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Gas Prices: How Much is Too Much?

June 9th, 2008
By JAZZ SHAW, Assistant Editor

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Over the weekend, in case you somehow missed it, the national average for gas prices spiked to over four dollars per gallon. Today, Ed Morrissey at Hot Air asks the question, “So when will Congress act?” (There is also a national, AOL online poll you can participate in at the link.) Contrary to my normal, “keep the government out of my darned business” attitude, this is one case where Ed may be on to something and our congressional critters may be able to do some good. But the choices of direction in how a remedy might be effected are both dizzying and frightening in scope.

Last week, Barbara Boxer tried to push through the Lieberman-Warner bill, claiming that it would address gas prices. It certainly would — by driving them much higher through over-regulation of the energy industry. The energy industry does not need further regulation. They need Congress to get the federal government out of its way so that it can add more supply to the market, which is the only way prices will fall.

Make no mistake… I am not one of the street hawkers who loudly proclaim that every single challenge facing the country can be solved by free market solutions. There is a time and place for everything. But while Barack Obama and John McCain argue about summer gas tax holidays and Congress dithers over how much profit is “too much” for the oil industry, the sad reality is that the world is still using massive amounts of energy and it has to come from someplace. If you want lower prices, you simply must increase the supply - yes, it’s really that simple in this case.

So where do we get more energy? Like Ed, I agree that we need to continue our efforts to research and improve the efficiency of alternative energy sources. Micro-hydro, wind, solar and geo-thermal should all be on the table. But we’re not at a point yet where they will fill the entire gap. I’m not as much of a fan of the Drill Here Drill Now movement as Mr. Morrissey, but until we can become more indpendent and secure in our energy needs, we may have to give some ground and expand that a bit.

More to the point in our considerations should be the old hobgoblin of nuclear energy. We have effectively shut down all efforts to expand our nuclear power generation capability in this country out of fears spread from the past. Yes, current fission technology has serious issues, primarily concerning spent fuel storage, but for a short term solution we can work around those. Fears of other sorts, though, are simply unfounded. Three Mile Island actually remains a prime example of how well our system works. In what could have turned into a major disaster, the amount of radiation released there was less than the background dose you’ll get during a two week vacation in Denver. Heck, we’ve lost two nuke reactors on submarines to the bottom of the ocean and even they don’t seem to be leaking. Chernobyl was not an example of why you shouldn’t build reactors… it’s an examply of why you don’t build stupidly designed reactors which are steam explosions waiting to happen.

For the record, there was no nuclear explosion in Russia. It was a steam explosion. Just ask the engineers from the Manhatten project exactly how hard it is to create a supercritical nuclear reaction capable of reaching detonation. Reactors lack the purity of fuel, the critical mass and the unimaginable pressures required to create a bomb.

Coal is another unpleasant option, but improved technology in emissions control may still make that a viable and neccesary stop-gap to consider while we improve the technology for green energy. No matter the source, though, demand is exceeding supply by wider and wider margins, and if you don’t want other nations holding an even bigger hammer over our heads, we’re going to have to step up our production game big time over the next decade. And if I may remind you yet again… the oil is still going to run out some day. Be ready.



This entry was posted on Monday, June 9th, 2008 at 10:25 am and is filed under Newsweek Blogitics, Gas Tax Holiday, Gas Prices, Oil, Barack Obama, John McCain, Politics. You can leave a response, or trackback from your own site.

Viewing 13 Comments

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    "If you want lower prices, you simply must increase the supply - yes, it’s really that simple in this case."

    Actually it's not really that simple at all. The primary effect of regulation in the country is on refineries and finished products, not oil prices. As long as oil prices rise, then the increased cost from refinery regulation is minimal.

    In actuality, very little can be determined as to the source in the rise of oil prices. Why? Because there is no regulation. With the complex world of commodity trading that has arisen in the last decade and a half, it is not easy to determine how much is due to speculation or to fundamental issues, thus deregulation has actually made it harder for anyone to get enough information to make rational choices.

    Moreover, there are growing signs that contrary to typical economic theory, high prices may encourage a decrease in supply. As China is experiencing rampant and out of control inflation because it got too rich too quickly, the oil exporters are not keen on milking out all the money in the short term and potentially taxing their infrastructure as long as they can meet their monetary goals by producing less.

    More to the point, it takes 10-15 years to develop oil fields to the point where they get much output. ANWR isn't really much of a solution: "The U.S. consumes about 20 million barrels (3,200,000 m³) daily. If the Arctic National Wildlife Refuge oil reserves were used to supply 5% of the U.S. daily consumption the reserves, using the low figure of 4.3 billion barrels (680,000,000 m³), would last approximately 4300 days, or almost 12 years. Using the high estimate, the reserves would last approximately 11800 days, or 32 years. In total, the oil deposits in ANWR contain as much oil to solely support U.S. consumption for 7 months (4.3B estimate) to 2 years (16B estimate)." Especially because global demand will have to be about 20% higher at that point to keep economic expansion going.

    I agree completely with your sentiments on nuclear power and long term goals, I just don't believe that the current crisis is due to a lack of the free market being hindered or the lack of exploitation.
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    We are considering what to do about this problem 30 years after we became aware of it. In other words we are still chasing our tails dithering bout what to do instead of observing how more forward-thinking nations have dealt with the crisis. I don't understand why there was so much excitement about corn-based ethanol when Brazil has achieved energy independence with sugar cane-based ethanol.

    IMO, the next administration should set up the equivalent of the Manhattan project, bringing together partnerships of the best and brightest from the private and public sector to work on solutions for the mess we have made for ourselves. No option-- solar, wind, electric, biofuels, mass transit etc etc should be overlooked. We are at risk of losing our affluent society because we have ignored this for so long and swallowed the myth that more drilling will solve it.
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    Another part of the misrepresentation on the part of those who want to blame the government (mainly the Democrats) for supply issues is that they often claim that the reason that oil shale isn't being developed is because it's on public lands and the evil liberals are stopping them from accessing it. Wrong. There are huge resources in shale available to the companies but it still isn't technologically feasible to produce oil from it at this time even at these prices.
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    I should note that in general, all the deregulation mantra has severely degraded the economic and asset information that runs the world, to the point where most banks cannot even accurately price their own assets. Successful capitalism is based on having access to correct information and being able to make rational choices; in the last 10-20 years the lack of government intervention has led to an obfuscation of data in the markets where now it's unclear how the ownership of the majority of newer mortgages even breaks down. The extremely complex nature of commodities leaves even experts scratching their heads.

    And of course monetary policy has strong influence as well.
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    I don't know Jazz, I think we might actually be ready for the Big Switch to renewable energy sources. When the sluggish American auto industry is ready to mass produce a plug-in electric car (the Chevy Volt), people can put solar panels on their roof for $9000 (see www.solarhome.org) - that's about 2 1/2 years of my electric bill and I have a small house - and everywhere you look new energy efficient products are coming on-line, you know there's been a big change in the market. Even my dad - a Ford truck driving, slow-to-adapt-to-new-technology sort of guy - said a few weeks ago that he was going to stop driving his truck (except when necessary) and just drive my sister's hybrid Escape while she's away at college. Then he really blew my mind and said the day they start selling hydrogen powered trucks at the local dealership, he'll be first in line to buy one.

    It's going to be a tough few years, but I don't think the answer is to let the government give us some sort of help on the energy front aside from encouraging conservation and the switch to renewable sources. In the end, we'd still be paying for it, either through our tax dollars or in further delaying the inevitable shift we have to make away from fossil fuels. People are smart and we can work out ways to get around or work within the current fuel prices - we can carpool or telecommute or switch to 4 day workweeks. We can shop at local farmers' markets instead of buying produce shipped across the country. We can turn the AC to 75 degrees instead of 68, switch to CFL bulbs, turn off and unplug appliances & electronics that aren't in use. We can add/improve insulation to our homes, install the afore-mentioned solar panels or even residential wind turbines, buy hybrid cars, and live closer to where we work. Now I'm not saying that everyone is able to make all of these changes, but if we all made an effort to hit 3 or 4 of them, it could make a huge difference in the amount of energy we consume as a nation.

    And that's another side of the market influence that has to change if you want energy prices to drop - we need an increased supply, but we also need to decrease demand, at least for certain forms of energy. Besides, at this point it would take years for any new nuclear power plants or oil refineries to come online. In the time it takes to build a new pipeline or construct a nuclear reactor, we'll be even further along in converting to renewable sources. There's no point in investing in the old technologies now.
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    I too am unswayed by the antiregulatory fantasies of so-called fiscal conservatives. We've actually seen the high cost of deregulation in the savings-and-loan debacle and more recently the mortgage crisis. We simply cannot get where we need to be by "letting the market decide". This is abundantly clear from the Exxon Valdez example. Nearly a quarter-century after to spoiling a pristine stretch of the Alaskan coastline, Exxon continues to fight tooth and nail to avoid their responsibility to pay for the cleanup.

    Companies will not behave ethically without regulation, and consumers will not make them. Nor is there any semblance of the free market at work here. We give trillions to the petroleum industry in subsidies and tax breaks, then pick up the tab for the messes they refuse to clean up. Likewise with nuclear energy. Almost everyone of you paid the cost through your utility bills for cleaning up 3 mile Island. We in Colorado did not have to, because we decommissioned our sole nuclear power plant before 3 mile Island, hence we are not a part of the risk pool that gets to clean up after inevitable accidents.

    So drill here? Drill now? Under federal mandate instead of states' rights? I don't think so. We'd rather develop our wind and solar options and the cheapest energy by far available to us right now, is conservation.

    Kritt and Amanda are right, our renewable options are better choices for the future, and we should be farther along than we are, as we've underfunded innovation disastrously while pumping money into fossil fuel industries. We don't know what we can achieve if we dedicate ourselves to it, but we know the drawbacks of oil, coal and nuclear. What's possible? How about a tank full of starch (let's say from kudzu) fueling our cars? We can and will discover and develop breakthroughs when we get past our self-limiting determination to live in the past.
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    OK, I know I'm probably dreaming to think we will get busy, get creative and innovate. As one green energy expert put it, "We won't do it. Japan will figure it out and China will build it. We'll buy it from them."
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    ANWR should still be drilled. 5% of our daily usage is huge. Face it, its oil, we need it, and at some point its coming out of the ground to service out needs. I'm all for having the EPA force them to do at cleanly as possible, but get it out of the ground. Keep putting money towards alternate energy, and maybe even have some of the ANWR money go specifically to that end, but refusing all that oil because of environmental consequences in one of the largest and least populus states is just silly to me.
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