Rising gas prices spur politicians to make bold claims

By David Baker
San Francisco Chronicle

Soaring gasoline prices tempt politicians in a way that many can’t resist.

Newt Gingrich has pinned his presidential campaign’s fading hopes on a promise to bring back $2.50 gas. Michelle Bachmann before him vowed $2 a gallon gasoline, until she dropped out of the race.

Lest anyone forget, then-candidate Barack Obama used record-high gasoline prices in 2008 to push his plans for renewable energy. To his opponent John McCain, the same price spike proved the need to “Drill, baby, drill!”

All were trying to tap the anger and frustration voters feel when they see pump prices jump. But American presidents can’t control the markets for oil and gasoline. They have several tools for influencing prices in the future, but all take years to have an effect — and the effect isn’t guaranteed.

“If you ask what the president can do now, there’s very few options,” said James Sweeney, director of the Precourt Energy Efficiency Center at Stanford University. “That’s one of the unfortunate things about energy problems. The system is so big, it really is like steering a tanker ship. You can’t change the direction very quickly.”

In the short term, presidents can try to tame a runaway bull market for oil by selling crude from the nation’s emergency stash, the Strategic Petroleum Reserve, which currently holds 696 million barrels. Obama is under pressure from his own party to do so now.

But past sales from the reserve have had only a brief — and debatable — effect on gasoline prices. That includes last year’s sale in response to the Libyan uprising, which cut oil exports from the North African country. Many energy experts caution against using the reserves for any reason other than a genuine shortage or emergency.

“That is exactly what you use a strategic stock for — you put it in store for a rainy day, and when one of the world’s largest producers goes offline, that’s a rainy day,” said John Kingston, director of news for the Platts energy information service. “We don’t have a rainy day right now. We have uncomfortably high prices.”

Gasoline prices are, indeed, uncomfortable. The national average for regular hit $3.73 on Wednesday, up 30 cents in the last month, according to the AAA auto club. In California, the average reached $4.32, up 57 centsÖ from a month ago. The state’s record, set in June 2008, is $4.61.

Long-term options to try to influence prices include increasing domestic oil production, cutting gasoline demand, using more biofuels and encouraging drivers to buy electric cars. The United States is doing all of those things.

Domestic oil production has grown each year since 2008 — the first multi-year increase since the 1980s. As companies use hydraulic fracturing — known as fracking — to coax oil from underground shale formations, U.S. production has swelled from 4.95 million barrels per day in 2008 to an estimated 5.59 million barrels per day last year, according to the federal government’s Energy Information Administration.

Gasoline consumption, meanwhile, has fallen, as people switch to more fuel-efficient cars. It’s almost 7 percent lower now than a year ago, according to the Energy Information Administration.

And yet prices are rising anyway, for a simple reason. More than at any other time in history, oil and gasoline prices are set by a global market, based on global supply and demand.

The price of oil pumped from American soil is based largely on what the world is willing to pay. Consumption may be down in the United States, but it’s growing in Asia, which has overtaken us as the world’s thirstiest consumer of crude. And while American drivers are using less gas, U.S. refineries are shipping the excess fuel to willing customers in Mexico and South America.

In other words, it’s no longer just about us.

“Small reductions in our imports — which is what we’re really talking about — have to be measured against the world supply and demand of oil,” Sweeney said. “The price we pay is shaped by the world price.”

As public alarm about gas prices mounts, Obama has argued that America needs an “all of the above approach,” with increased drilling as well as efforts to cut consumption and find alternatives. Many congressional Democrats and Republicans have pushed the same basic idea, although they differ on the details.

Gingrich, in contrast, focuses solely on increased production, saying America has enough untapped oil reserves to become the world’s largest producer.

In a 28-minute online video about energy policy, he argues that a combination of offshore drilling and onshore fracking can produce enough oil to render Middle Eastern turmoil irrelevant. Gingrich also would approve the Keystone XL pipeline expansion to bring fuel from the Canadian oil sands to America’s Gulf Coast, a project on which Obama has delayed making a decision.

Finally, Gingrich says he would do away with fuel-efficiency standards for cars. Under his plan, America would have enough oil and gasoline, Gingrich says, that those standards wouldn’t be needed.

“I know it’s different,” he says at the video’s end. “I know a lot of folks in the establishment will say it’s unrealistic. These are the same people who said to President Reagan, when he said we could defeat the Soviet empire, ‘Now, be reasonable.’”

Critics, including Obama, counter that the United States has just 2 percent of the world’s oil reserves while it consumes 20 percent of the world’s oil. Gingrich argues that the nation’s potential oil supplies are far larger, now that fracking for oil has become economical.

Many energy experts — including those who want more domestic oil drilling — say the government must focus both on increasing production and decreasing consumption at the same time. And even that combination won’t guarantee low prices, although it could help.

“You’re seeing an increase in domestic oil production — that’s all great,” said Ken Medlock, an energy research fellow at Rice University’s Baker Institute for Public Policy. “But you can’t forget about the demand side. The trouble is, you have to do both. And that’s where you run into political trouble, because one side of the aisle wants to do one and the other side wants to do the other.”

For any energy policy to work, Medlock and others say, it must be left in place for years, so that companies can invest money in long-term projects with certainty. But the government often doesn’t work that way.

Developers of wind farms, for example, are fighting furiously to extend a federal tax credit they consider crucial to financing their projects, a credit set to expire at the end of the year. Businesses that frack for oil and natural gas, meanwhile, fear that the Environmental Protection Agency will try to rein them in, said Paul Dickerson, a partner with the Haynes and Boone consulting firm who served in the U.S. Department of Energy under President George W. Bush.

“Whether it’s wind or solar or gas or oil, it’s important for government to give industries the certainty they desire,” said Dickerson. “As a rule, industry can take virtually anything the federal government has to give, so long as it lasts at least for a 10-year period. If there’s regulatory uncertainty, that slows growth.”

David R. Baker is a San Francisco Chronicle staff writer. dbaker@sfchronicle.com

1 Comment

  1. hgnis

    That damn Obama – only looking out for his Big Oil buddies.

    #1