American Elephants

Demolishing Demagoguery, Exposing Lies, Explaining the Price of Gas: by The Elephant's Child

According to polls, most Americans believe that the high price of gasoline is due to “oil company greed.” That is unfortunate, and wrong. This is called the BIG LIE. If you repeat erroneous information often enough , people will believe it. President Obama chooses to demonize “Big Oil”and to talk incessantly about the huge “subsidies” that Big Oil gets. He wants them removed. Congress turned him down, primarily because they are not subsidies, but the same kind of tax write-off that most companies get to compensate for the cost of doing business.

Did you know that ExxonMobil, for example, pays far more to the federal government than it get in profits? In addition to the massive income tax bills, energy companies are required to pay “royalties” and “bonus bids” for the right to explore for and produce oil and gas on federal lands. Rising oil and gas revenues have provided a “windfall”of new revenue for the federal government. For the fiscal year 2000, the taxpayer’s total return from royalty payments was $4.95 billion, $10.7 billion in 2006, and exceeded $20 billion for fiscal year 2008.

Oil is a world commodity. The price of oil is a futures price, based on what they expect the price of oil to be for the next tanker truck, or next oil tanker. The guy at your neighborhood gas station has to pay for gas the next tanker truck will bring, not what he paid for the last one, because in  a volatile market it will be different. Nobody knows what the future price of anything will be, but they have to plan ahead anyway. Some like to call the futures contracts that people buy and sell — speculation, and sneer at speculators as evil people. Some people are gambling, but most are simply buying contracts to protect themselves from future price hikes.  When you have a lot of turmoil in the Middle East where much of the world’s oil comes from, the future price goes up because they are worried about Iran threatening to block the Straits of Hormuz through which much of the oil must pass. Syria is a worry, and Iran is trying to build a nuclear weapon.

(click to enlarge)
This chart shows you how much the Private Oil Companies (remember that most oil companies are huge state-owned outfits) pay in income tax (in blue) compared to their profit margin (in yellow).

Econbrowser has done a remarkable job of assembling a bunch of maps to explain why the price of gas is different in one place than it is in another. Here in Washington State we pay over 55¢ per gallon in gasoline taxes— higher than most, and the price at the pump is well over $4 a gallon and rising. But even after you subtract the gas taxes, the average cost is still different. Do click on this link to see the five maps that explain so much about the cost of gas. It is well worth your time, and you will understand more and worry less, or at least worry less about the wrong things, and you’ll be  less susceptible to political demagoguery.

Hard Choices: What’s Right Or What Will Buy Votes. by The Elephant's Child

Expectations about public policy have an enormous impact
on the market price of gasoline.

Holman Jenkins, writing in the Wall Street Journal, points out that candidate Gingrich’s energy  plan would put “the U.S. government unambiguously in favor of cheaper gasoline. He’d arguably be the first president since Reagan who didn’t believe gasoline is a bad, obsolete product and priced too low.”

Don’t underestimate the psychological and political upheaval this would bring about. For decades, U.S. policy has been riven with a costly ambiguity about Washington’s real aim for gasoline prices. In 2008, both parties nominated climate warriors for president, and both parties at times have favored dramatically increased fuel-mileage mandates, which imply higher gas prices unless Washington intends auto makers to go broke selling vehicles consumers don’t want.

For decades, too, the EPA, in pursuit of relatively small air quality gains, has been allowed to balkanize the U.S. refining market with “boutique” fuels, driving up the price everywhere. For decades, environmentalists have been empowered to put domestic resources off-limits not just to preserve pristine nature, but to express disapproval of our energy “addiction.”

Every once in a while these urges even threaten to coalesce into coherence with an outright policy of higher gasoline prices, as when the Clinton administration flirted with a BTU tax or the Obama administration plumped for cap and trade.

Back in the real world, politicians are in a state of panic when faced with the higher gasoline prices that are a direct result of their policies. President Obama was confronted with this paradox  at the White House press conference this week. His response was interesting: “Do you think the president of the United States going into re-election wants gas prices to go up higher? Is there anybody here who thinks that makes a lot of sense?”

When Obama took office, gasoline prices averaged $1.89 a gallon.  Today, here in Washington state, the average is hovering right around $4.00, though the national average is lightly lower. Democrats in Congress are considering ways to go after “oil speculators.” The president is more interested in going after the oil company CEOs. The 1%, you know.

On Thursday, the Senate voted on an amendment that would fast-track the $7 billion, shovel-ready Keystone XL pipeline. Eleven Senate Democrats crossed the aisle to vote to eliminate the need for a federal permit and addressed environmentalists concerns by allowing Nebraskans to determine the route. Senate Republicans voted unanimously for Keystone, which would bring 830,000 barrels of crude oil from Alberta to gulf refineries, easing supplies and creating thousands of much-needed jobs.

The president put his press conference response aside and worked the phones hard, lobbying Senate Democrats, The final vote was 56–42, meaning a majority voted to strip the president of authority to block the pipeline, but it was 4 short of a filibuster 60-vote threshold to make it stick. Obama owns the Keystone XL Debacle.

Obama’s constant refrain “There’s no silver bullet” does not hold. Here are just a few things that could bring the price of gasoline down.  State and federal taxes on gasoline average 45.7 cents a gallon, with the  highest in New York at a combined 67.4 cents a gallon, and the low in Alaska at 26.4 cents.  A number of analysts have noted that the Fed’s devaluation of the dollar has led directly to higher oil prices, adding as much as 56 cents a gallon.

Federal and state rules require about 18 separate boutique fuels, or local blends, about what can be and can’t be in their fuels. Sen. Roy Blunt has offered a bill to give the EPA more authority to waive these local rules. There are a long list of environmental rules— in 1999 the EPA required refiners to drastically cut the amount of sulfur in gasoline and diesel which cost the industry almost $5 billion and $1.5 each year. Environmental rules have driven smaller refiners out of business, closing 4 on the East Coast which makes gas more expensive in the region.

Environmental rules require refiners to add 6.6 million gallons of “advanced biofuels” to their product. The law has cost refiners almost $7 million in fines, since these advanced biofuels don’t exist commercially and nobody knows if they will, which means bigger fines as the mandated amount increases.

So, there is not much that a president can do about the world price of oil, but there’s a lot that is quite possible to do in this country to lower the cost — if one so chose.

Obama Wants High Gas Prices. Transforming America at the Pump. by The Elephant's Child

The gas station at the local Safeway store, usually the cheapest in town, listed regular at $4.02 yesterday. Also yesterday, Energy Secretary Stephen Chu was asked in testimony before Congress by Rep Alan Nunnelee (R-Miss) if it was his overall goal to get our price of gasoline lower?

“No,” Chu said,”the overall goal is to decrease our dependency on oil, to build and strengthen our economy.”

In 2008, Chu said “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.” Last March he repeated that point in an interview with Chris Wallace, noting that his focus is to ease the pain felt by his energy policies by forcing automakers to make more fuel-efficient automobiles. “What I’m doing since I became Secretary of Energy has been quite clear. What I have been doing is developing methods to take the pain out of high gas prices.”

Well, there you go. He has been dumping enormous amounts of taxpayer money into risky schemes that have failed, one after another —Solyndra, Beacon Power, Abound Solar, A123, Stirling Energy, Spectra Watt, Evergreen Solar, biofuels pollute and the plants have closed, ethanol pollutes, the Fisker Karma is a flop, the Tesla has major design flaws, the Leaf isn’t selling, and nobody wants a Volt — not even the dealers.

The Keystone XL pipeline was a disastrous  decision, both for oil and for jobs. The federal government leases less than 2.2 % of offshore land, and less than 6% of onshore lands.  Oil and gas production is down by 40% since 2000. Permitting in the Gulf had been seven deep water permits a month, it is now down to two. The average approval time has increased from an average of 60.6 days to 109 days in 2011. The three-year average for shallow-water permits had been 14.7 per month; the Obama administration has it down to 2.3 per month. And in Alaska, Governor Sean Parnell is begging for permission to drill, and Shell has found plentiful oil off the Alaska coast with no permission to drill from the government.

Obama, with the support of the usual suspects in Congress, wants to raise taxes on domestic oil and natural gas by more than $40 billion. Oil and natural gas producers already pay taxes at a higher rate than other industries, and operate at a disadvantage to other state-owned firms in the global energy market. Raising taxes on American companies is like handing subsidies to foreign producers in a bare-knuckled  international competition for new resources. Note Venezuela’s appropriation of $12 billion in Exxon-Mobil assets and refusal to submit the dispute to World Bank arbitration.

Obama tells the public that he is really concerned about the price of gas and will do what he can to bring down the cost. His deeds say something else entirely.

Michael Economides has a comprehensive article at the Energy Tribune on U.S, Energy Policy, that is very worth your time for the big picture. Obama speaks regularly about our having to “reduce our dependence on foreign oil.” North Dakota, boom state, is now producing enough oil to completely replace the imports of crude oil from Columbia.

But the White House, wedded to discredited ideologies and small thinking, continues to obstruct and delay while our nation’s energy needs are clear and urgent. That is a dangerous and reckless course for steering the world’s largest economy into a secure and prosperous future.

This administration has a vast misunderstanding of the American people. This is not Europe, and we are not Europeans. Americans drive pickups and SUVs, not undependable electric cars. They haul stuff around — boats, trailers, RVs, firewood, building materials, skis, bikes, animals, horse trailers. We drive vast distances. Our families live halfway across the country.  We vacation in our National Parks. Our economy prospers on cheap, abundant oil and natural gas. Obama envisions an America that is no longer a world power, but is just like other countries.

Obama seems to see  our country, and the world, as a zero-sum game — which is most easily understood as a pie, where if one person gets the biggest slice, everybody else is deprived. That is the motive behind income redistribution, and the motive for bringing down our country so the less fortunate countries can have more of the wealth that we do not deserve. But neither our nation nor the world are pies. It is a faulty vision that does not conform to reality, but part of the utopian view of the left. That’s what he meant when he said he wanted to “fundamentally transform” America.

Obama’s Got the Economy Running on Empty by The Elephant's Child

Indiana Governor Mitch Daniels was on Fox News Sunday, and remarked” Let’s give the president credit for one domestic policy that works. He wanted higher gas prices and he got them.”

Gas prices are on the rise and nobody is happy about it.  President Obama hastened to explain that it wasn’t his fault, there were no quick fixes, we can’t just drill our way to lower gas prices, there is no silver bullet that will bring down gas prices or reduce our dependence on foreign oil overnight — what we can do is get our priorities straight, and make a sustained, serious effort to tackle this problem — and then he suggested — algae.

Leftist loon, Edward Markey (D-MA) promptly suggested opening the spigots of the Strategic Petroleum Reserve. I think it was just last week that he sponsored a bill to cut funding for our nuclear arsenal by $100 billion, which would result in unilateral disarmament. He’s also a true believer in global warming, and supports every effort to defend ourselves from the horrors of CO2. But I wander astray. Why don’t these people understand “strategic?” Is it too big a word? The reserve is not there to be used every time people get upset about gas prices.

President Obama’s story on gas prices is priceless: 1) Gasoline prices are beyond his control, 2) but  oil and gas production is rising in America due to his energy policies, 3) higher prices are another reason to raise taxes on oil and gas drillers, and 4) investing in algae will be just the brilliant new idea we need. Oh, and since people are so angry about the Keystone XL pipeline, he’ll let them build the Southern part, from Cushing, Oklahoma to next-door Texas. An attempt to pacify the perturbed, that accomplishes nothing much.

Oil prices are futures prices and depend on the outlook for the future price of oil. When the Middle East is afire, Iran is threatening to close the Straits of Hormuz, Syria is in chaos, and the world is trying to cut off Iran’s sales of oil to deter them from making a bomb, it gets a little dicey. On the other hand, when Reagan cancelled a moratorium and Bush cancelled a moratorium the price of oil immediately dropped. Actually, if President Obama simply guaranteed …nevermind. He doesn’t understand the laws of supply and demand, and what he offers with one hand, he taxes with the other.

Today’s price is $3.89.  I don’t know if that is with or without state taxes. The average state tax is 48.8¢ per gallon. New York is the highest at 67.4¢ followed closely by Connecticut, California, Hawaii and Michigan. The lowest are Alaska 26.4¢ and Wyoming at 32.4¢. But for Obama to claim he has nothing to do with gas prices ignores history:

  • In 2008, Senator Ken Salazar (D-CO) refused to vote for any new offshore drilling.  In a conversation with minority leader Mitch McConnell (R-KY), Salazar objected to allowing any drilling on America’s outer continental shelf—even if gas prices reached $10 a gallon.  Obama named him Secretary of the Interior.
  • In 2008, Steven Chu, head of the Lawrence Livermore Laboratories at U. of California Berkeley, told the Wall Street Journal that “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.” he also said “We have lots of fossil fuel; that’s really both good and bad news.  We won’t run out of energy, but there’s enough carbon in the ground to really cook us.” Obama named him Secretary of Energy.
  • During the 2008 campaign, candidate Obama said “Under my plan of a cap-and-trade system, electricity rates would necessarily skyrocket.” And “So if somebody wants to build a coal-powered plant, they can.  It’s just that it will bankrupt them.” He was elected president.

Energy production is up, but because of drilling on state and private lands, and offshore on permits granted by previous administrations. On the other hand, when oil prices ramp up, it brings into production more costly resources around the world, increasing the world supply which drives down the price. It also lets the world become less dependent on cheap Mideast oil.

At today’s price, gasoline has reached  a price that in real inflation-adjusted terms it has reached only a few times in history. It fluctuates with global events. We cannot put Obama’s solar and clean wind energy in our gas tanks, biofuel is a flop, switchgrass never got off the ground, ethanol is an expensive flop but still required, and algae is years away from becoming a fuel and unlikely to boot. Here in the Seattle area, gas is up by 44¢ this month.

(The picture is from I Own the World. They suggest carrying a pack of post-it’s and a marker with you to leave your small protest at the pump)

High Gas Prices? EPA Bans Drilling in Alaska. by The Elephant's Child

Coming home this afternoon, the Shell station near my house posted regular gas at $4.01.  That 1¢ is interesting, isn’t it.

After five years and four billion dollars, Shell Oil Company thought they were close to bringing in the estimated 27 billion barrels of oil waiting to be tapped in the Arctic Ocean off the coast of Alaska.  One would assume that was a good thing. The Environmental Protection Agency is withholding the necessary air permits because of a one-square-mile Innuit village of 245 people a mere 75 miles from the drilling site.

Fox News’ Dan Springer reported:

The EPA appeals board ruled that Shell had not taken into consideration emissions from an ice-breaking vessel when calculating overall greenhouse gas emissions from the project. Environmental groups were thrilled by the ruling.

“What the modeling showed was in communities like Kaktovik, Shell’s drilling would increase air pollution levels close to air quality standards,” said Eric Grafe, Earthjustice’s lead attorney on the case.

Springer identified the people who made the decision:

The Environmental Appeals Board has four members: Edward Reich, Charles Sheehan, Kathie Stein and Anna Wolgast.  All are registered Democrats and Kathie Stein was an activist attorney for the Environmental Defense Fund.  Members are appointed by the EPA administrator.

In his weekly address on Saturday, President Obama said that “there’s no silver bullet that can bring down oil prices right away. But there are a few things we can do.  This includes safe and responsible production of oil at home, which we are pursing.” Then he attacked the oil companies for the $4 billion in subsidies that they receive from the government. The oil companies are making too much profit, he thinks, and that has to stop.

Unfortunately, as usual, the words of the president’s mouth are unconnected to his actions. Permits are not being issued. Every kind of roadblock is being thrown in the path of oil companies ability to bring in our own oil.  He claims to be for “safe, responsible production of oil” but the Obama administration  has imposed a months-long moratorium on deepwater offshore drilling that has slowed domestic production and sent some seven drilling rigs off to other more friendly countries.

There may not be the proverbial “silver bullet” but history shows that removing the roadblocks to production helps the price to come down. The futures market is worried about all the turmoil in the oil producing Arab states.

Obama’s lectures on gas prices usually contain several myths.  “We can’t escape the fact that we control only 2% of the world’s oil.” False. We have more than three times as much in the ground as Saudi Arabia. “Industry holds leases on tens of millions of acres both offshore and on land where they aren’t producing a thing.” In first 100 days, Ken Salazar cancelled 77 leases for oil and gas drilling in Utah. A year later he cancelled 61 more leases in Montana. “Last year…our oil production reached its highest level in 7 years.” Obama is trying to take credit for actions of previous administrations and production in the Dakotas where most drilling is occurring on private land.  The EIA projects a decline in production of 220,000 barrels of domestic oil per day in 2011, and in 2012, 150 million fewer barrels in the Gulf of Mexico because of Obama’s policies to discourage or ban domestic drilling.

President Obama emphasized once again, his major theme:”Instead of subsidizing Yesterday’s Energy Sources, We Need to Invest in Tomorrow’s.” Except there’s no tomorrow in his pursuit of wind, solar, ethanol and electric cars.  He’s funding a fantasy. But he has EPA activists to do his bidding.

ADDENDUM: In July, 2008, when world oil prices rose to $145 a barrel, President Bush ended the moratorium on offshore drilling by executive order.  Oil prices began falling the next day. No silver bullet indeed!

Obama Really Doesn’t Want to Cut Spending! by The Elephant's Child
April 24, 2011, 8:04 pm
Filed under: Capitalism, Democrat Corruption, Economy, Statism | Tags: , ,

The average price of gas according to AAA is $3.86, nearly $1 more than it  was a year ago.  The president, in don’t-blame-me mode, laid out his own plan on Saturday.  He said “You see people trying to grab headlines or score a few points. The truth is, there’s no silver bullet that can bring down gas prices right away.”

The president laid out his own plan for controlling prices:  ending price gouging, and calling for an end to the $4 billion in federal subsidies for oil and gas firms.  How ending subsidies would bring down prices is a complete mystery, but in line with the Obama genius for advocating the wrong remedy.  I’m not sure who he thinks is “price gouging” but “speculators” — also unidentified— are the latest straw man.

“This is what politicians do when they want to do nothing, yet look like they are doing something, they appoint a blue ribbon committee , or go to the U.N., or assign some cabinet member to look into the problem and report back to the President —hoping that the issue will be forgotten by the time he reports back,” observed Tom Sowell.

Obama suggested last Thursday that his lagging poll numbers are due to the high gas prices nationwide. Budget? What budget?

He did imply in his budget speech that he would cut spending by $750 billion over the next twelve years.  That’s sounds like more than it is— a little less that $63 billion a year. or about what the federal government borrows every eight days. The president does not want to cut spending. He wants more. More spending, a bigger government, and higher taxes.

In a speech to the Chamber of Commerce in February, President Obama said that “the role of government is to support the economic foundation by spending public money to improve transportation, education and communication systems.”

The public (53%) believe that the primary purpose of government is to protect individual liberties and freedom.  Only 10% believe that managing the economy is the government’s primary role, and only 24% see the government’s role as insuring social justice. That’s a pretty big gap in understanding the nature and business of government.

Americans consistently believe in lower taxes and lower government spending. Yet Democrats are really pushing for more taxes for the rich. All the Democrat yammering about “tax cuts for the rich” during the Bush years seems to have convinced, at least the Democrats, that the Bush tax cuts involved an unfair tax cut for the wealthy. Everybody got a tax cut, and “the rich” got the smallest percentage cut of all.

If Congress imposed a 100% tax, taking all of the earnings above $250,000 a year,  every last cent, it would yield the massive sum of $1.4 trillion.  Sounds like a lot, but tit would keep the government running for 141 days.  And who pays for the remaining 224 days? Corporate profits?  Another 40 days.  Well, lets just take all the net worth of America’s 400 billionaires —  that gets us to the middle of August.  And now that the billionaires are on the dole — you just took everything they had, you’ll have to chip in to provide for them.

The government has no money of its own.  Revenue comes from taxation.  And guess where the big pot of money is.  The Middle Class!  You didn’t believe Obama when he promised not to raise taxes on the middle class, did you? Maybe you should think hard about the desirability of cutting back on spending after all.

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