With gasoline prices crossing the four dollar per gallon line in many parts of the country, the Republican majority in the House and the Democratic-led Senate have taken two very different approaches to address rising energy prices. Last week, the House passed a bill requiring the Interior Department to offer new lease sales in the Gulf of Mexico and off the coast of Virginia. Yesterday, the House passed another bill that would require the government to make decisions on drilling permits within sixty days. And, at the same time that the House was addressing the supply side of this economic challenge, the Senate was demanding that oil companies stop making profits.
Democratic senators grilled executives representing the nation’s five biggest oil companies, criticizing them for providing their shareholders with a return on investment and threatening to rescind tax breaks that the industry currently enjoys. The Senate hearing made for great Capitol Hill theater, and it will surely provide leading leftist senators with some great sound bites to prove to their constituents how hard they tried to fight the evil of Big Oil. But, unlike the House, the Senate did nothing to address the economic realities and energy challenges that we must deal with.
It’s embarrassing to find that United States senators don’t understand, or choose to ignore, the realities of energy production. The fact is that the margins that oil companies operate at have remained consistent for decades as a percentage of the cost of fuel and that government makes more on every gallon of gas sold than anyone involved in the supply chain. The reason gasoline is so expensive is because crude oil is so expensive – period. There is no price gouging. There is no profiteering. Some people like to blame rising prices on something they call “speculation,” but use of that particular word creates a mistaken impression. Crude prices are high because worldwide demand is expanding at a rate we have never seen and nobody is sure how we’re going to deliver enough oil to meet that demand.
Nations that understand what is happening – China and India in particular – are positioning themselves to secure the necessary supply by entering into long term, big-dollar deals for crude. Those kind of contracts reduce the projected supply available in the future and, as any tenth-grader studying Adam Smith can tell you, constricted supply — and rising demand means higher prices.
Pages: 1 2