Wednesday, March 15, 2006

Energetic Musings.

Over at the Badger Blog Alliance I got into a discussion on the energy hearings in Washington D.C. The discussion is in the commentary section and with a reader and a BBA co-blogger.

The Congress has dragged oil industry executives in front of them and asked them why gas prices are high. We should drag our congressmen in front of us and ask why taxes are so high. Hehehe, our state legislature would have a lot of 'xplaining to do.

Anyway. There are a couple of reasons oil prices are high. Terrorism. The terrorists just attacked an oil facility and a high percentage of the oil supply has to go through the narrow Straits of Hormuz which an unfriendly nation (Iran, I have blogged plentifully on the situation and how the DPW Deal figures into that) dominates. Insurance rates for ships in the Persian Gulf skyrocket. Go to the Fujairah Hilton and look out at night. You will see the lights of many ships waiting to dash in, pick up their loads (of oil), and dashing back out. Not cheap.

Now add to this China and other emerging economies. They need the same energy to produce as we do, what happens when you have multiple parties bidding for the same thing?

Lets see, we can not extract oil from our lands as the environmentalists go crazy at the suggestion. We have not built a refinery in years due to environmentalists and NIMBYs (Not In My BackYard). Also never forget the refineries during summer, have start making special blends usable by only a given region, this chokes total available output. Etc etc etc.

A few of those factors have their origin in Washington D.C., not with the oil executives testifying, but with their inquisitors. The common number is that on average oil companies make a profit of about 10% on the gasoline. That is a dime on every dollar, that is not a fantastic profit margin. Hehehe, I wonder what the profit on a bottle of Aquafina water is? I wonder what is on the Smith Sunglasses I bought.

If our goal is to get off of oil based energy then working to keep the price artificially low is the exact wrong way to go about it. Let the price rise and as the price of a gallon of gas rises people may settle for a Honda that gets 45 mpg instead of a Yukon that gets 17 mpg (may is the keyword, a guy in Orlando FL with no children and who only drives from to/from work does not have a pressing need for the Yukon, a carpenter in Northern Wisconsin has a need, but in both cases let them make their choices). Funding for alternative fuels and energy will expand thereby giving us a greater chance of a goodyear moment.

Pressuring the oil companies to lower their prices and profit is the surest way to keep our addiction to oil going.