Gas Pains and Other Things
We got gas pains. Gasoline that is, and the price is heading for $4 a gallon and may reach $5 some say and some say $6 . Prices are thrown around as easily as opinions. Speaking of opinions, some think the high price is good. The Obama administration, because it's an election year, doesn't think it's good even though philosophically their political agenda calls for high gasoline prices to drive us to more fuel efficient cars, particularly electric ones. Republicans like the prices high for the moment because it puts pressure on the Obama administration and creates more reason to drill for gas and oil which gives us more jobs and more energy independence.
As for the driving public, which is us, we want reasonable prices and aren't attracted to European pricing which comes out to around $8 a gallon. Commentators, in the meanwhile, have much to say. Bill O'Reilly screams that Big Oil is the problem because we have plenty of oil but are sending it overseas to the highest bidder. He also contended that because of taxes on gasoline, our federal and state governments benefit by the high prices. He's wrong. Gasoline is taxed by the gallon. Use more, pay more. He's not entirely wrong about his first contention, but it's not so simple. So what is going on and what is what. Here are a few things I dug up.
Taxes: As I pointed out, gasoline taxes aren't a factor in the volatility of pricing. In fact, the feds and states are getting less money because we've been using less gasoline because of better fuel efficiency and the recession.
Cost of producing gasoline: According to the Department of Energy, crude oil makes up 68 per cent of the cost; refining, 7 per cent; distribution, marketing, retail profits, 10 per cent; and taxes 14 per cent.
Uses of oil: Gasoline is not the only game in town. Oil is used in heating homes, compact discs, candles, plastics, carpet, rubber, medicine, food additives, detergents, fertilizers, man-made fibers, plastic bottles, dyes, paints, asphalt, packaging, and other fuels.
Other fuels: Of the 19 million barrels of oil we use a day only 9 per cent is used for gasoline. Other uses: electric power, 37; diesel and heating, 3.8; jet fuel, 1.4; liquid gas, 2.1; aviation gasoline, .015; feedstock, .213 and so forth
Imports: U.S. imports come from Canada, 21.5 per cent; Mexico, 10.9; Saudi Arabia, 9.3; Nigeria, 8.7; and Venezuela, 8.4.
Exports: The U.S. is, for the first time, exporting refined oil products, but not the gasoline we use in cars.
Biggest oil producers: Saudi, 13 per cent; Russia, 12; U.S. 9; Iran and China, 5.
U.S. production locations: Texas, Alaska, California, North Dakota, Louisiana and off-shore drilling (about 1/3). There are some changes occurring. The Bakken find in North and South Dakota and Montana has not reached its potential and oil shale in Eastern Ohio and Western Pennsylvania aren't included in these figures.
World politics: Oil is a world-wide commodity and is affected by world politics. Scarcity isn't really a problem at the moment, but the developing countries such as China and India and Brazil, put the squeeze on demand. Middle East turmoil (i.e. threatening to close the Gulf of Hormuz) drives up the price because of the possibility of oil cut offs: buy up now because there might not be any later. It protects supply, but does lead to speculation.
Refining: Refining is complicated and changes with the seasons because of the need for special blends (including Ethanol). Also, new refineries have not been built and some have gone out of business. Production is high.
Oil distribution: There is a glut of oil in the U.S. because some can't get to market because of the need for more pipelines. The Keystone XL pipeline from Canada would get more oil to the refineries, although it would be Canadian oil.
Thoughts and solutions: While the U.S. is producing more oil than ever (started under the Bush administration), it could produce more. Hesitancy to drill in the Gulf of Mexico and on federal lands or in Alaska and failure to approve the oil pipeline from Canada is a definite negative. This administration has been aggressively negative on drilling whether for oil or natural gas. Relying on green energy, wind, sun or pond algae, and conservation is a losing game. Doing all of it makes sense, but oil and possibly (probably) natural are the big dogs for the foreseeable future. They also create jobs.
If the U.S. committed to an aggressive fossil fuel energy plan now (but not dropping efforts to development alternatives), the price of oil would drop for two reasons: oil producing nations such as Saudi would see it as a threat to their dominance and would not curtail supplies and the U.S. political stability would take some of the pressure off speculation. Making the Middle East less of an energy factor is a worthwhile goal in itself, not to mention the instability of Nigeria, Venezuela and Mexico, three of our biggest suppliers.
There is a huge potential for natural gas because of new discoveries and new drilling techniques. Yes, there are environmental concerns, but these are opportunities more than problems. Natural gas can replace coal and oil for use in power plants and compressed natural gas can and is being used in vehicles. Truck companies are already converting and governments could be more aggressive in converting their fleets to natural gas.
And, after all this new oil drilling and energy substituting, there's still going to be a world-wide demand for oil.