Mike Kueber's Blog

March 23, 2012

Energy independence

Filed under: Economics — Mike Kueber @ 10:09 am
Tags: ,

America has been pissing and moaning about its energy dependence since Nixon and Carter days.  With the price of gas approaching $4 again this spring, we are again bemoaning our apparent inability to restrain our profligate consumption that many compare to a drug addiction.

Seemingly flying under the media and political radar is the fact that the oil-shale fields in my home states of Texas and North Dakota have moved America sharply toward energy independence.  But this startling fact is being overlooked because the price of gas is high. 

The move toward energy independence was reported in an article titled “Crude Awakening” in Time magazine this week:   

  • It may be hard to believe as gas prices break new records, but the U.S. is actually in the midst of an energy boom. In 2011 domestic oil production reached its highest level since 2003, and one state–shale-oil-shilling North Dakota–pumped more crude than entire OPEC countries like Ecuador. For the first time in more than 60 years, we’re selling more petroleum products than we buy[Bolding mine.]  That’s great news for the domestic oil and gas industry–and the roughnecks and engineers it employs–but the rest of us won’t reap many rewards. President Obama recently vowed to “reduce our nation’s vulnerability to the ups and downs of the global oil market,” but it won’t be easy: the U.S. spent a whopping $331.6 billion importing crude last year. And with increased demand from China pushing up the price of oil, that bill will only get bigger–which means high gas prices could continue to be a drag on the economy. Oil is a global commodity, and as long as the U.S. needs crude, we’ll never be truly energy independent.

By contrast, a related Associated Press article published yesterday in the San Antonio Express-News, was headlined, “No dip in price with more drilling,” and it focused on the inability of America and its politicians to control the price of gas:  

  • It’s the political cure-all for high gas prices: Drill here, drill now. But more U.S. drilling has not changed how deeply the gas pump drills into your wallet, math and history show.  A statistical analysis of 36 years of monthly, inflation-adjusted gasoline prices and U.S. domestic oil production by the Associated Press shows no statistical correlation between how much oil comes out of U.S. wells and the price at the pump. If more domestic oil drilling worked as politicians say, you’d now be paying about $2 a gallon for gasoline. Instead, you’re paying the highest prices ever for March.

As usual, the NY Times can be counted on to provide the most comprehensive reporting on an issue and today’s edition delivered contained a wide-ranging review, including a discussion of oil-field fracking and a description of the policies of the Bush-41 administration that are paying huge dividends for America today.  Also included in the NY Times article were informative graphics that revealed America imported 60% of its liquid-fuel needs in 2005 and only 45% in 2011 (and projected to be 38% by 2022).  Thus, America still has a ways to go to achieve energy independence despite Time magazine’s report that, “For the first time in more than 60 years, we’re selling more petroleum products than we buy.”  This statement is misleading and should have been explained.

My major concern, however, with the media’s coverage this past week is the failure to emphasize that, although America no longer has the power, either through its production or consumption, to control gas prices, there is a huge difference between sending $300 billion to OPEC countries for imports and keeping that $300 billion in America and letting it percolate throughout the American economy.

Every little bit helps.

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3 Comments »

  1. i haven’t seen any enlightening reporting and as far as i can tell everybody is wrong.

    the price of oil is the largest component cost in gasoline, but cost doesn’t drive price, it drives minimum price. people will not stay in a business unless they can cover their costs and make a profit that is appropriate for the risk they are taking. when oil goes up or down gas prices can vary to cover costs, but what really drives the price of gasoline is supply and demand for gasoline. if more gasoline is produced and demand stays the same then the price of gasoline will drop.

    as a station owner if you typically fill your tanks every friday, but have to refill on thursday this week, you raise your prices. if you don’t need to fill your tanks until saturday you will likely drop your prices…

    q

    Comment by Q — March 24, 2012 @ 9:21 pm | Reply

    • Supply & demand is theoretically straightforward, but sometimes in practice it’s a mystery; kind of like stock prices, which Bob Davis thought he could predict. Global demand, however, is unquestionably rising based on the growing economies in the emerging economies.

      Comment by Mike Kueber — March 25, 2012 @ 3:04 am | Reply

  2. interesting reply, it tends to discount the impact of supply and demand for gasoline.

    the price of oil is only ONE factor of many in the price of gasoline, and even then it only contributes to the minimum price that will be charged for gasoline before producers will start producing something else… don’t try to make it all arcane by calling supply and demand “theoretical” or “mysterious”.

    what makes the pricing arcane is human decision making… things like not acknowledging that the price of oil is only one factor in the cost (even if it is the biggest) and that it determines cost, not price.

    Comment by Q — March 25, 2012 @ 4:13 pm | Reply


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