Gas Prices

Who should we blame for the high gas prices? Let’s see…do we blame “big oil”? That’s who the media would like us to blame. With all of their “windfall profits” that Barak Obama is going to tax the bejeebers out of.

I know that everyone has heard the “windfall profit” buzz word, so I want to take just a minute to explain a little history on it.

In 1980, the United States enacted the Crude Oil Windfall Profit Tax Act. It wasn’t actually a tax on profits, it was an excise tax. An excise tax is a tax that is imposed on goods produced domestically. Congress felt like US oil producers weren’t paying their fair share, so they passed this law.

Well…turns out they were dead wrong. In 1988 they repealed the act because they were totally off in their estimates on oil prices. Also, Congress realized that the tax had increased the nation's dependence on imported oil. Being an excise tax, it was only imposed on oil produced domestically in the United States; it was not imposed on imported oil.

Brilliant.

A few months ago a bill was introduced that would impose a 25% windfall tax on an oil company whose profits grew by more than 10%. It came really close to passing.

Well, are the profits “windfall”?

In the second quarter of 2008 (the one that recently ended), Exxon made $11.68 billion in profit. That does seem a little excessive. Unless you also look at this tiny piece of information: they paid $32 billion in taxes. $10.5 billion just in income taxes. (CNNmoney.com)

Seriously. I would think paying 49% in income tax should cover it.

So Congress must have their feathers ruffled because the oil companies’ profits are way out of line with other industries, right?

Exxon's profit margin was 10% for 2007. If that is the standard for “windfall profits”, most of corporate America would also qualify. For example: aerospace and machinery made 8.2% profit in 2007. Chemicals had an average margin of 12.7%. Computers: 13.7%. Electronics and appliances: 14.5%. Pharmaceuticals: 18.4% and beverages and tobacco: 19.1%. (Wall Street Journal)

It is very clear to me that Congress is using “big oil” as a scapegoat.

Well if we can’t blame big oil, who do we blame?

We need more refineries. Everyone knows that our current gas price spike is due to hurricane Ike. Texas has shut down 14 of its 26 refineries, which amounts to 3.8 million barrels of fuel a day, or 25% of the nation’s gasoline. Even after the storm is passed, the refineries could stay shut down due to power outages.

We need more refineries. And we need them located across the nation so a natural disaster doesn’t cause such upheaval.

There has not been a new refinery built in the US since 1976…that’s over 30 years! Existing refineries have been expanded and patched up, but it is impossible for oil companies to build new refineries because of the ridiculous, unnecessary, and costly Environmental Protection Agency (EPA) regulations. The price consumers pay at the pump reflects not only high oil prices due to tight supplies, but also high refining costs due to tight refining capacity.

The environmentalists have made sure that no new refineries have been built. They have enough red tape and lawsuits to block them. You see, they are concerned with the “carbon emissions” that the refineries produce. So you are paying $4 at the pump to reduce theoretical global warming.

(Ok, this post is already really long, so I will save my rant about the global warming theory for another day…it’s killing me, but I can do it…deep breaths…)

So the first reason gas prices are so high is the lack of refineries. The second reason is that we can’t get to the oil that is right here in the US. There are so many bans, we are only able to drill in a teeny tiny portion of the areas with oil. Despite the bans, we are able to domestically produce 30% of our own oil…more than we import from any other country.

Think of the amazing possibilities if more areas were opened to drilling. There was recently a bill that was introduced in Congress (actually it didn’t even make it out of committee) to open up the Continental Shelf. The democrats killed it. (Remember, they have better ideas, like taxing those “windfall profits”.) The day after the bill was killed, this is what Glenn Beck had to say:

“The Government estimates that the outer continental shelf, the one they said no to yesterday, has 76 billion barrels of oil in it that are recoverable and that's with today's technology. Let me put that into perspective. 76 billion barrels is enough to replace every single barrel of oil that we import from everywhere outside of North America for the next 34 years at our current pace. That's in the one place, one, that congress said we couldn't go into yesterday.”

There are many, many other areas that are rich with oil, right here in the US. Oil companies are banned from exploring these areas because of the potential impact on the environment. One of these areas is the Arctic National Wildlife Refuge (ANWR) in Alaska that Sarah Palin favors drilling.

“The United States Department of Energy estimates that ANWR oil production between 2018 and 2030 would reduce the cumulative net expenditures on imported crude oil and liquid fuels by an estimated $135 to $327 billion (2006 dollars), between 2018 and 2030, reducing the foreign trade deficit” (Wikipedia)

This refuge is 20 million acres, and they want to drill in like 2000 acres. The biggest reason against drilling: Porcupine Caribou. It might cut the heard off from calving areas.

And many environmentalists also tack on the risk of oil spills as part of their argument against drilling. In fact, The National Academy of Sciences found that Outer continental shelf operations are more than five times less likely to cause a spill than oil tankers who are importing oil.

We are purposely limiting our own supplies.

That is why you are paying $4 at the pump.