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Thursday, April 27, 2006

The Oil Drum: The Politics of Oil - The Discourse Must Change!

As you may have noticed, there's a lot of political hot air getting blow about concerning prices at the pump these days. Everyone seems to have their own solution for how to help solve this 'problem' and cut the American people some slack. Unfortunately, you may have also noticed that the supposed solutions are usually a bit simple and tend towards the 'find a convenient enemy to blame' line of reasoning.

Well the current climate of the politics of oil has prompted the "ideologically diverse" set of editors at the Oil Drum, the premier site for the ongoing discussion of Peak Oil, to issue their first ever press release. Its a very worthwhile read and I've included the fulll text below. It's time we got a bit more realistic about what's causing prices at the pump, and a bit more realistic about finding true solutions (i.e. alternatives to oil). Read on ... and then write a letter to your editor and start injecting some informed discussion into the current atmosphere of finger-pointing and cries of 'price-gouging':

Wed, April 26th, 2006

Leaders of both political parties are expressing concern about the high price of gasoline. President George Bush announced yesterday that he was suspending deliveries to the Strategic Petroleum Reserve in order to make more oil available to consumers as well as putting on hold the traditional regulations requiring additives to make fuel burn cleaner during the summer driving season.

Meanwhile, Democratic leaders have had their own response to rising gas prices. Senate Minority Leader Harry Reid has announced his support for the Menendez Amendment, which would “provide more than $6 billion in relief directly to the American people by eliminating the federal tax for both gas and diesel for 60 days.” Senator Charles Schumer recently called for a federal investigation to determine whether oil companies are withholding gasoline production, and House Minority Leader Nancy Pelosi has blamed high gas prices on the administration's cozy relationship with the oil companies, price gouging, and royalty relief.

The editors of The Oil Drum are ideologically diverse. Over the last year, we have created a forum at to encourage an open, rational, and fact-based discussion of energy issues. While individual editors frequently express an opinion on a subject, we have never felt it necessary to take a unified position on any specific issue. That is, until today.

We strongly feel that the leaders of both political parties are not only headed in the wrong direction with respect to gas prices, but we also worry that they fundamentally misunderstand the factors behind the current situation at gasoline stations around the US. Public statements by political figures over the past several days would seem to suggest that oil companies and their record profits are the sole factor determining the price of gasoline. Not only is this untrue, but it is dangerous to give the American people the impression that only oil companies are to blame. The American people need to understand that the phenomenon of high gas prices cannot be attributed to a single source. They also need to understand that no one political party will be able to fix our current woes.

The major factor that determines gas prices is the price of crude oil from which gasoline is derived. When crude oil prices are high, so are gas prices. The following are just a few factors that affect the price of a barrel of oil:

  • 1. Oil companies do not single-handedly determine the price of oil. The price of oil is set on the crude oil futures market. Simply put, these prices are affected by supply and demand because, at present, oil trades in a global commodity market where increased demand or reduced supply in one place instantly translates into price shifts everywhere. A variety of publicly available information sources show that supply is relatively static at the moment, while world demand continues to grow as economies grow.

  • 2. We have provided evidence many times at The Oil Drum that the output of major oilfields is declining and that we may now have reached a peak or plateau in global oil supply. Oil companies have not been able to increase production for a number of years, and it is unclear that OPEC is accurately reporting their reserves. Even if there were significant sources of high quality oil remaining, it is getting increasingly difficult and expensive to drill. These factors, along with aging infrastructure for oil exploration and a retiring workforce are also contributing to high oil prices.

  • 3. The geopolitical situation is volatile, and an astute citizen may notice that every time there is news from Nigeria or Iran, the price of oil goes up because of the potential and real effects of these situations on world oil supply. Again, oil traders are fearful that the supply will not remain stable forever.

  • 4. Countries like China and India are industrializing at a great pace, and while we are accustomed to obtaining oil at a comfortable quantity and price, it will be impossible (and immoral) to deny similar resources to these countries. China is working furiously to secure new oil supplies, and they're content to negotiate with countries we're reluctant to deal with, like Iran and the Sudan.

  • These points demonstrate that disruptions in the supply of oil that affect the price of gasoline at the pump are not just a temporary glitch. For various reasons--decreased discoveries of new oilfields, geopolitical instability, international competition for oil supply--we can no longer assume that we will be able to consume as much oil as possible, or ever get it again for $1.50 a gallon.

    Demagoguery and grandstanding are not strategies for addressing our energy problems. As an alternative, the editors of The Oil Drum put forth the following recommendations:

  • 1. It is nonsensical for political leaders of both parties to eliminate the gas tax temporarily or permanently as this will only worsen our dependence on oil by disincentivizing the innovation of oil alternatives and oil conservation efforts.

  • 2. Both mainstream American political parties are doing their country a disservice by accusing convenient scapegoats of price gouging or price fixing instead of educating the public about how the price of gas is actually set.

  • 3. Right now, governments should be focused on helping us cure our “addiction to oil.” The answer does not lie in lowering gas prices, which will only encourage people to drive more and further waste our valuable resources. As the Department of Energy funded Hirsch Report on Peak Oil laid out, the consequences of not taking steps to transition away from oil could be dramatic to our economic system. Appropriate solutions include large-scale research, development, and implementation programs to improve the scalability of alternative sources of energy, other projects geared towards improving mass transit and carpooling programs across the country, providing incentives to buy smaller and more fuel efficient vehicles, and promoting a campaign to increase awareness about conservation.

  • The political discourse on this topic is simply so devoid of fact, and constructive discourse so buried and out of the mainstream, that we felt we needed to raise a voice of reason. Public officials will continue to misinform and obfuscate if we allow it.

    The only solution is to educate the public about the most important problem we face as a generation. We, the citizens of the US and the world, must move our attention to this the issue of energy more than any other. We must hold our representative governments accountable for having an open and honest debate on the subject.

    Simply put, we must learn more about where our energy comes from.

    An always lively discussions continues at the Oil Drum. The discussion of the press release can be found here
    [A hat tip to Green Car Congress]


    Anonymous said...

    I agree that we need to use high oil prices (add taxes if necessary) to wean the country from cheap oil (it is still cheaper than the 1980 peak, after inflation). However, we are not about to run out. The Peak Oil believers have missed many key points.

    Foremost among those is that the cost of producing mideast oil has been steady at less than $10 for about 20 years. The costs are 'all in,' and include exploration. If they were running out any time soon, then costs would have to have risen.

    There are two reasons to find/develop alternative energy sources:

    1) Cleaner air.
    2) Every barrel of oil bought from the mideast at $70 puts over $60 of profit in their pockets. They are using these profits to fund the activities of people who don't like us.

    Anonymous said...

    Sad story on our pullitzer-quality 10 O'clock news last night about people using those consumer-protection groups, the pay-day loan companies, to borrow money for gas for their commute (the horror, my god, the horror of $2.99/gallon!!!).

    My head is spinning trying to incorporate that mentality (both of the people actually doing such a financially brilliant thing, and of the people who thought that was real journalism) into any discussion of a rational energy policy.

    Disclaimer: That story was hardly news; it lasted about 30 seconds, and there was no evidence of the extent of the phenomena. I can't imagine there has been a relevant rise in such behavior that can be linked to the price of gas.

    Anyway, Al Gore would have started working on an energy policy in 2000, right? Not 2006...hmmm. Would it have worked, or just gotten him voted out in 2004? Tough to say, given the state of the discussion amongst the masses.

    Thanks for the great link and the great resources on WattHead! I'll actually read some when I'm done with finals in 2 weeks!


    Anonymous said...

    Hey Jes- I don't think I have your email so this is the only way I can send this to you... It was posted on CNRG (

    News: OSU Dean calls conservationists 'goons,' 'scam artists'

    Portland, OR - A public information request by Oregon State Senator Charlie Ringo has unearthed emails by Hal Salwasser, Dean of the College of Forestry at Oregon State University, in which he refers to environmental activists as 'scam artists,' 'goons,' and compares them to the mafia (see below for Salwasser's complete comment).

    Several portions of Salwasser's emails were reprinted in the April 19th version of the Willamette Week. One passage in particular has raised eyebrows for a a newly formed group called Environmental Students and Professionals for Responsible Leadership (ESPRL), based in Portland. They have launched a grassroots campaign to hold Salwasser and OSU accountable.

    'Salwasser's remarks are offensive, derogatory, and highly inappropriate, and we're encouraging the people we represent to speak out, and show OSU that conservation professionals are smart and caring members of our communities,' said John Morgan, a ESPRL representative. 'The thought that we're being compared to the mafia just makes me shudder'

    Over the last few months, Salwasser and the several professors at OSU have been involved in a growing scandal over attempts to censor a graduate student's study on forest ecology.

    Several newspapers have also been investigating the College of Forestry's ties to the timber industry. Sentaor Ringo says that the recently unearthed emails indicate a potential conflict of interest between timber industry insiders, Salwasser, and several OSU professors.

    Hal Salwasser's email to Jennifer Phillippi (timber industry insider)

    'These activist groups set up all the hurdles that make these projects money losers then they complain that the agency loses money so the projects should not be done. There is, in my mind, nothing more duplicitous being foisted on society by these scam artists. The tree theater, threats of appeals and lawsuits is also nothing more than a new wrinkle on the 'protection' tactics used by the mafia in our society for years. I can't call these goons out from my position but someone must bring this to light eventually. This is not 'environmental protection,' it is extortion.

    Environmental Students and Professionals for Responsible Leadership can be contacted at