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Unshackle American Enterprise to Increase Oil Supplies

Written by Vincent Gioia

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June 20, 2008
By Vincent Gioia

vincent.jpgTry as I might, I can't come up with one thing the government has done that couldn't have been done better, less expensively and more successfully by a non government business. Sure, the government has succeeded with special projects that required a lot of money like the atomic bomb, going to the moon and tax collecting, but does anyone want to entrust the government with more mundane things like nuclear power plants, telecommunication, oil production and oil refining, and health care?

Even when a separately run enterprise is created, it would fail without prohibiting competition; take the U.S. Postal Service for example. If left to private enterprise mail would be delivered more efficiently and at less cost.

There are industries in other countries taken over by governments and the results are pretty predictable. Mexico has a national oil company but, like the country as a whole, it is riddled with corruption. Without investing money in oil infrastructure, Mexico's oil production is decreasing and new oil exploration and development is non existent. Venezuela sits on a lot of oil but instead of improving oil producing equipment, it's violent version of Shrek is buying up arms in anticipation of an American invasion and fomenting trouble around the world and in its neighborhood.

Middle Eastern camel herders nationalized their oil industries and then took years, and purchased western know-how, to keep the desert pumping oil. Under communism some factories in USSR boasted of beating production quotas, the result - more left shoes than right shoes.

With gasoline prices in the United States at record levels the public finally complained to their representatives in congress. What was congress' response; oil companies responsible for keeping our cars running were hauled before congressional committees and held up as the villains.

Not until recently has anyone of public stature recognized that a law not of legislative making is responsible for the situation - the law of supply and demand. Even John McCain and George Bush have finally read a book on economics and recognized the need to increase oil supplies by "drill now, drill here" and get more American oil to increase oil supplies. Unfortunately Democrats and other leftists seem incapable of learning simple economic facts and continue to resist and oppose all efforts to make America oil self sufficient and independent of foreign sources controlled by our enemies. The argument is that if we started to exploit new reserves now, oil would not be flowing for years to come; this is so absurd it would be comical but for the seriousness of the matter. I suppose the idea is to inflict a continuing oil shortage on the next generation by not taking any action now. Imagine if this nonsense was recognized for what it is and new oil development had been undertaken twenty years ago when first suggested; this generation would be able to deal with the camel herders on terms that would be in America's best interests rather than groveling before them to beg for more oil.

That brilliant congressional economics expert, Maxine Waters, called for congress to nationalize the oil companies (foreign companies like Shell and British Petroleum too Maxine?), and was joined in this clarion call by other experts in congress as well. No mind that government has not the foggiest of notions of what to do if bureaucrats were called upon to fill our gas tanks.

No matter that huge oil company profits criticized by leftists don't come from gasoline production and sale; somehow the government will be able to take care of the high price of fuel by taking over oil companies.

No matter that rising oil prices have sharply cut profit margins for refining of the major oil companies -- which both pump oil (or buy it on the open market) and refine it for use as gasoline.

No matter that refining and marketing profits for the first quarter were down 39% for oil giants like Exxon Mobil from a year ago and that smaller refiners did even worse. Sunoco's refining and supply business were hurt by lower margins and lost $123 million in the first quarter and higher crude costs also have squeezed profits at the refining divisions of companies such as Conoco Phillips which don't produce enough crude themselves to refine at full capacity without buying more oil from other producers. Refiner Tesoro lost $82 million for the same period.

The CEO of Conoco Phillips, Jim Mulva, said his company, the second-largest U.S. refiner behind Valero Energy, buys about 2 million barrels of crude a day at market prices to refine into gasoline and other products.

"If oil costs us $30 a barrel or $40 a barrel or $120 a barrel, that's why the cost of gasoline is what it is (gasoline costs are high) . because of the cost of oil."

The cost of refining added 27 cents to a gallon in the first quarter of this year, a nickel less than what it added in 2004, according to the Energy Information Administration.

Major oil companies own fewer than 5% of gas stations. Most are owned by small retailers, and many of them say they are having difficulty making a profit on gasoline sales. That's because wholesale gasoline prices have risen in parallel with oil prices. Most gasoline stations don't make money from gasoline sales; they rely on gas sales to get customers to them and they hope auto repairs or food and drink sales will help them turn a profit.

Republicans have been despairing of any show of spine by their leaders on the energy issue but finally President Bush got behind the public call to do something about fuel prices. He urged congress to lift a 27-year-old ban on oil exploration off U.S. shores and put the blame for the problem where it should be; on Democrats.

"For many Americans, there is no more pressing concern than the price of gasoline. Truckers and farmers, small-business owners have been hit especially hard. Every American who drives to work, purchases food or ships a product has felt the effect, and families across the country are looking to Washington for a response."

"My administration has repeatedly called on Congress to expand domestic oil production. Unfortunately, Democrats on Capitol Hill have rejected virtually every proposal, and now Americans are paying the price at the pump for this obstruction."

"Congress must face a hard reality: Unless members are willing to accept gas prices at today's painful levels or even higher, our nation must produce more oil and we must start now."

Bush put forth a four-point plan, the main point being to open up the Outer Continental Shelf (OCS) to oil exploration. He proposed: ". to give the states the option of opening up OCS resources off their shores, provide a way for the federal government and states to share new leasing revenues, and ensure that our environment is protected."

The other three options presented by the president are: opening the Arctic National Wildlife Refuge to oil exploration; a commitment to development of oil shale; and renewing development of coal-to-oil strategies.

Even Senator John McCain got on board, though less enthusiastically and in terms that do not wholly reassure Republican supporters, but nonetheless he appeared to also call for removing the federal ban on offshore oil and gas development and said that states should be allowed to pursue energy exploration in waters near their coasts while getting some revenue through royalties.

Barack Obama opposes lifting the ban on offshore drilling. He repeated the foolish reason that allowing exploration now wouldn't affect gasoline prices for at least five years. ". there is no way that allowing offshore drilling would lower gas prices right now. At best you are looking at five years or more down the road."

New Mexico Governor Bill Richardson, potential Democrat Vice Presidential candidate, also called it "another bad idea."

"It's going to take 10 years to fully get that oil out of the ocean. It's a fragile ecosystem," he said on CBS's "The Early Show."

"You know this president; all he wants to do is drill, drill, drill. A one track mind - drill, drill, drill - that's not going to work."

There are 574 million acres of federal coastal water that are off-limits to U.S. companies but are being accessed by Cuba, China and Canada; they are believed to hold nearly 18 billion barrels of recoverable oil and 77 trillion cubic feet of natural gas, according to the Interior Department. Other estimates put the totals even higher.
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Vincent Gioia is a retired patent attorney living in Palm Desert, California. His articles may be read at www.vincentgioia.com and he may be contacted at This email address is being protected from spambots. You need JavaScript enabled to view it. .

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