Is Big Oil the Problem or the Solution?

John ArmstrongEconomy/Economics

Big Oil is taking a beating these days, especially now that gasoline prices are above $4 a gallon in most areas of the U.S. Chevron0
It is as common as “daily workplace chatter” to attack the major oil companies for their greed and huge profits, all the while blaming them for some, or even all, of the economic problems that we currently face.

Last week the congressional Democrats blamed Big Oil with their usual attacks while they did nothing serious to address the need they have never addressed for over thirty years—the production of more energy within the borders of the United States. So, expect to hear the same message that we have heard in every election since the 1960s–“we must find more energy (alternative sources) within the U.S.”–but this time expect that the next president and the Congress will finally have to do something about it. We cannot depend on alternative energy for decades so something has to be done with oil supply now. It is really that simple.

The problems will come when he solutions are offered and then, if ever, passed. The Democrats want to repeal $17 billion in tax breaks for the oil companies over 10 years and then impose a windfall profit tax on those same companies that do not invest enough in new energy sources. Cal Thomas is correct to call this “political expediency at its worst.” And President Bush visited Saudi Arabia this week asking the Saudis to produce more oil for America.

But the facts are these. We have not opened a new refinery in the U.S. since 1976. Eight-five percent of offshore drilling is off-limits. It is argued that this is all about protecting the environment. I am more pro-environmental than most of my more conservative friends but I think this confuses the issue seriously. This is not an issue between oil and the environment. Some of Europe’s strongest pro-environment nations—Denmark, Norway and the U.K.—all lease offshore locations for oil exploration. Off_shore
People falsely worry about offshore drilling. During hurricanes Katrina and Rita a 1,000 offshore wells were destroyed but not one of them leaked. I would call that a safe source for more American oil but we still refuse to get serious about it. 

When the Alaska pipeline was built radical environmentalists argued that the caribou would be wiped out by the pipeline. I think their concern was not unimportant. But the facts are these—it has, quite simply, not happened. The caribou is alive and well. There is a serious difference between “good” green policy and the kind of environmentalism that sounds like a religious creed. It is hard to tell the difference at times.

Besides this issue there is the sense of entitlement that most of us have the right to “cheap gasoline.” While we have had it quite easy for years Europe has paid three to four times as much for fuel. This is why they drive more fuel efficient vehicle, vehicles that many Americans laugh at in their cavalier disdain for all things European and their desire to drive huge cars. If the price of oil keeps rising the market will correct itself and we will finally alter our lifestyles to fit the new reality. One thing here is sure—the days of cheap oil are over!

What about our U. S. energy companies? They are already spending large sums of money on exploration for new sources of energy. Look, these are businesses that must produce profits for their shareholders. They will spend what makes sense and they will produce profits. This is the way the system works and those policies that recognize this will do the best to produce supply so that demand will be met. If the government tries to force change this scenario by taxing and punishing profits the results will bring back the scenario that we saw in the 1970s under President Carter. (Anyone remember waiting for a half hour to an hour just to get gasoline? Or do you recall the signs out front which said, “No gas today?”) Between people learning restraint, and the oil companies being urged to further drill and develop new energy sources, there is a solution. The question then is simple: “Will we be smart enough to find it?” If we aren’t then this problem alone will add to our considerable woes in the Middle East.

According to the U.S. Department of Energy our oil production has fallen 40% since 1985. Meanwhile our consumption has increased dramatically. Government estimates are that we have enough oil toGwb_2
power more than 60 million cars for 60 years. The reason we do not get this oil is the surrender of U. S. policy to the radical environmentalists. It appears to me that these arguments are, in many cases though certainly not in all, bogus.
Now we have a U. S. president going to Saudi Arabia begging for more oil production. Cal Thomas concluded earlier this week, “The specter of a president of the United States going hand-in-hand to Saudi Arabia to plead for more (and more expensive) oil from the dictatorship that underwrites an extreme form of Islam that is out to kill us is obscene. President Bush ought to be rallying Americans, not embracing people who don’t allow women to drive cars.” I think Cal is right.