More Oil Supply

More Oil Supply

Michael J. Economides

It is unfortunate that on the day when President Barack Obama said perhaps one of the most noteworthy things during his entire Administration, the ridiculous birther issue hijacked the news. On that day he was quoted: “”We are in a lot of conversations with the major oil producers like Saudi Arabia to let them know that it’s not going to be good for them if our economy is hobbled because of high oil prices.” He certainly would like more oil to get into the market.

After oil topped $110 per barrel, after gasoline prices have been flirting with $4 per gallon and after a relentless climb which lasted for weeks, the President felt compelled to do or, at least say, something. Obama can be the subject of criticism for a lot of things but as a campaigner he is almost impeccable. He is campaigning officially and he knows too well that virtually nothing removes votes from an American candidate than higher gasoline prices.

Of course, it is hard to be the President of wind mills and solar panels to implore now foreign countries, raking it in from higher oil prices, to commit financial sacrifice and increase the supply of the commodity, which has been labeled by Obama as the “energy source of the past”, and against which the Administration had gleefully declared war in both words and action from the time of the previous presidential campaign to today. One would think that higher oil prices would force people to use solar and wind to drive their cars. Yes, I know this is not possible and it is sarcastic but many of the President’s supporters, behind the public consumption headlines of feeling the consumers’ pain, they think that what is happening is good for the energy future they would like to see.

The President, like many of his predecessors of both parties, is missing the opportunity to level with the American people: There are no alternatives to hydrocarbon (oil, gas and coal) energy sources in the foreseeable future. The entire twenty first century will still be dominated by them. Solar and wind are unrealistic today, they are thermodynamically deficient, and they will most likely never amount for much more than one percent of the world energy mix without massive government subsidies.
Ideological environmentalism has trumped economic development and has thwarted economic freedom, which was, ostensibly, the motive of the Cold War which America won but certainly does not act like it did.

Al Gore, a precursor to Obama even before the Nobel Prize for the “Inconvenient Truth” wrote that the “internal combustion engine is the biggest threat to humankind.”
Tell that to the Chinese who are buying at least 40,000 new cars per day.

Breaking even the lowest standards of credulity on the same day of the President’s Saudi plea, Lisa Jackson, the EPA administrator said rising gasoline prices were not her agency’s fault. Upward pressure on gas prices was “not coming from any environmental or health regulation.” Really? This from an agency that even its more ardent supporters think as the most intrusive and recalcitrant, ever, an agency that has attempted to regulate by government edict rather than legislative fiat.

Make no mistake: global climate change rhetoric — fully espoused by the Obama Administration — is a frontal attack on the US and the lifestyle that emanates from its economy and system. The Europeans who adopted it in the first place are not averse to admit that they are jealous of America. The Chinese, who are all too aware of the ramifications of mandatory carbon restrictions on both the world and, in particular, their economy, simply will not play along. They are, at best, bemused. Does anybody really believe that would be economically extractable hydrocarbons in this world that would not be produced because we pass legislation in the US? Isn’t the same atmosphere for all?

To crown a day that surely even Don Quixote would question the credibility of Obama’s adversaries, a third jewel was added to the news menu. Senator Harry Reid said the “Senate will turn as early as next week to Obama’s proposal to repeal tax breaks for the oil and gas industry.” This is the answer. Let’s turn on Big Oil. That will solve the problem.

What are we really talking about? The “subsidies” amount to just $4 billion per year. It may sound a lot of money but here is a quick calculation. The United States is using about 400 million gallons of gasoline per day. At $4 per gallon this translates to $1.6 billion per day, which means that the yearly subsidies to the dreaded oil companies account for less than three days of just the US gasoline bill. The US total oil bill at today’s prices is about $2.3 billion per day. Using a modest multiplier in economic activity, that would make the US oil industry, not counting natural gas, a $10 billion per day economic activity. The “subsidies” trumpeted by the government headlines amount to a few hours of the industry’s size.

Last year the Chinese spanned the globe and spent $200 billion in buying oil properties. I am often in China and my colleagues there are actually bewildered. After a few drinks and when words become looser and in some ways, more lucid, they have two questions: “What is the energy policy of the United States? and “If you are not going to produce your own oil and gas why are you letting us have a free ride in accessing oil supplies everywhere in the world with no resistance and no competition?” I have no answer to either but I do know that the Chinese understand that energy means power and better economics. We no longer seem to get it.