Today’s Courier Herald Column:
Newt Gingrich has made $2.50 a gallon gas the “9-9-9 Plan” of his campaign. A single number as a slogan is now the reason he wants you to make him President. Newt promises that, if elected, pump prices will plummet to levels that were still thought relatively high just a few short years ago.
A while back, the CEO of a major oil company and I attended the wedding of a daughter of a mutual friend. During the reception, we had a bit of small talk about the politics of oil prices. This was during the middle of a huge price spike and nearing fall elections. On a trip to Washington, he was pulled aside by a U.S. Senator who demanded that he get prices down to $2.50 before the fall elections.
The Senator didn’t want to hear about market dynamics, supply and demand, external threats to oil supply, or leverage in the speculator market. He only needed a price, based on nothing. The CEO decided on a different tactic to make his point, asking “So if $2.50 gas is all that is important, do you promise to do everything in your power to help me get the price to $2.50 the next time gas prices fall to $2.00?”
The Senator walked away a bit miffed, still missing the point – though not really. The Senator’s only point was that he wanted to be re-elected. The rest of the equation was the oil company’s problem.
Almost nine of ten cents paid at the pump are a direct result of the price of crude oil and taxes imposed by various levels of government. The refining, distribution, marketing, retailing, and profit account for roughly twelve cents on the dollar combined. If pump prices are to be targeted, then crude oil prices must be in the bull’s-eye. After all, we can’t expect government to reduce taxes, because that’s the only part of this equation they have direct control over. That kind of thinking is what keeps us frustrated voters and not high minded elected folks.
“Drill here, Drill now” then is the obvious solution, as the way to change the supply/demand equation is to alter the amount of oil supplied to the market. Except, it’s not quite that simple, either. Much of the U.S. oil reserves are harder to extract, and more costly to refine, that the crude of the light sweet variety found in the middle east. Yet there are areas currently off limits to exploration – specifically off the coasts of the Southeast and Southern California – where oil is readily available and relatively cheap if open to exploration.
Other North American oil exploration is available, but the logistics of getting the oil to market are more complicated. The Keystone Pipleline currently is the poster child of this complexity.
Once extracted, the oil is not then branded “American” and forced to stay on this continent. The oil market is global, and emerging economies are increasing their use of petroleum products at an alarming rate, led by China and India. As the world begins to recover from worldwide recession, the competition for existing oil reserves will be fierce.
As such, targeting an arbitrary price for gasoline is fool’s errand, but it does help focus on the fact that we need a comprehensive energy policy. “Drill here, Drill Now” is no more a comprehensive policy than spending hundreds of billions in tax dollars producing technology that is not ready for market. Both a thin attempts to deal with reality, but the reality of each is that they are both designed to appeal to a specific political base, and little more.
Domestic oil exploration and pipeline construction must be sold to the American people for what it can deliver. It is not a price strategy. It is the best jobs program that the federal government can implement in this environment. North Dakota, currently experiencing an oil boom, has an unemployment rate in the 3% range. Minimum wage level jobs go unfilled at $12-$15 an hour. Developing our own natural resources would put the money drained from our wallets at the pumps back into the wallets of other working Americans.
It would also take money out of the wallets of those who want to kill us. The politics of my entire lifetime have always been affected by what regimes in the Middle East are doing. A secure domestic energy supply changes the global political landscape dramatically with respect to direct U.S. interests.
Domestic politics of this debate cannot be ignored either. Neither side will get all of what it wants. Any reasonable energy policy will have conservation and alternative energy development as key components. Any policy deemed reasonable will also have us exploiting our own resources over those we buy from those who wish us harm.
The argument cannot be about price. It must be about jobs and national security.