Friday, April 21, 2006

As the price of oil passes $75 a barrell, people start to freak out

And when people start to freak out they call their Congressmen. And when enough people put pressure on their Congressmen, these representatives start actually trying to think of more ways to waste taxpayer money. So they stand up in front of their microphones, and they start blaming people. They'll blame big oil for being a company that (gasp!) makes money, they'll blame the consumer for driving gas guzzling, environmentally unsound SUVs, and they blame the president for hostile policies in the Middle East that have all the investors crapping their pants (wait... I thought Iraq was a war for cheaper oil... oh nevermind).

I actually had a conversation with a good friend the other night about whether I thought the gas prices were Bush's fault and if there was anything he could do about it. My response was no it's not his fault, and yes there's something he could be doing about it. I start with my good old standby: drill. in. ANWR. Part of the huge price increase is due to investors freaking out about a nuclear Iran and sanctions or even hostilities that may result from that situation. An easy way to help solve that situation is either let Iran have nukes and hope that problem goes away (and we sure as hell don't want that to happen, becuase that will make the region 100 times more unstable) or we drill in ANWR so we don't rely as much on oil from the OPEC nations. Along with that, easing up on environmental restrictions so oil companies could drill, say, off-shore ffor oil would help as well.

We could always invest more money in nuclear power and other renewable energy resources (hydro-electric, wind, solar, etc) put there are lobbies against that sort of stuff. Just look at the huge fuss about the proposed Cape Cod windmills (not that I put too much stock in them). Just imagine what they'll do if a new nuclear power plant were proposed. There are lobbying groups opposed to all forms of energy from oil, to wind, to nuclear. Right now the anti-oil people are the loudest. That doesn't mean the other anti-energy groups are gone.

Along with changing government policies, we need the oil companies to make money. Yes, the amount of money made by these companies sounds obscene (we've discussed why it's not before), but we need them to make money. That money will pay for further oil exploration, and perhaps more importantly, for more oil refineries. How much can a few more refineries help? A couple refineries could add upwards of 5% to our oil production.

In the absence of a clear explanation, members of Congress have jumped into the fray. "These major oil companies have hooked their hose up to the pocketbooks of American citizens and are sucking money from ordinary Americans into the treasury of the giant oil companies," said Sen. Byron L. Dorgan (D-N.D.), a member of both the Senate Commerce and Energy committees. Sen. Charles E. Schumer (D-N.Y.) on Tuesday called on the Federal Trade Commission to make sure the major oil companies weren't intentionally keeping refinery capacity offline to jack up prices. He cited a 5-percentage-point decline in refinery utilization rates.

But the American Petroleum Institute responded sharply. "Any charge that oil companies are intentionally driving up prices ignores the very obvious fact that refinery capacity has been lower because the industry is still in the process of recovering from the extensive damage caused by Hurricanes Katrina and Rita last summer," the API said in a statement. "It is a fact that three refineries remain closed since the hurricanes. The combined capacity of those refineries is 804,000 barrels per day -- or about 5 percent of U.S. refinery capacity, the same amount Senator Schumer mentions."

[...] Major refiners say that the shortage of capacity in their industry has been years in the making and, because of the long time it takes to build refineries, will also be years in the fixing. For years, it was a low-margin, capital-intensive business. Investors shunned refining companies, and many refineries were put up for sale at relatively cheap prices or closed.

And billions of their profits are going to be spent on making sure their products meet new, stricter environmental standards. And as much as I like the effort being put into new energies like the "Go Yellow" ethanol campaigns, I'm not convinced ethanol is the solution with more research coming out citing the inefficiency of using ethanol as a power source and the pollution risks from the ethanol production process. It's not necessarily the saving grace that it's touted to be.

As consumers are faced with higher gas prices and the misguided perception that they're being gouged across the board, they are becoming more and more desperate. I've gotten 3 forwards just today about holding "Gas outs" where no one buys gas that day and a newer idea of boycotting the biggest oil companies (Exxon) for several days in the hopes of balancing supply and demand.

As people try to save money, maybe they'll drive less, carpool, or take mass transit. Or perhaps they'll do something totally foreign here in Southern California... walk.

As for me? I'm thinking I might have to dust of the fetching Mrs. Wookie's bike. I do live only 5 miles from work...

UPDATE 4/25 3:07pm: Captain's Quarters has a similar take on the oil issue now that Dubya's announced a Congressional investigation.... drill in ANWR, more refineries, and environmentalist posturing hamstringing these efforts. He also points to the interesting fact that I hadn't considered, that states have their own refining standards, and how that poses a problem due to shortages and price fluctuations.