$5 Gasoline? Really?

This week our fine President announced that he had no control over gas prices. It’s a strange position for him to take. Strange as in unusually laughable. This is the man who told us that energy costs would necessarily skyrocket while he supported Alternate forms of energy. This is the man who wanted to bankrupt the coal companies. This is the man who doesn’t want to drill in ANWR or off shore, but will buy up all the Brazilian oil they can produce from OUR off shore fields. Sadly, even this fine offer was turned down by Brazil, who signed contracts with China for their oil. I’m sure that our president has a vision of Solar powered Airliners flying freely through the skies with no pollution and wind powered tractor trailers crossing the highways beneath cloudless skies, not to mention the thousand of locomotives operating on Steam power. But alas, he can’t do anything about the price of Gasoline.

Let’s look at history for any available remedies to help our president out. First of all our president needs to realize that an Alternative fuel has been a political “Cause” since the early 1900’s. For an excellent analysis, I would refer the reader to this scholarly work http://www.radford.edu/wkovarik/papers/fuel.html
Henry Ford was a great proponent of Alcohol for fueling his automobiles. As late as 1936 an alcohol conversion kit was offered by Ford Motor Company. However, Congress harkened to the Department of Defense and decided to go with oil. This was the right decision at the time as Gasoline was selling at roughly 18 cents a gallonand Alcohol was selling at 38 cents. Frankly, the API was lobbying hard for it. Moving forward, Roosevelt put on price controls for wartime gasoline consumption and went to rationing. When Jimmy Carter was president, we had an oil shortage and the beginning of long lines at the gas pumps. The actual shortage was generally
thought of as “manufactured”. Living in Illinois, I experienced the long lines at the gas pumps and climbing gas prices. I also had a friend that worked for one of the local refineries of which there were three. One day a week, my friend would pick up my car and take it to work. He would then bring it back to me with a full tank. I thought that he may have been stealing from work. He told me no, the company had run out of storage space, so they were giving the gas to the employees and burning gasoline soaked barge rope along the banks of the river.

In the early 80’s, I worked for Halliburton in New Mexico. I worked on wells that produced oil in New Mexico, Colorado, Utah, Arizona, and California. I had been told from various oil company engineers that there was plenty of oil available for drilling for the next 200+ years. I had also been told that for years the oil companies had been drilling wells throughout the US and just capping the wells for future production. I actually got to work on putting a few of those wells into production. By 1983, gas prices had fallen to less than one dollar a gallon. It was at this time that Prudhoe Bay was opening up for production. There was one very memorable well I worked on. It was located on the West Mesa outside of Albuquerque. The deepest hole they had drilled in the US to that time. It was 29,500 feet deep. It was an exploratory well. We discovered 4 oil formations and 5 Natural Gas formations. One of the group of engineers that I worked with told me that we really didn’t need to import anyoil due to reserves that they knew about currently. He showed me a map of theUS and outlined with his finger 5 separate spots that we could work for the next 50 years each. He displayed a field north of the Permian basin in Texas, one that ran through Ohio, Michigan, and Northern Indiana, and told me about oil that had been seeping up through the ground where two runways crossed in Flora, IL. The Flora seepage, I had later confirmed in a Halliburton employee magazine that told of Halliburton getting called out to drill the hole to stop the seepage. This was during Reagan’s administration. Refining costs were 39 cents a gallon in New Mexico.

When President Clinton was in office, the price of oil was generally under $2 a gallon, even though we heard about OPEC shortening supply and oil was imported even more. The EPA was furthering its regulations on Drilling, Refining, and Storage Facilities. If a Refinery had a storage tank fire, EPA wouldn’t license a rebuild. Drilling had more regulations concerning concrete pits for overflow. Soil studies and samples for water retention and what kind of environmental impact the hole would make. It become harder for oil companies to produce gasoline. Exploration slowed to a virtual standstill. Price increase was exacerbated by oil companies looking for greater profits. This is displayed in quotations from a paper Senator Wyden published in 2000. Thiscan be read in its entirety here: http://wyden.senate.gov/issues/gas_prices/pdfs/wyden_oil_report.pdf
“a senior energy analyst at the recent API (American Petroleum Institute) convention warned
that if the U.S. petroleum industry doesn’t reduce its refining capacity, it will never see any substantial increase in refining margins…However, refining utilization has been rising, sustaining high levels of operations, thereby keeping prices low.”
Internal Chevron document, November 30, 1995

When President Bush took office in 2001, Gas prices were averaging $1.69/ Gallon. After 9/11 gas prices started the upward crawl. Oil companies were buying each other up for refining capacity. Independents were being swallowed up. EPA was still pushing intolerable regulations. When prices crawled to 3 dollars a gallon for gas, President Bush was asked by the press what he intended to do about the price of gasoline, he told the press that if the people thought they were being gouged by the oil companies, report them to the FTC. Within a week, prices started to go down at the pump. My belief is that if the FTC investigated the pricing, they would have learned that the oil companies were following the commodity price which is based on future demand
rather than lobbying for EPA relaxation of regulation.

Nowthat brings us back to our current President who openly wants high gas prices. What can the poor boy do to ease the suffering at the pump? Currently, we have 17M barrels of oil refining capacity. We consume 21 million barrels of oil. That’s a 4 million barrel deficit that we import oil to make up. We are drilling more now on private land, not public land. This doesn’t give us as taxpayers any royalty money or benefit from lease fees or taxes. This current state of affairs gives us plenty of oil, but not enough refining. Oil companies want to make profit so anything over that 17 Million Barrels can be easily exported for a nice profit. All extra drilling would accomplish would be to increase the amount of exported oil. More profit for the oil companies and higher
speculation in the markets. The taxes we pay to the Federal government would still be high, the taxes to the states would remain the same. The politicians would be asking to raise the taxes to promote some utopian situation and in then final Bills the contributors would gain millions. So what can a leader of the free world do? First we would need to find a leader. Then he could call the oil companies, the API and the department of the Interior, The Energy Czar, and the EPA head into a meeting. He could explain that the country does not want to impede the free market in any business; however we prefer to be self sufficient where our energy is concerned. He would strongly suggest that the EPA limits its licensing and approval process for refining and storage to six months and be generous in its approvals. To the oil companies, he could suggest that the
game is over and we need not just 21 Million Barrels of oil available But 30 million barrels of oil at the ready daily. Anything over that they could export. It is in the best interest of the economy, as well as the EPA and the Oil companies to satisfy the demand. Have it all completed within 5 years. Furthermore, get busy drilling on public land to help pay down the debt. This would lower the commodity speculation price, as we would not need imported oil and the main player in the oil market is buying locally. Let the Arabs sell the oil to China. If the EPA complains, he can replace the head with someone like minded. If the oil companies complain, maybe their licenses or tax forms could be reviewed for any improprieties. It is not a free market when the country is held hostage by the EPA and the oil companies. But again we would have to find that leader .