I got this from a friend yesterday. I don't know if it makes any sense at
all or if you already heard or read this in the news but here it is,
submitted without comment:
Thursday, May 22, 2008
The oil price crisis: Not so difficult to understand
Excerpted from the PowerLine blog site, May 21, 2008.
[On May 21], the Senate Judiciary Committee summoned top executives from the
petroleum industry for what Chairman Pat Leahy thought would be a
politically profitable inquisition. Leahy and his comrades showed up ready
to blame American oil companies for the high price of gasoline, but the
event wasn't as satisfactory as the Democrats had hoped.
The 'emir', Abu Mussib Al Zarqawi. AFP
The industry lineup was formidable: Robert Malone, Chairman and President of
BP America, Inc.; John Hofmeister, President, Shell Oil Company; Peter
Robertson, Vice Chairman of the Board, Chevron Corporation; John Lowe,
Executive Vice President, Conoco Philips Company; and Stephen Simon, Senior
Vice President, Exxon Mobil Corporation.
Not surprisingly, the petroleum executives stole the show, as they were far
smarter, infinitely better informed, and much more public-spirited than the
Also In This Edition
UN's Ban gets Burma to accept foreign aid
Bin Laden's come-to-Allah tirade: Lashes out at Hizbullah, oil kings
Armed men ambush, disarm, peacekeepers in Darfur
One theme that emerged from the hearing was the surprisingly small role
played by American oil companies in the global petroleum market. John Lowe
I cannot overemphasize the access issue. Access to resources is severely
restricted in the United States and abroad, and the American oil industry
must compete with national oil companies who are often much larger and have
the support of their governments.
We can only compete directly for 7 percent of the world's available reserves
while about 75 percent is completely controlled by national oil companies
and is not accessible.
Stephen Simon amplified:
Exxon Mobil is the largest U.S. Oil and gas company, but we account for only
2 percent of global energy production, only 3 percent of global oil
production, only 6 percent of global refining capacity, and only 1 percent
of global petroleum reserves. With respect to petroleum reserves, we rank
14th. Government-owned national oil companies dominate the top spots. For an
American company to succeed in this competitive landscape and go head to
head with huge government-backed national oil companies, it needs financial
strength and scale to execute massive complex energy projects requiring
enormous long-term investments.
To simply maintain our current operations and make needed capital
investments, Exxon Mobil spends nearly $1 billion each day.
Because foreign companies and governments control the overwhelming majority
of the world's oil, most of the price you pay at the pump is the cost paid
by the American oil company to acquire crude oil from someone else:
Last year, the average price in the United States of a gallon of regular
unleaded gasoline was around $2.80. On average in 2007, approximately 58
percent of the price reflected the amount paid for crude oil. Consumers pay
for that crude oil, and so do we.
Of the 2 million barrels per day Exxon Mobil refined in 2007 here in the
United States, 90 percent were purchased from others.
Another theme of the day's testimony was that, if anyone is "gouging"
consumers through the high price of gasoline, it is federal and state
governments, not American oil companies. On the average, 15% percent of the
cost of gasoline at the pump goes for taxes, while only 4% represents oil
company profits. These figures were repeated several times, but, strangely,
not a single Democratic Senator proposed relieving consumers' anxieties
about gas prices by reducing taxes.
The last theme that was sounded repeatedly was Congress's responsibility for
the fact that American companies have access to so little petroleum. Shell's
John Hofmeister explained, eloquently:
While all oil-importing nations buy oil at global prices, some, notably
India and China, subsidize the cost of oil products to their nation's
consumers, feeding the demand for more oil despite record prices. They do
this to speed economic growth and to ensure a competitive advantage relative
to other nations.
Meanwhile, in the United States, access to our own oil and gas resources has
been limited for the last 30 years, prohibiting companies such as Shell from
exploring and developing resources for the benefit of the American people.
Senator Sessions, I agree, it is not a free market.
According to the Department of the Interior, 62 percent of all on-shore
federal lands are off limits to oil and gas developments, with restrictions
applying to 92 percent of all federal lands. We have an outer continental
shelf moratorium on the Atlantic Ocean, an outer continental shelf
moratorium on the Pacific Ocean, an outer continental shelf moratorium on
the eastern Gulf of Mexico, congressional bans on on-shore oil and gas
activities in specific areas of the Rockies and Alaska, and even a
congressional ban on doing an analysis of the resource potential for oil and
gas in the Atlantic, Pacific and eastern Gulf of Mexico.
The Argonne National Laboratory did a report in 2004 that identified 40
specific federal policy areas that halt, limit, delay or restrict natural
gas projects. I urge you to review it. It is a long list. If I may, I offer
it today if you would like to include it in the record.
When many of these policies were implemented, oil was selling in the single
digits, not the triple digits we see now. The cumulative effect of these
policies has been to discourage U.S. investment and send U.S. companies
outside the United States to produce new supplies.
As a result, U.S. production has declined so much that nearly 60 percent of
daily consumption comes from foreign sources.
The problem of access can be solved in this country by the same government
that has prohibited it. Congress could have chosen to lift some or all of
the current restrictions on exportation and production of oil and gas.
Congress could provide national policy to reverse the persistent decline of
domestically secure natural resource development.
Later in the hearing, Senator Orrin Hatch walked Hofmeister through the
Democrats' latest efforts to block energy independence:
HATCH: I want to get into that. In other words, we're talking about Utah,
Colorado and Wyoming. It's fair to say that they're not considered part of
America's $22 billion of proven reserves.
HOFMEISTER: Not at all.
HATCH: No, but experts agree that there's between 800 billion to almost 2
trillion barrels of oil that could be recoverable there, and that's good
oil, isn't it?
HOFMEISTER: That's correct.
HATCH: It could be recovered at somewhere between $30 and $40 a barrel?
HOFMEISTER: I think those costs are probably a bit dated now, based upon
what we've seen in the inflation...
HATCH: Well, somewhere in that area.
HOFMEISTER: I don't know what the exact cost would be, but, you know, if
there is more supply, I think inflation in the oil industry would be
cracked. And we are facing severe inflation because of the limited amount of
supply against the demand.
HATCH: I guess what I'm saying, though, is that if we started to develop the
oil shale in those three states we could do it within this framework of over
$100 a barrel and make a profit.
HOFMEISTER: I believe we could.
HATCH: And we could help our country alleviate its oil pressures.
HATCH: But they're stopping us from doing that right here, as we sit here.
We just had a hearing last week where Democrats had stopped the ability to
do that, in at least Colorado.
HOFMEISTER: Well, as I said in my opening statement, I think the public
policy constraints on the supply side in this country are a disservice to
the American consumer.
The committee's Democrats attempted no response. They know that they are
largely responsible for the current high price of gasoline, and they want
the price to rise even further. Consequently, they have no intention of
permitting the development of domestic oil and gas reserves that would both
increase this country's energy independence and give consumers a break from
constantly increasing energy costs.
Every once in a while, Congressional hearings turn out to be informative.