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Tuesday, May 13, 2008

In Defense of Big Oil?

Cal Thomas has penned an interesting piece with a provocative title. While he does defend big oil, more than that he defends free markets. I agree with much of what Thomas says, though I have some problems with some other things he says.

Where is it written that the cost for a product or service should be frozen in place and in time, never to rise again, or to rise at a pace commensurate with our incomes? People who think this way know little to nothing about supply and demand and less than nothing about the profit motive. That's because at least three generations have been raised on the notion of entitlement, and when one feels entitled to something, one believes someone else should pay.

Now, here, Thomas makes a good and interesting point. Gas prices are not supposed to stay low at all times just because that is the way people want them to. Furthermore, big oil has little if anything to do with the outrageously high price of oil. There are a plethora of competing factors that I will save for another time.

Frankly, my problem with big oil has never been about high gas prices. It has a lot more to do with this next statement.

Peter Robertson, vice chairman of Chevron, told me it's a myth that oil companies are not investing in new energy sources. He says last year alone, Chevron spent $20 billion exploring new sources of energy.

Now, I am skeptical that this is true, but let's say it is. That is an awful lot to spend considering that still more than 99% of cars are powered by gasoline made from oil. If Chevron spent 20 billion last year exploring alternative energy sources that was an awful lot of money wasted. If they really spent that much we would see all sorts of pilot alternative energy tanks all over the country. I know of no hydrogen tanks at any of big oil's gas stations Chevron included.

Nothing bothers me more than when for PR reasons big oil states that they are putting energy, pardon the pun, into alternative energy. That is a bunch of nonsense. If big oil wanted to, we would be totally energy independent tomorrow. If Chevron really spent $20 BILLION last year on alternative energy sources, we would have all sorts of new alternative energy sources available through Chevron. Yet, I don't see any tanks with anything but petroleum from oil.

It is nothing short of a PR ruse perpetrated by big oil to say that they are committed to alternative energy sources. Big oil has been around for over one hundred years and yet they make the exact same product today they made one hundred years ago. To me, that is not much of a commitment. The way I see it big oil likes getting fat on gasoline made from oil. They see absolutely no reason to try and discover any new sources because that might create a market that they don't control. Right now, the top seven players in gasoline control north of sixty percent of the market. That market they can control. A market that includes fuel from hydrogen, natural gas, and other sources they can't necessarily control. Whatever they are spending, that, to me at least, is for show only.

Then again, Thomas does make this intuitive point.

Senate Democrats last week sought to ingratiate themselves with voters, while doing nothing to produce more energy, with a familiar attack on "big oil." They want to repeal $17 billion in tax breaks for the oil companies over 10 years and on top of that impose a windfall profit tax on companies that don't invest in new energy sources. This is political expediency at its worst.

Now, Thomas is absolutely right. This windfall tax is nothing more than a political stunt. It accomplishes nothing. Furthermore, Thomas makes this correct point.

Responding to objections to offshore drilling by environmentalists and their allies in Congress, Robertson noted that some of the strongest pro-environment nations in Europe - he mentions Denmark, Norway, the United Kingdom - lease offshore locations for oil exploration. The technology has become so good, he said, that during Hurricanes Katrina and Rita, "one thousand offshore wells were destroyed (in the Gulf of Mexico), but not one leaked." Australia, he said, has allowed offshore drilling for 40 years without any environmental damage.

He's right. If the Democrats wanted to, they could cut the price of gasoline in half just by announcing that we would start drilling everywhere we can but they continue to resist like ANWR. Instead, again for political expediency, the Democrats come up with this political stunt

The Senate on Tuesday voted with overwhelming support to stop filling the Strategic Petroleum Reserve in order to reduce the cost of gasoline.

Rather than take tangible steps and begin drilling in areas full of oil, the Democrats want us to stop fill the strategic oil reserve. If we announced that we would begin drilling in ANWR, the price of oil would drop below 100 dollars a barrell. If we announced that we would drill off the coast of the Pacific as well, it would be below fifty. If we announced that we would drill everywhere we can but don't because of "enviromental protection", the price of oil would be below $20 a barrell. Instead, we will drop the price of a barrell of oil a couple bucks and the Democrats will pretend to care.

Here is what Thomas doesn't say though. He is right. The Democrats have sold the folks out in order to get into bed with environmentalists. As such, we don't drill in all sorts of places we could drill in. The Republicans, on the other hand (like Thomas himself), have gotten into bed with big oil. As such, this cartel continues to operate even though the Sherman Anti Trust Act was created to break up just such a situation. Somehow seven companies control north of 60% of the market and no one does anything about. Somehow big oil creates the exact same product now they did eighty years ago and no one questions whether or not they are a market. Of course, they aren't. No market has such a stagnant product line. If big oil were a market, they would have turned us energy independent years ago. Of course, they aren't. They are a cartel or an oligopoly. They continue to operate as such because the Republicans are protecting them.

Make no mistake. There are plenty of villains in this mess, but big oil doesn't deserve defending.


ClimateWatcher said...

I pulled up off the internet one of Exxons quartly reports. What I found was that Exxon, paid as much in taxes as it made in net profits. 3/4ths of Exxons profits come from over seas sales, Exxon paid over 2 1/2 times it's profits in fee's, duties and other taxes (not income) including taxes to forgien govenments.

mike volpe said...

Very possible, though you won't find me feeling sorry for them. That said, your point shows that taxing them more is absurd.