Setting the Record Straight

Policy

A Solution to Our Fuel Crisis

Saudi to Bush:

 No Crude Shortage, It’s U.S. Refinery Shortage

          The economic mess in the United States, a mess reverberating throughout the world, should bring a renewed focus on the basic element of the mess–fuel prices on the verge of having quadrupled since 2000.
          The federal government may not yet have the figures to declare a recession or to measure a huge rise in inflation, but the public from the middle-class on down know both already are here. The housing crisis was only fuel to a fire made inevitable by a steady and unconscionable increase in fuel prices.
          It used to be the oil industry made convoluted, confusing excuses for price increases, throwing around various figures and arcane reasons few people could ever unravel. Notice you do not hear any of that today. They say almost nothing, and when they do say anything, they simply shift the blame to speculators in the stock market.
          This is the second time around for a modern-day U.S. oil crisis. Between the other one and now, the federal government failed its citizens. We are suggesting a correction of that failure and a new way of thinking this time around. It may not work, it may not be feasible, but it is worth a look. Just the fact it is an option on the table could have an impact on the current mess.
          The U.S. government should build its own oil refinery, preferably away from the current Gulf Coast area where most domestic oil work is concentrated.
          This mess is not new.
          Back in the early 1970s we had the previous fuel crisis. Before the Organization of Oil Exporting Countries decided to impose a year-long embargo on exports of oil to the United States, causing a shortage of gasoline and a concomittant jump in prices, a gallon of gas had cost not much more than a quarter in the United States for decades, a period when the word “inflation” was never uttered.
          The crisis began when OPEC, largely for political reasons, embargoed U.S.-bound oil. Cars were lined up at service stations (they actually provided service up to that time), often for several blocks, to get access to fuel pumps that could run out of gas at any moment. The cars were gas guzzlers by today’s standards, about equal in mileage to most of today’s trucks and SUVs.
          Supply and demand being what it is, the price of gas quadrupled to well over $1 a gallon (an increase that would equal more than $15 a gallon at current prices), and inflation followed close in its wake, leading to interest rates that had been steady for decades at 2 percent or 3 percent, to jump to 20% and more later in the 70s.
          Over the ensuing years, the government responded with laws to encourage alternative energy explorations, coupled with all sorts of subsidies for the oil industry itself to encourage domestic drilling, including greater freedom to explore for oil in formerly off-limit areas. The government also made inflation a major area of concern and enacted stronger fuel-efficiency laws. The inflation rate fell back to more sensible levels, although never to its pre-OPEC level except in odd instances.
          After the change of administrations (Carter to Reagan), the incentives to the oil industry remained, the incentives to explore alternative fuels were dropped. The number of refineries on line had crept up to more than 300 until 1980, when the administration changed. Suddenly, the number of refineries on line began a long plunge to our 149 today.

          Not so curiously, the price of gas never fell, almost defying the laws of supply and demand. In fact, prices continued on a steady rise, notwithstanding the waverings of politics, supply and demand and other factors. All the increases were accompanied by those aforementioned convoluted excuses.
          Part of the government response during the oil crisis included creating, in 1975, the U.S. Strategic Petroleum Reserves for the sake of future security, comprised of a storage of oil now totalling about 727 million barrels of crude and all located in four salt domes below ground, in a single part of the United States, on the coast from Texas into Louisiana. Even when released, to be offered to the oil industry on the commercial market at a set price, it still must be refined by the oil industry.
          This area includes or is close to the greatest concentration of U.S. oil refineries where basic crude oil has to be processed to make it usable, refineries jammed into a highly vulnerable area of the country. There are now 149 refineries in the United States, more than a third of them in hurricane-vulnerable Texas and Louisiana, producing fewer than 18 millions of barrels of usable oil a day. That is the same level of oil refining that existed before the last one new one was completed in 1976, at a time when we had more than 300 refineries.
          Although shutting down those refineries has not changed production levels, overall refinery production level has not been increased in nearly three decades as our usage, and even needs, have skyrocketed. Of course, with half the number of refineries, more than a third in two hurricane states, we are twice as exposed to weather and transport disruptions.
          The U.S. petroleum industry is one of the top profit-making industries in the United States. Individual companies claim they are just passing along their added costs, but never mention they also are including the U.S. norm of about a 100 percent markup. Before the 1970s crisis, the normal business markup was about 40 percent.
          If the U.S. government had its own refinery, it could refine its own strategic reserves, already-refined, with a built-in capability of diverting some of that refined oil immediately to the public market in competition with the private oil industry whenever such a move would serve the public iinterest.
          Such a move bypassing much of the oil industry with which it would then be in partial competition, also would give the government greater power to support alternative fuels and play that power off against the price of oil to make the industry somewhat honest. The government already has the ability to do some of that by releasing supplies from its oil reserve. A refinery would greatly increase that impact, by being able to tweak the price to a level that would discourage increased use, but low enough to help balance inflation and other economic concerns.
          The crude oil it refines could come from two sources, foreign and domestic. With a world crying for foreign oil–check out China and Japan –the U.S. government as a buyer would give it added political leverage, something it badly needs after its recent foreign policy gaffes.
           Domestically, it could force the oil companies to donate crude in lieu of greater taxes, including windfall profits taxes, something that already should have been restored. The cost of all this could be paid for, in part, by ending the subsidies to big oil, in a huge part by ending the massive cost of the fool’s errand in Iraq.
          There would be an ancillary benefit. Remember the oil industry ruse of switching refineries over twice a year between heating oil and gasoline? A government-run refinery could step in an ease the impact of that semi-annual chicanery.
          Or, the federal government could simply nationalize the oil industry and operate it in the public’s interest on grounds no industry should be allowed to hold the nation in a stranglehold.
          Either solution is fraught with all sorts of problems, chief among them lack of a political will. But the federal government is filled with geniuses–yes, among those much-maligned civil servants–who could work on the issue (and probably already have) if asked.

Advertisements

Leave a Comment »

No comments yet.

RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Create a free website or blog at WordPress.com.

%d bloggers like this: