to raise automobile fuel economy standards or persuaded Congress to find other ways to improve mileage per gallon of U.S. vehicles. Again, if he were completely honest, the president would tell Americans that the main reason fuel prices are higher in this country is because demand is growing -- and one reason for growing demand is that people drive inefficient cars. They drive inefficient cars because public policy, long shaped by the president and by Congress, has made it advantageous to do so. Until that changes, little else will. web page

[Dr. Shane]

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He could have lobbied harder to remove the oil industry tax benefits from the energy bill he signed.

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That would have just resulted in the Big Oil companies passing the taxes onto the consumers through higher gas prices.

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He could have insisted that Congress add more tax breaks for hybrid cars, as he now says he wishes it had done.

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Not too late... he still can.

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He could lift the tariffs on Brazilian ethanol, which would help address some of the ethanol shortages across the country.

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Not a bad idea but then will we become dependant on forgien ethanol instead of forgien oil? Of course, every banana republic can make ethanol to sell to us and probally a lot cheaper than we can make it.

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And he could have used his statutory authority to raise automobile fuel economy standards or persuaded Congress to find other ways to improve mileage per gallon of U.S. vehicles.

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I am all for improved millage but I think it better left to the free market. When government demands improved millage it often comes by making cars lighter and thus less safe.

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the president would tell Americans that the main reason fuel prices are higher in this country is because demand is growing -- and one reason for growing demand is that people drive inefficient cars.

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Biggest reason demand is growing is because the economies of India and China are developing. Oil producing nations do not need to sell their product to the US.

[Neil D]

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He could have lobbied harder to remove the oil industry tax benefits from the energy bill he signed.

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That would have just resulted in the Big Oil companies passing the taxes onto the consumers through higher gas prices.

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Explain this, Shane...How can removing the taxes to the oil companys result in passing higher taxes to the consumer? I just don't understand your logic here...

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I am all for improved millage but I think it better left to the free market. When government demands improved millage it often comes by making cars lighter and thus less safe.

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Ok, here's your [worst case] senerio..A fuel shortage comes to the US. The Goverment has known that this would happen for many months ahead of the situation, and they do NOT pass laws to encourage car companys to make more efficient cars. The result is that when the situation occurs, the car sector of the ecomony takes a nose dive due to lack of sales. All other supporting car companys , ie subsiteraries who make the brakes, rotor caps, whatever, ALSO begin laying off workers, which also cause further deterioration of the economy as a whole. Now, because demand is where those cars that have fuel efficient milage, and because the companies have not done the reasearch or very little reasearch, those car companys are, at the very least, 2 years behind in development and marketing thier fuel efficent cars. Tje results here is a severe cutting of workers at every level, from development to sales, before cash flow becomes more positive.

Whereas, [in a worst case senerio] if the goverment had passed those increased fuel requirements, while the car sector would have been hit pretty hard where big cars were concerned, sales of those fuel efficient cars would have sored and thus the economy would have been, at the very least, eased.

[Dr. Shane]

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How can removing the taxes to the oil companys result in passing higher taxes to the consumer?

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Removing tax benefits will result in higher prices to the consumers.

Improving fuel millage is great but when it comes at the expense of safety, more people die in car accidents.

[Neil D]

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Removing tax

benefits

will result in higher prices to the consumers.

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Ah, my bad. Can't read at this early hour of the morning.

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Improving fuel millage is great but when it comes at the expense of safety, more people die in car accidents.

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But Shane, if as you have suggested, we let the free market do it's job, then the consumer would choose the most effient and most safe cars as they can afford...

Ok, I am done with my tongue in cheek comments...