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Gas Prices Rise Again!

March 11, 2011

Here we go again, petroleum retail prices surging throughout our nation. A painful case of déjà vu going back to the early 70’s.! History dictates prices will soon enough drop to tolerable levels. So why worry? And what became of our National goals of energy security, economic viability and environmental stewardship?

Today’s rollercoaster ride in petroleum prices presents a dilemma on several counts. Unless addressed, the highs will be higher and longer with no way out. Purportedly, the current rise is in response to the Mideast rebellions, which threaten the flow of oil to the U.S. Superficially this seems to make sense. But below the surface, there seems to be something wrong with this assumption.

According to the Energy Information Administration, of 62 oil-importing countries, only eight are major oil importers to the U.S., i.e., Canada (22.6%), Mexico (12.3%), Saudi Arabia (10.3%), Venezuela (8.5%),Nigeria (7.8%), Algeria (5.2%), Russia (5%) and Columbia (4.4%). Libya and Egypt constitute less than 0.8% of U.S.’s oil imports. It’s unclear how this unrest can impact the oil markets so hard and so fast. Even if Saudi Arabia completely shuts off its pipeline, is it too naive to consider fulfilling this 10% short-fall by increasing imports from the other seven major oil importers and the 54 lesser oil importing countries.

Secondly, Economics 101 supply-and-demand theory dictates that the current condition of softened demand and rising supply levels should result in lower rather than higher oil prices. No question, the prospect of future shortages justifies near-term price escalation. However, over the last 40 years our government established several agencies, the Department of Energy (DoE) in 1977 for one, to transition our oil-based economy to one of renewable and sustainable energy. To achieve this outcome, the U.S. funded all sorts of research projects along with incentive packages to the residential, commercial and industrial sectors to foster adoption of stringent energy efficient measures, use of affordable and cleaner sources of energy, and purchase of alternately fueled vehicles.

If these programs succeeded, demand for oil should have significantly decreased by this time. After spending $183 billion by the DoE over the last 10 years, the “prospect” of interim supply shortages should not catapult oil prices this early. So why continue with ineffective agencies?

There remains another conundrum with the war in Afghanistan and Iraq, which apparently was designed to stop terrorist threats on U.S. soil and to ensure stability in the Mideast, or more appropriately to secure our oil supply lines. What became of the +$1.1 trillion spent by the Department of Defense since 2001 to support this war? If the war actually achieved these goals, regional disturbances should not destabilize the oil market to this degree. True, for whatever reason, terrorism has been curtailed.

With this being said, first and foremost the U.S. must allow the price of oil to reflect its true cost. Remove subsidies and account for the myriad hidden costs such as the war in the Mideast, impact on the environment, contribution to the trade deficit, and added health-care from pollution. Naturally, petroleum prices will soar to previously unseen levels and unfortunately hurt a healing economy. But fortunately, renewable energy can finally compete on a level playing field, which is necessary to achieve our national goals. One way or another, we are paying for oil’s artificially low price. Sooner or later we have to pay the piper. Short-term pains will be long-term gains.

Another recommendation would be to shutter most, if not all, federal agencies purportedly devoted to energy. On a performance basis, this action would be justifiable. Treat “oil” like the enemy. But don’t let the government fight the war; let an open marketplace do that. Unused federal dollars earmarked for energy programs should be returned to taxpayers. The added dollars would help stimulate demand for renewable and sustainable solutions. Concurrently, the U.S. must exert real pressure to eliminate unfair foreign trade practices. American businesses would stand a chance to be globally competitive.

There are some rays of hope ahead. The economy shows some signs of reducing our appetite for fossil fuels, and becoming more energy efficient. Moves towards proper cost accounting and stabilizing the oil markets are under way. Stability brings collective planning for a cohesive, long-term energy policy that stays the course. Visionaries with courage do exist in America.

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3 Comments leave one →
  1. March 27, 2011 3:45 AM

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