Monday, April 24, 2006

The current oil crisis - 30 years in the making...

Out Current Energy Crisis – 30 years in the making…

Recently, the price of gasoline has jumped to over $3.00 per gallon. It is not so much the price of gas but the rate of growth that has captured the attention of the public. This price as high as it is, is not the highest in our history when adjusted for inflation. The peak was set back in 1981.

The problem with our energy industry is 30 years in the making. It is a complex issue and must be understood within our history - where we have been in order to arrive at realistic solutions.

The oil crisis is the culmination of all the following factors:

1. The government (federal, state and local) has created regulations and has overseen consolidations in the oil industry, prevented drilling, prevented construction of refineries and has instituted various taxes that all contributed to the current high costs.
2. The oil companies along with their high priced lobbies have exerted influence on government (Republican and Democrat) to create a constrained environment that discourage competition and reap windfall profits at the expense of the public.
3. The auto companies have been reluctant to create fuel efficient cars and slow to adopt hybrids. You can argue that they are only responding to the market place – the desire of the public to buy large SUVs.
4. The environmentalists have been working through their lobbies and high profile spokesman to convince our politicians and our local governments and the public of the “evil” of fossil fuel and the effect on global warming and the harming the environment.
5. OPEC has been an organization that maintains a tight grip on oil production in the Middle East (the largest portion of oil production in the world). They engage in price/supply control on this commodity strictly for their own gain. In our desire and need for their oil, we have engaged in foreign policy that have not always been fair to the people of Middle East region – especially the Arabs.
6. The Global community that has a growing appetite for oil energy. This is not necessary a bad thing. It is a sign that our global economy is growing and thriving. More people around the world is working and improving their lives. Unfortunately, this puts greater pressure on our energy supply.
7. The American public has been made addicted to cheap oil and gas. Our way of life has been shaped by our housing, driving, commuting and recreational habits – all related to cheap oil. When the price of gas change suddenly, it is difficult to adjust. By contrast, in Europe, the current price of gasoline is approx. $6 per gallon.

The solution to our problem requires some short term and long term actions. These are not easy steps but necessary in order for our long term security and energy independence.

Short term actions:

1. The public must treat this as a “wake up” call. We need to conserve and cut back our energy consumption by (5 or 10%). We can combine shopping trips. We can buy more fuel efficient cars and build more energy saving homes. We can choose to use more public transportation. This is a behavior change that will have the most impact on prices. By reducing the “demand”, we can affect the “prices”.

2. The President can issue an executive order to suspend some fuel regulation having to do with seasonal fuel mix blends to reduce pollution. This would be a temporary measure to relieve the current spot shortages of refined gasoline. We do not have a shortage of crude oil at this time.

3. Our local governments can suspend or put caps on their tax collection on the sale of gasoline. There is no good reason why a State should collect more sales tax on gasoline. It was only put in place as an easy accounting/collection mechanism that assumed the relative stable prices of a commodity. When the prices of gas increase by 10-20 percent in a month, there is no reason why the State should benefit from this windfall.

4. Boycott any oil company that engage in price gouging or aggressive pricing or abuse of share holders. Companies such as Exxon, who consistently charge higher prices on gas and give exorbitant compensation to their executives need to be sent a message from their consumers and customers. A good site for check for lowest prices in your area -
I am not naïve enough to believe that “boycott” alone will reduce prices. However, it will send a clear message to the oil executives that we are watching them. Don’t think we are helpless. There is real power in numbers.
Exxon’s CEO pension is the last straw -

5. Local governments must crack down on any signs of price gouging by local dealers.

6. Finally, Don’t panic. You don’t need to top off your tank.

Long term actions:

1. Invest in alternative fuel technology such as fuel cell.
2. Allow for oil exploration in a responsible manner.
3. Government can provide land for construction of refineries in remote areas away from population centers and away from hurricane or earthquakes prone areas.
4. Government can pass reasonable MPG limits on new production of auto and SUV and trucks.
5. We the people can hold our elected officials responsible for action or inaction. The same politicians that get re-elected year after year are the ones that created this mess. We need to vote them out of office and get some new talent and new ideas into Washington. This is a non partisan issue.

To answer the “experts” and pendants who claim that this is merely a “supply” and “demand” issue. The price of gas is what it is due to “free market” forces. I say they are wrong on all counts. Because of all the conditions in play today, we “do not” have a “free market” condition in play. If we did, I would not be complaining. I believe strongly in the capital system. I am from the Milton Friedman School of economics. However, in order to have “free market” forces to work, there must be a level playing field. I believe greed and lobbies and the elites and the environmental extremists and self serving politicians have all contributed to the climate of “status quo”. The government and oil companies are making huge windfall profits at the expense of the public consumer and there is little incentive for them to change.
There is one silver lining in this whole crisis. It has put the spot light on a real problem. Let’s hope it won’t take 30 more years before it is addressed.


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