High Oil Prices

Today, there will be yet another Congressional hearing on the high cost of gasoline and the subsequent grilling of Big Oil executives. I am sure there will be lots of blame placed on Big Oil and how they are contributing to the excessive hardship of ordinary Americans.

I am confident that one thing these Congressmen will do is fail to do any self-reflection. Have they considered that many of the actions that they have taken might actually be contributing to the high cost of gasoline?

For starters, governments (State, Local and Federal) have put so many unique limitations on gasoline that oil companies have to keep literally thousands of formulas on the market to comply with standards. Gasoline is not a commodity product like wheat any more. That drives tremendous complexity in the business. The Feds have also failed to allow new drilling in some of the most promising areas of the US like ANWAR, Coastal Florida, and Coastal California. Permitting is do difficult in this country that new refinery construction is virtually impossible. In fact, there has not been a new refinery built in the US since 1976.

There has also been no consideration given to a reduction in the gasoline taxes. The US average fuel tax is $0.47/gal (from API). At $3.15/gal, gasoline taxes represent 15% of the cost to the consumer. It is the government that benefits most from the sale of gasoline.

A very good article from the President of the Heritage Foundation details some of the challenges faced by oil companies today. It is worth the time to read it. Considering what has to be done to get gasoline to the consumer today, we should be thanking oil companies, not bashing them.

Oil companies have to go to the most dangerous and perilous places on earth to find crude oil. Then they have to extract it from as deep as 30,000 feet at tremendous risk and capital cost, then transport it via pipelines that terrorist are constantly attacking and loading it onto very expensive double-walled tankers and shipping it half way around the world to refineries. These refineries cost billions to build (when you can) and maintain just so they can then put a product into a pipeline again so it can be distributed to local terminals for delivery. All this is done so consumers can enjoy a gallon of product for less than they pay for a gallon of milk.