Friday, May 23, 2008

Oil & Gas, Supply & Demand


The modern left is so hypocritical and intellectually dishonest as to defy belief. With the price of gas skyrocketing, they pretend the laws of supply and demand do not exist, that whether to drill for oil in America is wholly unrelated to the price at the pump, and that the price at the pump is all some nefarious plot by the oil and gas companies - possibly the most investigated sector of the American economy over the past two decades. Those on the left are playing this country for fools, while Maxine Waters is advocating nationalizing the oil and gas companies.
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This from an exceptional post at Powerline discussing the Senate Hearings at which appeared the chief executives of the major oil and gas companies:

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, . . .

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.
. . .
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.

Read the entire post.

Then there was Rep. Maxine Waters, threatening to nationalize the oil and gas companies:



God help us.

2 comments:

DrKrbyLuv said...

This is an outrageous display of ineptness on the part of our politicians in Washington. Are they really this stupid or is this just a scam?

The two parties seem to approach every issue the same way...how can we use this problem to advance our own agenda?

GW said...

From Regan through Gingrich, that was not quite as true of the Republican Party. The emphasis seemed to me to be on doing what was in the national interest. That discipline was lost under Bush, and the leadersip of the Republicans at the national level - i.e., House, Senate, RNC - is incredibly weak. These are dark days indeed for the country.