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Thursday, May 08, 2008

High Gas Prices: Big Oil or Big Government?

With gas prices so high, the daily drum beat is on about oil company profits.

Oil companies are certainly making money (aren't businesses supposed to do that?), but is that evil capitalist greed solely to blame for high gas prices? Like so many things that seem one way when we're fed by the "mainstream" media, maybe not.

There's an article from the Montana Standard that's three months old, but the information contained therein isn't the slightest bit dated.

It's written by Shaun Hoolahan who is a retired petroleum engineer. He's seen the oil industry up close, in ways that even the mental giants in the press haven't.

He points out that the Western oil companies usually associated with "Big Oil" control less than 6 percent of the world’s reserves; there are a lot of nationalized (i.e. government controlled) oil companies that make up most of the rest from places like Saudi Arabia, Iran, Iraq, Venezuela, Libya, Algeria, Nigeria, Russia, Brazil, and China.

Further, it isn't one oil company setting prices or even a group of them getting together to conspire to raise prices. It's a group of nations we know as the Oil Producing and Exporting Countries, or OPEC.

But why couldn't Exxon or one of the other American oil companies just have a heart and cut prices?

What happens to the independent refiner if Exxon sells its refinery products at less than its cost of manufacture? The independents couldn’t compete, would scream bloody murder, and would haul Exxon before the courts for unfair trade practices. The same would apply to other integrated oil companies that might have a larger proportion than Exxon of their business in the downstream sector (refining and marketing) as opposed to the upstream sector (exploration and production).

Hoolahan also points out that OPEC is producing at near full capacity. How could we fix that? Increase our capacity by doing more drilling...and building some new refineries for the first time in over 30 years. How much has our demand increased in 30 years while we've been building no new refineries?

He also says Exxon's profit is about 10 cents on the dollar. At $3.50 a gallon, that's 35 cents a gallon profit. But how much is the tax man getting? The federal gas tax is 18.4 cents a gallon, and in South Dakota there's a 22 cent per gallon tax, for a total of 40.4 cents per gallon going to the government. Hmmm.

The value, or I should say, the devaluing of the dollar doesn't help prices, either. Neither does speculation from the market.

I don't enjoy paying high gas prices any more than you do. But bellyaching about "Big Oil" isn't going to solve anything.

In fact, I place a lot more of the blame on Big Government. Big Government is the entity which has over-regulated the free market. Big Government has restricted new drilling in places like ANWR where no one and no thing is going to get hurt. Big Government has made it fantastically expensive to build new refineries with lengthy and costly permit and approval processes, and endless pandering to environmental extremists.

There is a domestic culprit behind these high prices. But you'd find that culprit a lot quicker if you looked in Washington D.C. than if you looked in Texas.


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