Because of my moderate nature, I cannot come up with an answer to a self-generated question. With oil prices at an all-time high and news filtering in that oil companies' profits are up (Shell +25% this am), do the oil companies have a "moral" obligation to seek ways to increase production, hence greater availability of refined oil products, specifically gas? The reason for my question is that I recently saw a piece that said there is no evidence that oil companies plan to expand production despite the growing profits and high oil prices. If this is true, and we don't know for sure that it is, is that wrong? I do not want regulation, but isn't there some sensible middle ground? I realize the issue for the oil companies. They expand, demand drops, and they are stuck with facilities that are not efficient and are losing money. In my mind, the greater issue is the semi-monopolistic hold (oligarchistic?) they have on the market, which has a tendency to make them focus only on profit and not "the greater good". This is an ever-present quandry in industries that provide human needs.....heat water, gas, oil, etc. Do we regulate or do we allow free market forces to work? I'm interested in the thoughts of the folks here. I'll even tolerate an MCG rant to get all sides. :wink:
Sid, it's a great question.....if you are referring to the domestic companies, e.g., Exxon, I will have to disagree on the "oligarchtic" or semi-monopoly term being applied to the domestic oil companies. The world energy market is massive and global in nature. I think it helpful for us all to understand that Exxon is but a bit player on the world oil stage - they are but a David in the land of Goliaths. But nonetheless, they do need to compete on the world stage against the giants. Consider that in excess of 80% of the worlds oil reserves are owned, tapped and harvested by state run oil companies. Indeed, SaudiARAMCO alone has reserves 20 times that of Exxon and they are just one of the giants. The Saudis, China, Russia, Iran, Venezuela, Mexico, Nigeria among the largest all have state run oil companies. Exxons profits - so widely reported in the press - pale in comparison to the earnings being generated by many of the larger state run oil companies. In terms of supply and demand, US demand is increasing less than 1% per year and we are responsible for 30% of the total world demand. US production has largely kept pace with domestic demand but we account for less than 10% of world oil supply. We only supply 1/3 of our total consumption. So domestic production has largely kept pace with domestic demand increases.....but we are such a small player on the world stage, our ability to influence world prices by increasing capacity is modest at best and zero in the near term if we take into account the lag times for capacity increases to come on stream. Further, much of the recent spike in prices is unrelated to domestic supply/demand fundamentals.....more related to geo-politics, commodity speculation demand in other parts of the world and the deterioration in the dollar. Nothing cures high prices better than high prices.....
I don't understand why we can't drill our own oil. Are the environmentalists that strong? I don't understand why we can power our vehicles by something other than petroleum based products.We can walk on the moon and shoot satellites out of space from a moving submarine but we can't develop widepsread and inexpensive energy sources. I do understand that if the pump rice gets anywhere near $10 gallon my 29 year old business will almost certainly go under.
How about turning things around on oil exporting countries like Saudi Arabia by raising the costs of U.S. exported grain: http://www.celsias.com/2008/03/04/water-shortages-cause-saudis-to-cease-grain-production http://www.energyfarms.net/node/1384 Then there are the smart guys like this guy who obviously don't know everything: http://www.cnbc.com/id/23272368 I do believe that exorbitant oil company profits do not find their way into the pockets of average everyday Americans like so many of you like to josh me about. Sure....like I believe that all of our retirements are funded mostly by how well the oil companies are performing on Wall Street. :roll:
I always like reading BT's stuff on this type of situation. Sometimes when I'm frustrated over the rising cost of gasoline I think that it's so simple just have the Oil Companies charge less, but it's never that simple. We don't control world crude oil production. When the raw materials cost triples it's not hard to imagine that the end product also goes up correspondingly. Measures such as targeting oil American oil companies profits with extra taxes may make people feel better and maybe those taxes could be used to fund more research and developement. But they won't change the price of gas today or next week or next month, not even next year. The only thing that Congress could do is to exert price controls over the price of gasoline at the pump. I don't know what price at the pump would help the american consumer, would returning to the Clinton era sub 2.00/gal level be something that would be do able? Would such a price reduction result in shortages if the Oil companies couldn't make a profit selling 2.00/gal gasoline? What would be the impact on the stock of Exxon if they had to sell gas at 2.00/gal? I think we are stuck with high gas costs till somebody comes up with cheaper alternative. The funny thing is that much of the research on things like BioFuel, ethanol, etc are only possible because of the high cost of gasoline and have effected the price of food commodities. I read that article that MCG linked by Boone Pickens, I'm not sure the point. Pickens doesn't suggest forcing Oil Companies to pay higher taxes on their profits or price controls for their product. And his prediction on the decline in the cost of crude is short term and only 10-15$/barrel which won't make a dent in the price of gas at the pump. He says we need to clean up coal, boost ethanol production, get more natural gas. None of those are new ideas. Robert Redford is running around the country talking against any new coal plants, farmers are directing crops towards ethanol production because there is high profit for them and consumers are paying higher food costs. In general Boone is a smart man and made a ton of money but he doesn't really have much to say in that article that will lower the cost of gas at the pump. I don't know either about telling the Saudi's that we are going to charge them more than market price for wheat/grain. I would think there would be a possiblity that they could just say no thanks and buy their grain some place else. Unlike their monopoly on the oil production we don't have an equivalent monopoly on grain production. Terry
OPEC is becoming less and less dominant in crude supply....at present, they are supplying 36% of the world's crude. The Saudi's are responsible for less than 1/3 of total OPEC production and only about 10% of worldwide production.....it ain't so easy as just target the Saudi's. If we simply tell the oil companies they need to charge less for their oil, how much oil do you think we would receive from them? Tell Chavez's CITGO that he needs to charge less in the US? Tell the Brits that BP needs to charge less in the US? Tell the Dutch that Shell needs to charge less in the US? Tell the Russkies that Luko needs to charge less in the US I don't think so.....what will happen is that they will sell all that they possibly can at market around the world and we would get the leftover...if any. What will happen for sure is that less will be available to be sold in the US....can you say shortage? Panic? Black market? The laws of unintended consequence would reveal themselves in a very, very ugly manner. MCG, where DO you think Exxon's profits go? Please educate me.
There in lies the problem. And while I wish we would drill more domestically, even if environmentalist groups stopped opposing, and liberal members of congress stopped opposing, it would be awhile before that oil hit the market and would it even have an impact? It's not like where our reserves are located are the cheapest places to drill. From a chart that BT posted awhile ago I remember that the only places that had cheaper gasoline than the USA were countries that had state run oil and sold it below market price. I don't think we could nationalize Chevron and Exxon/Mobile and start selling gas to Americans at artifically supported prices. Terry
Krebsie...speaking of going out of business..I am so glad I am out of the restaurant business. Restaurants are off 20% locally ( except of course for the high end elegant). The first thing they give up, or cut down on is eating out. Price of gas wont deter cigarettes, or booze it seems. 3.65 and rising daily, and 6.00 gas is definitely within reach by july.
You remember well TOK....gas prices in the US are less than in any developed country in the world and approximately 1/2 of what they pay in much of Europe.....this is not an isolated US problem that lends itself to US only solutions. The market for crude is worldwide in scope and its dynamic affects every corner of the globe. The notion that we can effect the price of crude by handcuffing our domestic suppliers or penalizing US domiciled companies and interests is only good for political theater....as a practical matter, it is sheer folly with potentially disasterous circumstances. http://www.theoildrum.com/files/GasPrices_small.png
One of the things that we need to get cheaper alternatives developed is...more expensive gas. It is starting to happen, and will continue to do so as prices rise. We have been pretty much spoiled by cheap energy for a long time...even now, as gas prices are approaching their inflation adjusted high (yes, we have been this high before) I see very few folks changing much in terms of their habits...I'm sure some of you will anecdotally be able to tell me how you've changed yours but... A couple of years ago this topic came up when gas approached $3.00 and I said then that at $3.00 all we'll do is complain...but it will take $4.00 for habits to change...also I've read that at $4.00 or so suddenly lots of alternatives become viable to develope...both in terms of alternative fuels and alternative sources of oil...thus driving demand down and supply up. We should sh&tcan the gasahol thing...we (and developing countries) should be growing crops for food, not fuel...and it takes so much fuel to grow those crops that the payoff is microscopic (except for the farmers). What we really need is a can-do attitude, something that is sorely lacking in our "blame somebody else for everything" culture.
Stu, so true. Time and time again it has been found that nothing cures high prices as effectively as high prices.
No doubt many of the technolgies we are counting on for the future have no chance to compete against 1.50 gal gasoline.
So true and the arguement that they make today is just that, why should we bother to increase domestic production when it will take years. (In other words, we screwed up years ago and we're going to use further delay as an excuse.) To increase domestic gasoline production we probably need new refineries. But to build them, companies have to go against, yep, you guessed it, the same environmentalists who have prevented drilling in Alaska and the continental shelf. So my question to the left side is, do you have some moral obligation to get your asses out of the way and let domestic production increase to meet the demand?
I was watching a panel discussion today on the potential impact and timing of ANWR drilling....estimates are for 1-2 million barrels a day or a 10-20% increase in total domestic production. Put another way, that's $100-200 million dollars a day pop to the US economy, thousands of new jobs, tens of billions of dollars a year in tax revenues for the government coffers and that much less to the foreign oil interests, many of whom are not our friends. If the left dropped their opposition, the first drop of crude would come on stream in 2015 or so....and then as Gip points out we have the refinery capacity issue. The quest for alternative fuels is a great and wonderful thing provided that we don't lose sight of reality and the reality is that we are at least decades away from even beginning to be able to put a dent in the need for an energy source that can replace the 25 million barrels a day of crude oil - which is the rate of our current consumption ....from investment to infrastructure and production, to logistics, to supply, inventory and distribution.
Great discussion, guys. Thanks B-Terry for your knowledgeable and in-depth input. I'm just sitting back and learning.
I agree with the idea we should ramp up our own domestic production in any way that we have to. Reducing our consumption is also important. Is that all there is though? We are helpless with regard to our standing globally and at the ruthless mercy of those that provide oil to us? That's what I am getting out of this. We just need to man up and take it.....is that right?
Well we certainly can't throw our weight around. Otherwise we'll just once again be the world's bully. We know how important world opinion is. We have no choice but to do what THEY want us to. Just ask John Kerry, Bill Clinton, etc. Now my suggestion would be to fill the gap between Montana and Alaska. If we annexed western Canada, it would be a big step toward energy independence, not to mention increasing our supply of ski resorts and hockey players.
No, Dave, we have to quit trying to cast blame and try to work together to do what needs to be done. (see everybody's posts above). I believe that there will be many changes in the next few decades. Energy sources will change dramatically. Perhaps we won't have the free ride that we have had for the past century, but we will adjust.
Unless you support artifical price supports for gasoline, how are you going to get the price of gasoline down? I think in the past and maybe still, many democrats esp, blame big Oil and use the fact that they are experiencing record profits as the bad guy. Surely they are gouging us at the pump. That link that BT provided to a chart of world gas prices at the pump shows that we here in the USA have the lowest prices in the world, save for countries that the Govt keeps the prices artifically low. As BT has pointed out it's not even just that we could Jawbone the Saudi's (that was John Kerry's plan) into reducing the price of oil. The problem is the demand is so incredibly high with the industrialization of China and India and much of the 3rd world. It's a sellers market. I guess we could invade the middle east and steal their oil, wait that's what Senn Penn and his hollwood buddies said Bush was doing. One time Tailback posted that if Clinton were still president the price of gas would be reasonable. Well it will be interesting to see if Hillary gets the nod what she can do to get the price of gas at the pump down, since she's not tied to Bush and Cheney's Oil patch buddies. Terry
I am not surprised by the insightful analysis by the the contributors to this topic. The degree of sophistication and learning is always evident and keeps me checking skybox every day. There is no doubt that there is no single solution and as Gip points out, increased domestic production even if emphasized now will only be a factor in future years. I read that the Air Force is using a synthetic fuel with considerable success. http://www.afmc.af.mil/news/story.asp?id=123028544 For several weeks there have been articles of a geological find of oil fields in North Dakota which would rival that of Saudia but which would require horizontal drilling the expense of which was not feasible untill the recent escalation of crude prices. http://www.nextenergynews.com/news1/next-energy-news2.13s.html Market forces will dictate innovation in this area. The same people in Congress who are bitching about the price of crude are the same ones throwing impediments to exploration in ANWAR, off shore drilling and the use of Nuclear energy.