When faced with an issue of grave concern to the public, a politician has two choices. He can try to solve the problem. That would be the course of a true statesman. Alternatively, however, he can take the path of the demagogue, and seek to exploit the problem by blaming it on scapegoats among or linked to his political adversaries.
In the case of the current energy crisis, President Obama has chosen the second path.
Responding to public concern over sharply rising gasoline prices, President Obama announced last week that he was asking Attorney General Eric Holder to launch a criminal investigation of price gouging by oil companies, refiners, and gas stations.
Advertisement
Such posturing is so absurd as to exceed the capacity of satire. The reason gasoline prices are up is that the price of crude oil is up. There is not only a direct correlation between the two, but a causal relationship: The primary cost of producing gasoline is the cost of the oil from which it is refined. It is impossible to make cheap gasoline from expensive oil. To launch a witch hunt against gasoline providers for high price at the pump when oil is selling for $110 per barrel is a truly amazing political stunt.
However, there is a question worthy of investigation, and that is why oil prices are so high. Well, prices are determined by supply and demand. If oil prices are high, it must be because there is too little supply relative to demand. Whose fault is this? The answer can be obtained by looking at the data.
These graphs show non-OPEC and OPEC oil production, as well as the global price of oil, for the years 1973 through 2011. Note the vast difference in the production patterns: Non-OPEC production rises to meet increased demand. In fact, it nearly doubles — which is what one would expect, since the world economy and world population roughly doubled as well over the same span of time. In contrast, OPEC production figures show no rational trend. Instead, they vary wildly in accord with tactical decisions by the cartel to manipulate supplies and prices. But what is even more stunning is this: In 1973, OPEC oil production was 30 million barrels per day, exactly what it is today. That is, despite the passage of more than a third of a century, during which time the world population doubled in size — and despite the fact that OPEC countries are sitting on top of 80 percent of the world’s commercially accessible oil reserves — OPEC production has not increased at all.
Dr. Zubrin, I spent 23 years as an oil exploration geologist and this is easily the most concise, accurate and verifiable smackdown of both OPEC's dangerous, wrong-headed and ultimately self-defeating policies and President Obama's utter incompetence (coupled with cold-eyed cynicism) on energy issues.
May the good Lord help us all, for the damage to America and the world economy that can be done in this area in the next two years is nearly incalculable.
What's really galling is how the Left trots out the "gouging" canard every single time gas prices rise. And in each case the ensuing "investigations" find ... nothing. That this is still part of their playbook shows that 1) the Left is stupid and 2) they think we're stupid.
While your portrait of the OPECers is spot on, I'm not entirely sure 'flex fuel' is the answer. It might be part of the answer, but it is not THE answer. Domestic drilling is another component that absolutely has to happen.
On alcohol, if I remember correctly provides optimal performance in an internal combustion engine at about 14:1 compression. I may be behind the times, but I don't think a $100 technology is going to raise the compression of an engine from 9.5:1 to 14:1.
I agree alcohol can't hurt and in a free marketplace it should be out there as an alternative, but we need to put all the facts on the table.
Since we all don't have 10 kids, I guess we all need to trade in our vehicles for a new Volt.
Oh wait, that was the Liberal's strategy since the spike in prices under Bush. Remember all the selfish SUV owner talk; the dismantling of the publicly owned Auto Industry; the subsidies for battery development; the preferential tax treatment GM received; the purchase incentives for the Volt....?
Demagoguery is Obama's specialty and it works to the extent that the populace has been so dumbed-down and miseducated that people can't see through it. That's why the Obamacrats are so completely allied with the public education establishment.
Interesting article, Mr. Zubrin, but the legislation so far appears to be centered around federal government mandates. Some questions might be:
If the cost per vehicle is so low, $30-$100 according to the net, why not provide tax incentives versus mandates?
With state and federal taxes making up a significant percentage of the price of fuel, why not offer tax breaks for methanol?
We already have E85 that costs as much as pure gas at the pump? Why would methanol be any different?
Natural gas and coal are used today primarily for home heating. What is the potential impact on natural gas prices if large quantities are used to make liquid fuels?
Bottom line: if consumers could purchase methanol for $.50-$1/gallon cheaper than gas, we would ALL be demanding flex vehicles.
Ethanol made from corn grown on prime farmland is not the answer; that is just a subsidized 'solution' that the Iowa caucus has a lot to do with. But I do not believe that is what Dr. Zubrin, who (as far as I know) is a free market guy, is advocating.
In any case, it is also worth noting that while there is a 'geological shortage' in undiscovered giant conventional oil fields (most of such giant fields were found long ago), there is no geological shortage of natural gas, of which we have (at least) a 500 years supply, nor of shale oil reserves, nor of coal.
Are all these economical and reasonably safe to produce? Let's find out. Do not hobble their development (or conventional drilling, either) with unfair and unnecessary environmental restrictions. Set some fair and reasonable environmental rules, then let the free market decide.
@Richard Reed: There is a massive field under North Dakota. EPA halted drilling on that field at least until next year. Tons of energy there but no way to get it out of North Dakota. A pipeline connecting North Dakota with Chicago and Oklahoma has also been put on hold by the EPA. The small amount of energy that is coming out of North Dakota fields these days is actually placed in tanker cars and shipped by rail to New Orleans for refinement into product.
The environazis need to ask themselves which is safer, a 3,000 foot long train of tanker cars moving thousands of miles cross-country or a pipeline. They won't though. Because, it's not about the environment. Never has been.
Just note that there is a difference between Ethanol and Methanol.
A FlexFuel technology mandate for every car sold in the U.S.is an easy thing to do and then allow the market to develop. If Methanol is viable, it will survive without subsidies.
Others also noted quite accurately that taking the handcuffs off of domestic oil production would also help.
OPEC indeed has the means to control energy output, but let's not forget that the United States sits on some of the most energy rich lands on the planet. Coal, natural gas, oil shale, oil; it is there for the taking if we only drill for it. We can be net energy exporters if only we didn't have pols that were global warming zealots.
Flex-fuel only would affect the NEW cars,the millions of "older" cars presently on the roads will STILL continue to need gasoline. People cannot afford to replace their gas-cars,and cannot afford to convert them to use flex-fuels. So offering or mandating a conversion to flex-fuel will have little effect on gas prices. We need to develop and produce our own DOMESTIC oil sources;IOW,drill,baby,drill.
And to do that,we need to get the current administration out of the way.
The oil cartel needs broken up, definitely. But that cartel is not OPEC, but the "Four Sisters" -- ExxonMobile, ChevronTexaco, BP, Shell.
You talk about oil companies, refiners, and gas stations as if they are different entities, when in fact they are almost all entirely owned directly -- down to the corner gas station by the big 4 (with the minor exception of little sister ConocoPhilips who doesn't have oil resources but is the only signficant refiner outside the big 4.)
As you can see from your own graph,
it was OPEC in recent decades that has increased production at times of price spike. Take the 2007 peak for instance, where OPEC ramped up with prices, but non OPEN producers scaled back (and may have been part of that speculative bubble.)
Further, the graph primarily demonstrates that non-OPEC supply has been found OVER THE LAST 4 DECADES and brought online to meet additional demand and provide diversification from OPEC.
As has been pointed out plenty of times, the majority of US oil does not come from OPEC members. It comes from (in order) the USA, Canada, the North Sea, and Mexico.
The price of oil on the open market is not set by OPEC, but by the Oil companies. The NYMEX price is what you pay to buy from this coalition, not from Saudi Arabia or Venezuela.
They have long term contracts with OPEC countries, and as prices spiked in the last decade they did not suffer at all, having 5-10 year contracts set at $20-30/bbl.
The price you see reported is the "spot" price for oil futures -- very similar to the spot price of electricity that shot up in the California energy crisis and far outstripped normal utility price capacity.
Essentially, it's what it would cost you to compete with Exxon or Chevron when they raise the price of gas to $4/gallon. That is, if you could build a refinery, which you can't (and haven't been able to for 30 years) because the government protects the Oil Cartel.
You might remember when oil was rising in 2005 or so that Hugo Chavez offered long term contracts at $50/barrel but the oil companies laughed at him. They had $20/bbl contracts for light sweet crude, not his tar.
I'm all for free markets, but the oil cartel is not a free market, and their is much that can be done LEGALLY to break up this trust.
1. Allow the construction independent refineries.
2. Prevent the collusive pricing of oil.
3. Allow the opening of independent gas stations (until the last decade most Shell/Exxon/Chevron stations were independently owned franchises).
4. Allow independent refiners and retailers to purchase oil & gasoline from whoever they wish (franchises might still contract with a single provider if they wish)
5. Permit new drilling and extraction within the USA. This is so far down the list, because you can see that there clearly is not a current supply problem.
It is blatantly false that the price of crude from OPEC is the major influencer of acost of a gas. The primary component is TAX. After that, comes refining, then transport, then the price of petroleum, but not specifically or primarily from OPEC.
fijiaaron: Do you have any idea what percentage of the world's oil output is produced by your so called 4 sisters?
Did you know that the largest oil companies in the world are state owned monopolies?
Your claim that the oil companies have the power to set oil prices is so absurd, that only someone who has absolutely no idea what he is talking about could possibly believe it.
According to the DOE (External Link), 68% of the price of gasoline comes from the crude oil. If you have a breakdown that of the crude oil price that shows how much of the 68% is tax, I'd like to see the reference....
@chrisboltssr The oil doesn't come from OPEC. Non-thinkers aren't expected to have reading comprehsion either, so you're excused.
@MarkW 9% according to one source on Wikipedia--if by produced, you mean "owned in the ground" before it's drilled. 80% is "produced" in that sense by state monopolies. But do you have any idea what percentage of oil "produced" is "owned" by that cartel? It's over half. The bulk of the remainder belongs to national oil companies or European & Asian companies that don't have significant markets in the USA (e.g. Total, CNPC).
As absurd as my claim may seem to you, your refutation is pathetic. Who else sets the price of gasoline in the USA and how? Without the ability to purchase oil except on the after market from "my" big 4 oil companies, a complete inability to refine it, a very limited ability to distribute it or transport it, and 4 of the largest corporations in the world colluding against me with the full power of the US government backing both their anti-competitive behavior and preventing me from competing at any level through regulation, how do you propose anyone compete with them? And what do you offer in support of your claim that they are not price fixing?
@Blackdog nice numbers, but where do they come from? If you add it up, a gasoline of gasoline produced at $110/bbl for crude would cost $11.82 (but about half of the remainder of that barrel could be used for other, less profitable products. So say $5.91 is the correct price.
But again, that's the price you pay on the spot market for oil. Not the price Exxon pays for it. They pay $25-40/bbl still. Sure, if their capacity runs low, they would have to dip into that market, but usually they don't. The current price is so high because the amount of oil available on the open market is a tiny fraction of the oil produced. If you think it's a real price, why don't you buy a few billion barrels and sell them back to Exxon when they come asking -- because you couldn't do anything else with that oil as I've pointed out. They own the only legal refining and distribution channels.
Exxon Mobil just announced 1Q profits in excess of $10B. Other oil companies announced similar proportionately similar profits. Surely high corporate profits are welcomed by conservatives, right?
So, why do conservatives want high corporate profits AND low prices? And, why do they even think that's possible.
