… with their own charcoal?
Frist, and others, are calling “Big Oil” on the carpet tomorrow over high energy prices.
The impetus for this is purported “record profits” from this segment of business that has been reported over the last couple of weeks.
Let’s take a closer look at the claim though…
Certainly, in terms of dollars, there was a record profit recorded. But that’s no more honest of a way to count profits than it is to count deficits in the government spending binge.
$10 billion dollars sounds like a lot – but if you sold $100 billion worth of product, then your margin was 10%, pretax. That’s not excessive – indeed, it is about what the stock market returns over long periods of time as a whole (11%). That’s roughly what Exxon is being crucified over in the press…..
May I remind people that if these firms didn’t make at least that much, that the investors in those firms would be fully justified in considering it unwise to fund these firms at all? After all, if you can make more buying some OTHER company, why would you invest in oil?
If our Senate wasn’t full of penultimate hypocrites, they would be asking
themselves why energy prices are so high and why they’ve done nothing about it. After all, the problem is actually found
in the halls of Congress, not in the oil company boardrooms.
For example:
- We have not built a refinery in this country in 30 years and have forced many existing ones to close. This has left large concentrations of refining capacity in one place (e.g. Houston) and has removed the oil company’s excess refining capacity, which of course is bad when a hurricane comes in there and trashes it. The predictable result of that event is supply shortages – and higher prices.
- We have two sources of oil which each have proven reserves exceeding that of Saudi Arabia. Those reserves are found in the Gulf of Mexico off Florida and shale deposits in the western US. Both are “off limits” to drilling and recovery due to politics. Shale oil is not recoverable economically at a barrel price under $40 – but it is now, with prices in the $50 range. And these are proven reserves. The United States has twice the crude of Saudi Arabia, but we refuse to recover and refine it for political reasons!
- Likewise, we have huge natural gas reserves in the Gulf off Florida. Again, we refuse to go get them. High prices for natural gas cause shifts in energy demand to liquid fuels – as an example they make conversion of city buses to natural gas service uneconomic. High natural gas prices caused by constrained supply also make your home heating bill go sky-high if that’s how you heat, and they impact the cost of electricity, as peaking plants typically run on natural gas.
- The US EPA, a government agency, has mandated “boutique” gasoline blends for different cities and states, ostensibly to reduce air pollution. Unfortunately this makes gasoline a commodity that has only regional impact. This is an unnecessary restriction which makes it difficult or impossible to quickly shift supplies where they are needed most.
- We haven’t built a nuclear plant in this country in a very long time. If you’re not going to generate electricity with nuclear energy, then you must use some other fuel – coal or natural gas most of the time – to replace it. Of course if you burn those other fuels, you further constrain their supply – and drive up the price.
None of these are “natural resource” constraints. They are all the result of our Congress playing politics with our nation’s energy supply, instead of allowing supply to evolve as demand grows.
If the Senators want to know why we have $2.50/gallon gasoline and for a while it was over $3.00, they need to get off their butts, go into the restroom, and take a long, hard look in the mirror.
The answer to the question is found right there.
