Subject: Schizoid Economics

[buckee]

Posting for SteveB

http://www.powerlineblog.com/archives2/2008/05/020571.php

MAY 21, 2008

OIL EXECUTIVES TRY TO EDUCATE SENATE DEMOCRATS, BUT DEMOCRATS APPEAR HOPELESS

Earlier today, the Senate Judiciary Committee summoned top executives from the petroleum industry for what Chairman Pat Leahy thought would be a politically profitable inquisition. Leahy and his comrades showed up ready to blame American oil companies for the high price of gasoline, but the event wasn't as satisfactory as the Democrats had hoped.

The industry lineup was formidable: Robert Malone, Chairman and President of BP America, Inc.; John Hofmeister, President, Shell Oil Company; Peter Robertson, Vice Chairman of the Board, Chevron Corporation; John Lowe, Executive Vice President, Conoco Philips Company; and Stephen Simon, Senior Vice President, Exxon Mobil Corporation. Not surprisingly, the petroleum executives stole the show, as they were far smarter, infinitely better informed, and much more public-spirited than the Senate Democrats.

One theme that emerged from the hearing was the surprisingly small role played by American oil companies in the global petroleum market. John Lowe pointed out:

I cannot overemphasize the access issue. Access to resources is severely restricted in the United States and abroad, and the American oil industry must compete with national oil companies who are often much larger and have the support of their governments.

We can only compete directly for 7 percent of the world's available reserves while about 75 percent is completely controlled by national oil companies and is not accessible.

Stephen Simon amplified:

Exxon Mobil is the largest U.S. oil and gas company, but we account for only 2 percent of global energy production, only 3 percent of global oil production, only 6 percent of global refining capacity, and only 1 percent of global petroleum reserves. With respect to petroleum reserves, we rank 14th. Government-owned national oil companies dominate the top spots. For an American company to succeed in this competitive landscape and go head to head with huge government-backed national oil companies, it needs financial strength and scale to execute massive complex energy projects requiring enormous long-term investments.

To simply maintain our current operations and make needed capital investments, Exxon Mobil spends nearly $1 billion each day.

Because foreign companies and governments control the overwhelming majority of the world's oil, most of the price you pay at the pump is the cost paid by the American oil company to acquire crude oil from someone else:

Last year, the average price in the United States of a gallon of regular unleaded gasoline was around $2.80. On average in 2007, approximately 58 percent of the price reflected the amount paid for crude oil. Consumers pay for that crude oil, and so do we.

Of the 2 million barrels per day Exxon Mobil refined in 2007 here in the United States, 90 percent were purchased from others.

Another theme of the day's testimony was that, if anyone is "gouging" consumers through the high price of gasoline, it is federal and state governments, not American oil companies. On the average, 15% percent of the cost of gasoline at the pump goes for taxes, while only 4% represents oil company profits. These figures were repeated several times, but, strangely, not a single Democratic Senator proposed relieving consumers' anxieties about gas prices by reducing taxes.

The last theme that was sounded repeatedly was Congress's responsibility for the fact that American companies have access to so little petroleum. Shell's John Hofmeister explained, eloquently:

While all oil-importing nations buy oil at global prices, some, notably India and China, subsidize the cost of oil products to their nation's consumers, feeding the demand for more oil despite record prices. They do this to speed economic growth and to ensure a competitive advantage relative to other nations.

Meanwhile, in the United States, access to our own oil and gas resources has been limited for the last 30 years, prohibiting companies such as Shell from exploring and developing resources for the benefit of the American people.

Senator Sessions, I agree, it is not a free market.

According to the Department of the Interior, 62 percent of all on-shore federal lands are off limits to oil and gas developments, with restrictions applying to 92 percent of all federal lands. We have an outer continental shelf moratorium on the Atlantic Ocean, an outer continental shelf moratorium on the Pacific Ocean, an outer continental shelf moratorium on the eastern Gulf of Mexico, congressional bans on on-shore oil and gas activities in specific areas of the Rockies and Alaska, and even a congressional ban on doing an analysis of the resource potential for oil and gas in the Atlantic, Pacific and eastern Gulf of Mexico.

The Argonne National Laboratory did a report in 2004 that identified 40 specific federal policy areas that halt, limit, delay or restrict natural gas projects. I urge you to review it. It is a long list. If I may, I offer it today if you would like to include it in the record.

When many of these policies were implemented, oil was selling in the single digits, not the triple digits we see now. The cumulative effect of these policies has been to discourage U.S. investment and send U.S. companies outside the United States to produce new supplies.

As a result, U.S. production has declined so much that nearly 60 percent of daily consumption comes from foreign sources.

The problem of access can be solved in this country by the same government that has prohibited it. Congress could have chosen to lift some or all of the current restrictions on exportation and production of oil and gas. Congress could provide national policy to reverse the persistent decline of domestically secure natural resource development.

Later in the hearing, Senator Orrin Hatch walked Hofmeister through the Democrats' latest efforts to block energy independence:

HATCH: I want to get into that. In other words, we're talking about Utah, Colorado and Wyoming. It's fair to say that they're not considered part of America's $22 billion of proven reserves.

HOFMEISTER: Not at all.

HATCH: No, but experts agree that there's between 800 billion to almost 2 trillion barrels of oil that could be recoverable there, and that's good oil, isn't it?

HOFMEISTER: That's correct.

HATCH: It could be recovered at somewhere between $30 and $40 a barrel?

HOFMEISTER: I think those costs are probably a bit dated now, based upon what we've seen in the inflation...

HATCH: Well, somewhere in that area.

HOFMEISTER: I don't know what the exact cost would be, but, you know, if there is more supply, I think inflation in the oil industry would be cracked. And we are facing severe inflation because of the limited amount of supply against the demand.

HATCH: I guess what I'm saying, though, is that if we started to develop the oil shale in those three states we could do it within this framework of over $100 a barrel and make a profit.

HOFMEISTER: I believe we could.

HATCH: And we could help our country alleviate its oil pressures.

HOFMEISTER: Yes.

HATCH: But they're stopping us from doing that right here, as we sit here. We just had a hearing last week where Democrats had stopped the ability to do that, in at least Colorado.

HOFMEISTER: Well, as I said in my opening statement, I think the public policy constraints on the supply side in this country are a disservice to the American consumer.

The committee's Democrats attempted no response. They know that they are largely responsible for the current high price of gasoline, and they want the price to rise even further. Consequently, they have no intention of permitting the development of domestic oil and gas reserves that would both increase this country's energy independence and give consumers a break from constantly increasing energy costs.

Every once in a while, Congressional hearings turn out to be informative.

[Nut]

Here is another spin

http://ap.google.com/article/ALeqM5gWbOiEpqLk7p7RMeT8jUZ0Rg5HpwD90Q9U601

Just to have both sides represented.

Neither side of the arguement is public spirited .Spin doctors for both sides need to get real.

[JJL]

1. There's enough oil and gas on the western slope to meet America's energy needs for 300 years. Let's go get it.

2. The Oil Company profits average $.09/gal. Local-State and Federal taxes average $.60/gal. Who's gouging the consumer?

3. Dick Durbin is a MORON, and has never had a rational thought in his life.

4. America is realizing that the problem exists because we cannot and will not provide for our own energy needs. Based upon the fact that we are allowing a bunch of panty-waste tree-hugging liberal-whacko's dictate our energy policies. The sooner we take charge of our own needs the sooner the energy crunch will end. If we continue to stay on the same path, get ready for $8.00/gal gas.

5. Hillary is the only candidate with enough testicular-fortitude to do anything about it, and she's on the bench. We're in trouble with those other two.

[oldksnarc]

I had a few minutes on my hands and thought I'd take the opportunity to bloviate on current events as I see them:

Not on point for this thread, but:

There is no need for any further terrorist attacks by the Middle East/Muslims on America. They've already embarked on a path of destruction of America that is going to have greater consequence on us than any attacks on our buildings, infrastructure or citizens. The only reason to keep us looking for terrorists cells who are making plans for attacks and destruction, or for Osama to keep popping his head up periodically with threats of future attacks, is to keep us focused there instead of where the real attack and destruction is going to come from.

Think about it. Attacks on infrastructure and buildings like 9-11 results in the killing of innocent people, which only enrages us, and makes us come together as a people – which makes us stronger and more resolved against those who would harm us. The opposite effect they are looking for.

A better way to destroy us is to cause us to self-destruct and the best way to make us self-destruct is to make us argue among ourselves which, resultingly, causes us to implode upon ourselves. And, I’m not talking about the politics occurring right now with Obama whining, crying and stomping his feet because the President called him an appeaser.

I’m talking about the biggest problem facing us currently – energy.

We keep putting oil in reserve – which we should do for future emergencies – if nothing else than to allow us to have sufficient fuel to keep our military fueled in case of war or emergency and foreign sources dry up, i.e. we end up at war with foreign providers who will be likely to cut us off. The problem with our current energy crisis is that we can’t agree internally and among ourselves on what we should do. Rely on foreign oil or become self-sufficient thru our own resources and/or thru alternate energy sources?

Liberals/environmentalists oppose and/or restrict our off-shore drilling of our own coasts – yet allow foreign governments to drill almost without restriction off those same coasts. Foreign governments can benefit from what should be our oil but we can’t?

Liberals/environmentalists support alternate energy sources (wind, solar, etc) as long as it doesn’t harm some fruit fly or other inane creature. As George Carlin asked, how many tens of thousands of beings/creatures have become extinct over the millenniums of the planet Earth and we really think that as a race we can keep that from happening during our little piece of existence or during the normal course of the earth or solar system?

Liberals/environmentalists oppose opening the Arctic National Wildlife Refuge to oil exploration, where there’s an estimated 10 billion barrels of oil, because of the potential harm to wildlife. Potential harm versus present/future crisis. As large as the area is isn’t it possible to accomplish both? Room for development and room for protecting the wildlife.

There is also an untapped oil reserve in the North Dakota/Montana/Saskatchewan region that has an estimated 100 billion barrels of which has been compared to being at least as large as the oil Saudi Arabia currently sits on. And, the cost per barrel of oil produced from these fields is estimated at $16 per barrel as opposed to $120+ barrels for foreign oil.

http://www.kiplinger.com/businessresource/forecast/archive/The_U.S._Poised_to_hit_New_Oil_Gusher_080317.html

http://www.foxnews.com/story/0,2933,349728,00.html

Add these to the existing and untapped fields remaining within our country and there is no need at all to rely on foreign energy. Yet, we still remain hostage to foreign (middle east/Muslim) countries and to domestic (liberals/environmentalists) influences.

Domestic oil exploration has to be coupled with the development of alternate energy sources, i.e. sun, wind, nuclear, and so forth. Yet these alternate sources have to become affordable to develop. Nuclear energy is one of the cheapest sources of energy to date – yet, again, the liberals/environmentalists have blocked any new developments for at least the last couple decades.

Future attacks of our buildings or infrastructure are unlikely. If they do attack it will be only to keep our focus misdirected while they destroy us economically. Higher energy prices affect everything in our society. Higher food prices and higher prices on absolutely everything we have and rely on because nothing is grown or produced without energy.

All this has amounted to economic terrorism and will result in America’s implosion on itself. Again, there is no need to attack us except to keep our focus misdirected. They have obviously already engaged in a plan of action designed to destroy our economy.

President Bush visited Saudi Arabia within the last two days and asked for increased oil production to help lower the price per barrel and price per gallon at the pump. Saudi Arabia’s response – we’ve examined the demand and see no need for increased production. That’s an ally willing to help us? Sounds more like an alleged ally willing to profiteer from our needs.

But, wait. Weren’t eighteen of the nineteen 9-11 hijackers Saudis? Isn’t Osama Saudi?

Until WE are willing to find ways to explore for oil AND protect the environment we will be responsible for our own destruction.

That’s all I have to say about that. – Forrest Gump

But, then again, I could be wrong. – Dennis Miller

[stevebeilgard]

no, you cannot be wrong. great post, and good description of what we are witnessing before our very eyes.

i've often wondered, where is kuwait. we literally gave them back their country, confiscated by hussein. why don't they give us a direct supply of oil and help us. and where are all the folks who said we went to iraq for oil. where's our oil, if they are correct. and why was bush so stupid as to go to war in iraq to get that supposed oil. we had our army in kuwait, and they did not have an army. iraq did. why didn't bush simply declare victory in kuwait and take the oil?? if the liberals idea was right, that is.

maybe 4 dollar a gallon gas will wake up america. this summer tourist season promises to be a disaster. motels will be selling cheap this time next year. and think about the farmers out planting their fields with 4.50 a gallon diesel and fertilizer 4 times the cost of last year. get ready for some food surprises this fall.... that is, of course, if our nations truckers can afford the fuel to deliver it to you.

[Texan_Til_I_Die]

Regardless of whether the oil companies are making record profits, engaging in price gouging, or doing the best they can with the current situation; I would still rather see the money for crude oil pumped (pun intended) back into the American economy instead of going overseas to fund our enemies.

Come on America, wake up and let's start drilling here at home!

[wtnhunt]

Some great replies here.

Regardless of whether the oil companies are making record profits, engaging in price gouging, or doing the best they can with the current situation; I would still rather see the money for crude oil pumped (pun intended) back into the American economy instead of going overseas to fund our enemies.

Come on America, wake up and let's start drilling here at home!

These are my thoughts as well. We need to regain our independence and in the process quit supporting those countries who would not mind seeing us implode as oldksnarc put it.

[slugshooter]

While I am mostly ignorant in regards to the oil industry here at home and abroad, I have read enough to form a somewhat respectable argument. While most of you know I have not been the biggest fan of the Bush Admin, I find it laughable at some of the things the ultra-liberals come up with, and I did support the drilling in the ANWR in Alaska. My one question is this in regards to oil company profits. How, if prices are so high, which I admit is a result of those in the Middle East who set the price they want to sell it for, and if ExxonMobil, Shell, etc. only make such a little amount per gallon as stated in the text, then how are these companies making such multi-billion dollar profits every quarter? I would like to see a break-down, using the current price of 4$ a gallon, and see how much state,local, and federal tax there is that keeps driving the price up. It stands to reason that as the price of a barrel of oil goes up, so will the price of gas to the consumer, but I think that there are just to many wheels turning to really come up with a definitive answer.

One more question. The government has helped out AMTRAK financially, they have also helped out farmers financially. Would it be such a stretch that the government subsidize the cost per barrel of oil, say, 30$ of that 130$ per barrel to lower the cost to the consumer? The only problem that I could see with that is the government would return the cost to us in the form of taxes most likely. That is until they decide to look for oil right here at home.