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April 27, 2006

Oil Drum To Politicians: Get A Clue Peak Oil  Politics

The political posturing — on both sides of the aisle — in response to rising oil/gas prices is both disheartening and disgusting. Politicians of both parties seem to think the answer is to scapegoat oil companies with a lot of blather about price gouging and oil company profits. Yes, oil profits are obscenely large, but they are effect, not cause, of high oil prices. American oil companies control neither the futures markets nor the rate of oil production in Saudi Arabia and elsewhere. Apparently, almost no one in Washington understands where oil comes from.

The Oil Drum has written an important press release on this topic. It's so good I'm just going to quote it at length:

We strongly feel that the leaders of both political parties are not only headed in the wrong direction with respect to gas prices, but we also worry that they fundamentally misunderstand the factors behind the current situation at gasoline stations around the US. Public statements by political figures over the past several days would seem to suggest that oil companies and their record profits are the sole factor determining the price of gasoline. Not only is this untrue, but it is dangerous to give the American people the impression that only oil companies are to blame. The American people need to understand that the phenomenon of high gas prices cannot be attributed to a single source. They also need to understand that no one political party will be able to fix our current woes.

The major factor that determines gas prices is the price of crude oil from which gasoline is derived. When crude oil prices are high, so are gas prices. The following are just a few factors that affect the price of a barrel of oil:

  1. Oil companies do not single-handedly determine the price of oil. The price of oil is set on the crude oil futures market. Simply put, these prices are affected by supply and demand because, at present, oil trades in a global commodity market where increased demand or reduced supply in one place instantly translates into price shifts everywhere. A variety of publicly available information sources show that supply is relatively static at the moment, while world demand continues to grow as economies grow.
  2. We have provided evidence many times at The Oil Drum that the output of major oilfields is declining and that we may now have reached a peak or plateau in global oil supply. Oil companies have not been able to increase production for a number of years, and it is unclear that OPEC is accurately reporting their reserves. Even if there were significant sources of high quality oil remaining, it is getting increasingly difficult and expensive to drill. These factors, along with aging infrastructure for oil exploration and a retiring workforce are also contributing to high oil prices.
  3. The geopolitical situation is volatile, and...every time there is news from Nigeria or Iran, the price of oil goes up because of the potential and real effects of these situations on world oil supply. Again, oil traders are fearful that the supply will not remain stable forever.
  4. Countries like China and India are industrializing at a great pace...China is working furiously to secure new oil supplies...

These points demonstrate that disruptions in the supply of oil that affect the price of gasoline at the pump are not just a temporary glitch. For various reasons — decreased discoveries of new oilfields, geopolitical instability, international competition for oil supply — we can no longer assume that we will be able to consume as much oil as possible, or ever get it again for $1.50 a gallon.

Demagoguery and grandstanding are not strategies for addressing our energy problems. As an alternative, the editors of The Oil Drum put forth the following recommendations:

  1. It is nonsensical for political leaders of both parties to eliminate the gas tax temporarily or permanently as this will only worsen our dependence on oil by disincentivizing the innovation of oil alternatives and oil conservation efforts.
  2. Both mainstream American political parties are doing their country a disservice by accusing convenient scapegoats of price gouging or price fixing instead of educating the public about how the price of gas is actually set.
  3. Right now, governments should be focused on helping us cure our "addiction to oil." The answer does not lie in lowering gas prices, which will only encourage people to drive more and further waste our valuable resources. As the Department of Energy funded Hirsch Report on Peak Oil laid out, the consequences of not taking steps to transition away from oil could be dramatic to our economic system. Appropriate solutions include large-scale research, development, and implementation programs to improve the scalability of alternative sources of energy, other projects geared towards improving mass transit and carpooling programs across the country, providing incentives to buy smaller and more fuel efficient vehicles, and promoting a campaign to increase awareness about conservation.

The political discourse on this topic is simply so devoid of fact, and constructive discourse so buried and out of the mainstream, that we felt we needed to raise a voice of reason. Public officials will continue to misinform and obfuscate if we allow it.

The only solution is to educate the public about the most important problem we face as a generation. We, the citizens of the US and the world, must move our attention to this the issue of energy more than any other. We must hold our representative governments accountable for having an open and honest debate on the subject.

Simply put, we must learn more about where our energy comes from. [Emphasis added]

Last summer, I had the opportunity to talk with Senator Feingold for a few minutes, and I quickly outlined for him the evidence on peak oil. I was somewhat taken aback that it seemed like news to him. And he's one of the good guys.

All the price gouging posturing is worse than useless, it's harmful. It perpetuates myths about what are the causes and what, therefore, are the cures. It's time for politicians to get a clue, start acting like grownups, and tell people the honest truth. The world energy situation is not a temporary hiccup. We are faced with an extraordinarily serious long-term problem. Given the sheer scale of world energy use, solutions will require a long lead time. When the crisis hits in full force, it will already be too late.

If you ask me, there's a real opportunity here for Progressives, Greens, and Democrats. People are hungry for some politicians who actually speak the unvarnished truth. And we never needed the truth more than we do now.

Posted by Jonathan at April 27, 2006 09:56 PM  del.icio.us digg NewsVine Reddit YahooMyWeb


Very awesome entry Jonathan. Right on the mark. Keep up the good work.

Posted by: Clay at April 28, 2006 11:36 AM

The article is well written explains the world supply and demand problems. While I agree this is the big picture problem and the reason for the high, I also believe there needs to be an honest understanding of why the oil companies are making record profits. If you want the populace behind you, remove the tin-foil mystique about the oil companies. To simply say "they are effect, not cause, of high oil prices", is not enough. Personally, I'd like to see how much per gallon the oil companies profits are costing us at the pump. Is it 1 cent, 20 cents, 50 cents, $1 per gallon? People need to see where the entire cost of a gallon of gas is going before they can make an honest judgement on where to make changes. For a cheap break-down example on a $3.00 gallon of gas: $2.50 goes to refining it, $0.30 to taxes, and $0.01 percent profit.

If people see that oil companies are not really taking much off the cost of a gallon of gas, they will start to understand the real issue. As long as there is a cloud of mystery surrounding the effects of the oil companies profits, it will make it much harder for people to see the price for what it's worth.

Posted by: Tom at April 28, 2006 05:33 PM