Fuel Prices: Myths And Reality Surrounding The Price Of Gas. Part I.
Price of Gas Myth Number 1: Our fuel price crisis is all about Supply Shortfalls
No doubt. The price of gas seems always poised to go up. It's almost a knee-jerk reaction to assume there's nothing but bad news in the price of gas ahead of us.
There is. But not for the reasons most of us think.
The supply side of the fuel price equation is as robust as ever. Conventional wisdom, reported in the media and driven by fears that Hurricane Katrina was the beginning of our current fuel price dilemma, says the world is running out of fuel. Consequently, there must be fuel price hikes. So, the price of gas will climb, media mania says.
Actually, Katrina didn't damage the Gulf States' oil infrastructure. For all of its destructive power, Katrina only temporarily disrupted production. The media hype did far more to convince Americans the catastrophe bid up fuel prices and more specifically the price of gas, to levels believed to be permanent.
Actually, the world is awash in its supply of fuel, despite higher gas prices. In 2002, the CIA World Factbook stated the world's proved reserves were 1.025 trillion barrels. In 2003, British Petroleum's Statistical Review of World Energy gave a much higher figure, 1.15 trillion barrels. Either is enough to meet current demand while stabilizing fuel prices (and its concomitant price of gas) for the next 40 years.
Even in the United States, fuel prices should not be rising given the increase in recent discoveries. The Thunder Horse Oil field alone has an estimated untapped 1.5 billion barrels.
According to the Energy Information Administration (U.S. Department of Energy), as of 2003, the U.S. alone had over 30,000 oil fields, reflecting large domestic oil capacity. Fuel prices should not be continually rising, given the amount of proved resources.
In May of 2005 Aramco chief Abdallah Jum'ah noted the demand for 23 million barrels per day of Saudi oil production was not a problem for the Saudi's, who sit atop 260 billion barrels of proved reserves. Further, the country estimated another 200 billion barrels in probable reserves.
Price of Gas Myth Number 2: Fuel price increases are sustainable
Fear creates all kinds of illusions. That is precisely what has happened in the case of our fuel price price of gas self-inflicted (media) torment. In June, 2005, the highly respected Cambridge Energy Associates, Inc. predicted the supply of oil would catch up in the near future with demand. That would necessarily mean a decrease in fuel prices. The price of gas should reflect that astounding fact.
Not too long ago, even Chevron Chief, David O'Reilly, historically a bit of a pessimist, pointed out that high gas prices were unsustainable. His August 2005 statement:
I don't think $70, $60 or $50 is sustainable. At these prices, demand growth moderates and there is new capacity coming on.
Price of Gas Myth Number 3: Our government is doing all it can to foster real solutions to our fuel price problems.
Let's face it. We are not just awash in supplies of oil. We are awash in an oversupply of bureaucracy, (especially) Congressional interference, and political posturing.
Since 1981, the U.S. has seen a sharp decline in the number of operating refineries. According to the Energy Information Agency, Between 1981 and 1989, the number of U.S. refineries fell from 324 to 204, representing a loss of 3 million barrels per day in operable capacity (from 18.6 million barrels per day to 15.7 million barrels per day).
By 2003, refinery closures decreased further to 149. No doubt, expansion in some refinery capacity has given back about 2 million barrels per day. But, that doesn't begin to compensate the massive losses. Fuel prices are definitely reflecting the loss of refinery capacity in the U.S. Your price of gas at the pump is a Congressional, regulatory-induced problem, not a supply problem.
There hasn't been a new refinery built in the United States for over 30 years. In short, the price of gas is dependent upon, and we are vulnerable to, foreign oil production.
Why the decrease in refineries?
Several reasons:
1)Bureaucratic red tape tens of thousands of regulations all fostered through numerous bills passed by Congress and imposed upon the states. This has made oil refinery construction less than a cost effective investment. Thus, fuel prices continue to rise via Congressional interference not depleted oil reserves.
2)For all of the controversy and uncertainty about environmental science, the certainty of our suffering due to increased gas prices remains with us. Yet, environmental and bureaucratic regulations strangle new projects even when there is resolve to build a new, environmentally sound, refinery.
Case in point: $30 million has been spent already in investor money for a refinery in Yuma County, Arizona. Yet, no oil has been produced. In fact, ground hasn't even been broken. Topping it off, as usual, is bureaucracy. Arizona, acting upon its clean air guide lines to enforce Congressional environmental mandates, required project relocation.
According to the New York Times:
The next step is to complete an environmental impact statement for the federal Bureau of Land Management. That will include an assessment of the refinery's impact on underground water sources and endangered species, as well as its effect on any Native American burial grounds. After that, the project needs to get the site's zoning changed by Yuma County from agricultural to heavy industrial: Arizona's Preservation Office needs to be convinced the refinery does not trample on any ancient historic site or trail; and finally, the project must apply for a presidential permit which is issued by the State Department, to allow the crossing of a 200-mile pipeline into Mexico.
And we wonder why fuel prices are high.
(See Fuel Prices: Myths and Reality Surrounding the Price of Gas. Part II.)
No doubt. The price of gas seems always poised to go up. It's almost a knee-jerk reaction to assume there's nothing but bad news in the price of gas ahead of us.
There is. But not for the reasons most of us think.
The supply side of the fuel price equation is as robust as ever. Conventional wisdom, reported in the media and driven by fears that Hurricane Katrina was the beginning of our current fuel price dilemma, says the world is running out of fuel. Consequently, there must be fuel price hikes. So, the price of gas will climb, media mania says.
Actually, Katrina didn't damage the Gulf States' oil infrastructure. For all of its destructive power, Katrina only temporarily disrupted production. The media hype did far more to convince Americans the catastrophe bid up fuel prices and more specifically the price of gas, to levels believed to be permanent.
Actually, the world is awash in its supply of fuel, despite higher gas prices. In 2002, the CIA World Factbook stated the world's proved reserves were 1.025 trillion barrels. In 2003, British Petroleum's Statistical Review of World Energy gave a much higher figure, 1.15 trillion barrels. Either is enough to meet current demand while stabilizing fuel prices (and its concomitant price of gas) for the next 40 years.
Even in the United States, fuel prices should not be rising given the increase in recent discoveries. The Thunder Horse Oil field alone has an estimated untapped 1.5 billion barrels.
According to the Energy Information Administration (U.S. Department of Energy), as of 2003, the U.S. alone had over 30,000 oil fields, reflecting large domestic oil capacity. Fuel prices should not be continually rising, given the amount of proved resources.
In May of 2005 Aramco chief Abdallah Jum'ah noted the demand for 23 million barrels per day of Saudi oil production was not a problem for the Saudi's, who sit atop 260 billion barrels of proved reserves. Further, the country estimated another 200 billion barrels in probable reserves.
Price of Gas Myth Number 2: Fuel price increases are sustainable
Fear creates all kinds of illusions. That is precisely what has happened in the case of our fuel price price of gas self-inflicted (media) torment. In June, 2005, the highly respected Cambridge Energy Associates, Inc. predicted the supply of oil would catch up in the near future with demand. That would necessarily mean a decrease in fuel prices. The price of gas should reflect that astounding fact.
Not too long ago, even Chevron Chief, David O'Reilly, historically a bit of a pessimist, pointed out that high gas prices were unsustainable. His August 2005 statement:
I don't think $70, $60 or $50 is sustainable. At these prices, demand growth moderates and there is new capacity coming on.
Price of Gas Myth Number 3: Our government is doing all it can to foster real solutions to our fuel price problems.
Let's face it. We are not just awash in supplies of oil. We are awash in an oversupply of bureaucracy, (especially) Congressional interference, and political posturing.
Since 1981, the U.S. has seen a sharp decline in the number of operating refineries. According to the Energy Information Agency, Between 1981 and 1989, the number of U.S. refineries fell from 324 to 204, representing a loss of 3 million barrels per day in operable capacity (from 18.6 million barrels per day to 15.7 million barrels per day).
By 2003, refinery closures decreased further to 149. No doubt, expansion in some refinery capacity has given back about 2 million barrels per day. But, that doesn't begin to compensate the massive losses. Fuel prices are definitely reflecting the loss of refinery capacity in the U.S. Your price of gas at the pump is a Congressional, regulatory-induced problem, not a supply problem.
There hasn't been a new refinery built in the United States for over 30 years. In short, the price of gas is dependent upon, and we are vulnerable to, foreign oil production.
Why the decrease in refineries?
Several reasons:
1)Bureaucratic red tape tens of thousands of regulations all fostered through numerous bills passed by Congress and imposed upon the states. This has made oil refinery construction less than a cost effective investment. Thus, fuel prices continue to rise via Congressional interference not depleted oil reserves.
2)For all of the controversy and uncertainty about environmental science, the certainty of our suffering due to increased gas prices remains with us. Yet, environmental and bureaucratic regulations strangle new projects even when there is resolve to build a new, environmentally sound, refinery.
Case in point: $30 million has been spent already in investor money for a refinery in Yuma County, Arizona. Yet, no oil has been produced. In fact, ground hasn't even been broken. Topping it off, as usual, is bureaucracy. Arizona, acting upon its clean air guide lines to enforce Congressional environmental mandates, required project relocation.
According to the New York Times:
The next step is to complete an environmental impact statement for the federal Bureau of Land Management. That will include an assessment of the refinery's impact on underground water sources and endangered species, as well as its effect on any Native American burial grounds. After that, the project needs to get the site's zoning changed by Yuma County from agricultural to heavy industrial: Arizona's Preservation Office needs to be convinced the refinery does not trample on any ancient historic site or trail; and finally, the project must apply for a presidential permit which is issued by the State Department, to allow the crossing of a 200-mile pipeline into Mexico.
And we wonder why fuel prices are high.
(See Fuel Prices: Myths and Reality Surrounding the Price of Gas. Part II.)
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