On Wednesday our President put a request in to congress that they increase the tax credit for purchasing a Chevy Volt, quasi-electric car, to 10K from the current 7.5K. In spite of the 7.5K credit, Volt sales have been so anemic that the production facility has been forced to shut down for 5 to 6 weeks and lay off 1300 auto workers. I just wonder when his car Czar or one of the ideological economists on his staff will get around to explaining to him that markets don’t work when subsidies are necessary to create interest in a product. I also wonder when the said economists and Czar are going to explain to him that the people who are buying the Volt are not your everyday “99%ers” but the wealthy who are only buying the car to make a statement that they are being green. Perhaps the President should increase the Volt subsidy to 40K for anyone who makes less than 130% of the poverty level. I mean hell, we are already paying for it with taxpayer dollars and the Pres really likes to help the "handicapped" with his redistribution theories. It can be titled the next phase of the "cash for clunkers" program.
The Volt subsidy is only one indicator of the complete lack of an energy policy coming out of the Presidents mouth on a regular basis. At a press conference this week, President Obama took on the “politicians who claim the have a 3-point plan to bring gas prices down to $2.50 a gallon”. He said we should all tell them we know better. President then claimed there is no “silver bullet” to bring down gas prices. On this issue, Mr. President, yes there is. History has shown that when production increases are approved or rcovered oil is coming into the market, prices drop. Anyone who lived and drove in America during the summer of 2008 will remember that oil spiked to its highest prices due to production disruptions, but then dropped from a high of $147 per barrel in August to $33 per barrel on the day of your inauguration. This didn’t result from an increased supply so much as the approval of increased production. Actually approving the Keystone XL pipeline and approving drilling permits on public lands will have the same affect in bringing prices down. Mr. President, what we know, is that at the time you took office, the cost of Gasoline averaged $1.85 per gallon. What we know, is that gasoline is now averaging more than $3.65 per gallon. What we know is that your policies are forcing gas prices in the wrong direction.
Our President makes the claim that oil production is now at a higher level than it has been in more than 8 years. About this, he is correct, but we really have to understand the rest of the story, as the old saying goes. The increases in production are coming from privately held properties in states where permitting takes only weeks. In states where the EPA and DOE do not restrict the permitting process. The increased production comes from states where recovery begins in less than a year.
What our President does not mention is that he has prohibited, not restricted, but prohibited, the development and drilling of new wells in more than 70% of the coastal development area. What he doesn’t mention is that he has restricted the development of most of the Alaskan shelf to oil recovery. What he doesn’t mention is that since he has come into office the number of exploration and drilling permits in the continental US has declined by more than 14% and the number of offshore permits has declined by more than 6%. What he doesn’t mention is that under his watch, the average time to obtain a permit on federal land has extended to more than 3 years and the cost of obtaining a permit has increased by more than 200%.
In the states where private recovery is not being inhibited by this administration, the production of oil has increased by more than 20% over the past 3 years. What our President doesn’t mention is that in the areas of private development there is a jobs boom and unemployment is effectively at 0%. In those states, employers can’t find enough people to fill the positions available.
The President claims that the oil market is world wide and what happens in America doesn’t affect the price of oil. Let me provide two examples of just how wrong this is. The first, compare the price of West Texas Intermediate (WTI) to BRENT. WTI is American and Canadian oil traded on the international market. BRENT is the OPEC oil traded on the international market. The average daily price differential is about $20.00 per barrel at any given time. Yes, WTI averages about $20.00 per barrel less. If the price of oil is determined by the world market, why is oil recovered in America not selling at the same price as BRENT?
My second example, WTI is know as “sweet” oil. Meaning that it has very low sulfur and few impurities. If you look at a jar of oil recovered from the Texas or Dakota oil fields, it has a greenish hue and is almost clear. BRENT oil from Saudi, Iran, Venezuela and some of the other OPEC countries is high in sulfur and impurities. In a jar the recovered oil is brown and is impossible to see through because it looks like mud. The reason I mention this, the cost of refining BRENT oil is much higher than the cost of WTI. Bottom line, every barrel of oil produced in America costs less to recover and less to refine than the world oil product. So, yes Mr. President, increasing the production of oil in America, even by relatively small amounts, will affect the price of gasoline in our country.
Now, consider another issue in the cost of gasoline, ETHANOL. Our government, in its infinite wisdom, decided that it wanted to have our fuel burn cleaner so it subsidized the development of ethanol. In other words, it pays the producer, with our tax dollars, for every gallon of ethanol produced. When that failed to produce the desired results because the product didn’t meet market standards, the government stepped in and regulated that all gasoline producers must blend gasoline with at least 10% ethanol. The result? Increased cost of fuel and lower gas mileage, but the ethanol producers are now profiting hugely from our tax dollars. Don’t misunderstand, this is not an action taken by our current president, but he hasn’t made any attempts to eliminate the subsidies or requirements to blend gasoline with ethanol either. Eliminating this requirement will cause an immediate drop in gas prices and force the ethanol producers to produce a competitive product or go out of business.
This is just another example of how our President tries to offer platitudes to the unknowing and uninformed in order to bolster his ideology. We have to watch what he does and not what he says, because the two are very different. In fact, actually doing what he says he is doing rather than talking the talk will bring down oil prices dramatically. As we have seen in the past, a true energy policy does include “all of the above”. In order for the all the above scenario to work, the government has to encourage an all the above approach through a market based solution. When the government subsidizes a product or an industry with incentives, loan guarantees, subsides or tax credits, the developers are no longer required to meet the competitive requirements of the marketplace and become less innovative. When the government restricts the development and recovery of natural elements in favor of less efficient artificial products, it corrupts the marketplace and causes the price of all goods and services to increase. This is basic economics that even a lawyer/politician should be able to understand.
The next time the President tells us that we should let people know we are smarter than to believe a politicians line, we should agree. We should tell him we are smarter than to fall for his disingenuous lines and half truths. We need to tell him we would have much more respect for him if he were willing to tell the truth and let the chips fall where they may. We are tired of being treated like we’re not smart enough to see through his pandering speeches.
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