Tuesday, April 1, 2008

Fool's Gold

FACT: Exxon Mobil only controls 5% of the World's Oil reserves. It has a gross profit margin that is 1/2 that of the average companies in the Standard and Poor's 500 U.S. Stock list.

FACT: High Oil Prices are a world-wide problem. For example, gasoline is around 9 U.S. dollars/gallon in Great Britain.

FACT: Most of the oil in the world is controlled by government-run oil companies and the top known oil reserves in the world are as follows (in billions of barrels): Saudi Arabia - 265.3, Iraq - 115, Kuwait - 98.8, Iran - 96.4, United Arab Emirates - 62.8, Russia - 54.3, Venezuela - 47.6, China - 30.6, Libya - 30, Mexico - 26.9, Nigeria - 24.1, United States - 22, Algeria -12.7, Norway - 10.1, Indonesia - 9.7, Angola - 9, Brazil - 8.5, Oman - 5.8, Canada -5.6, and Qatar - 5.6.

FACT: At 22 billion gallons of oil reserves, the United States oil reserves are down nearly 1/2 from 1970 when the oil reserves were 39 billion gallons. We are losing oil reserves everyday while increasing imports and our dependency from terror-supporting countries and enemies of the United States.

FACT: The United States, alone, uses nearly 25% of the world's oil production. But, China and India are rapidly growing and are expected (combined) to overtake the United States fuel usage in the next 10 years.

FACT: United States Oil Companies are making record profits ($128 billion in 2007) because oil prices are high. The fact is, "all" oil companies are making high profits. But worse yet, all the Middle East countries and Venezuela and Russia are making trillions of dollars in oil income at our expense.

FACT: U.S. Oil Companies are getting $18 Billion in Tax Credits. That's $18 Billion in Tax Credits over "10 YEARS" and not $18 billion in tax credits this year as some members of Congress would deceptively make you think.

FACT: A single Deep Water Oil Drilling Platform in the Gulf of Mexico can cost 1/2 billion dollars. There are approximately 820 rigs in the Gulf of Mexico to support our energy needs. Those oil rigs cost approximately $160 billion to build and have a substantial ongoing cost. And, because we have to drill deeper to access any new oil fields, the cost of those rigs continually goes up. We could see billion dollar rigs within the next 5 years.

FACT: There are 136 million automobiles in the United States with an average age of a little over 9 years. Therefore it will take over 18 years due to normal attrition to replace every one of those automobiles with any new technology or fuel efficiency standard.

FACT: Americans consume approximately 150 billion gallons of gasoline per year from 7.5 billion barrels of oil. An additional 6 billion gallons of ethanol, 3.7% of fuel, is consumed by Americans.

FACT: The Federal Government charges a 18.4-cent per gallon tax on all gasoline sales for, supposedly, transportation infrastructure building and maintenance; ie. roads, bridges etc... The average American family pays approximately $375 a year in this Federal Tax.


Yesterday, the primarily Democratic Congress, once again, beat up on our U.S. oil companies for the high price of oil and, subsequently, the high cost of gasoline in this country. At the heart of the anger against these companies are their high profits and the tax breaks they get for exploring for new oil. In the mind of the bleeding-heart liberal, this cannot be. In their minds, no corporation should not "profit" and still get "tax breaks" while the American consumer is in such pain at the pump. However, the high cost of oil is a world-wide problem because of supply and demand and because of OPEC which can turn up and turn down the spigot to control supply and, subsequently, affect pricing.

Yesterday's equivalent of a "show trial" was intended, as always, to give the far Left of this country the impression that our Congress is doing something about the high cost of gasoline. The fact is that our Congress, and not the oil companies, have put us in the bag we are now in with extremely high gasoline prices. Only two factors will actually reduce the high cost of oil and gasoline: (1) increased production and refinement or (2) reduced consumption.

Now, it is true that the Congress, late last year, passed an "Oil bill" which will increase fuel efficiency by 50% in automobiles. But, not until 2020! There are over 136 million automobiles in this country and their average age is 9 years old. It will take at least 18 years past 2020 to get all those "old" cars off the road so the that the new standards are fully implemented. That means the true savings in consumption of the latest "Oil Bill" won't have it's full effect until the year 2038 when all the old fuel economy automobiles are replaced with the new. In the meantime, we will continue to increase our fuel usage by at least 2 percent a year as a result of our population growth. At best, the "Oil" legislation of 2007 won't even keep up with our own population growth. By 2038, we will be using more oil than we are using today. Similarly, even if the United States was able to introduce a new kind of car that didn't use oil and was competitively priced, it would take that same 18 years to get all those gas-guzzlers off the road.

It is also true that the same "Oil" legislation mandated an increase in ethanol usage. Under that law, we would increase our ethanol consumption from 6 billion gallons this year to 36 billion gallons by 2022. As a country, we need another 47 billion gallons of fuel per year by 2022 based on 2% growth, compounded, per year. An additional 30 billion gallons of ethanol won't hardly keep even with a 47 billion gallon increase in fuel by 2022. Further, the additional ethanol is already killing Americans in the pocketbook for food. Corn, the primary source of ethanol in this country, has already tripled in cost since 2006 and since the higher use of ethanol was mandated by Congress. This has seriously affected all food prices because corn is an essential feed for cattle and poultry. Corn and corn by-products (ie. corn starch and corn syrup) is used in many of the foods we eat. For example, the average cost of a dozen eggs is up 25% in a year because of the higher cost of corn and oil.

Sure, the Congress can take the $1.8 billion dollars in tax credits away from the oil companies and divert those credits to new energy technologies like wind and solar. However, wind and solar isn't going to make a dent in those millions of gasoline powered automobiles (and trucks) that are on the road and in production, every day, by the automobile companies. And, in doing so, we hobble the oil companies in this country because they will have less money to find new home-grown sources of oil. This means that we will just become increasingly more dependent on foreign oil sources as our need for fuel increases while our existing oil reserves in this country die off due to exhausted resources. But, for the Democrats and our Democratically-controlled Congress, punishing the oil companies will certainly make the "tree-huggers" (a main contributer to the Democrats) very happy while the rest of the Americans suffer; especially the poor who are suffering under high gasoline and high food costs.

Congress needs to stop the "green" politics and come to the realization that we have a short term and long term plan to our energy needs. Wind, solar, hydrogen and all this other pie-in-the-sky stuff is long term. And, unless we find new sources of oil to supply our current inventory of millions of automobiles, the price of oil and food will just go up. A legitimate and not political plan needs to include (1) new drilling and refinery (2) conservation and (3) new technology (both interim and long term). Just trying to conserve is foolish and fool's gold.

No comments: