Latest FATZ column–America needs hydrocarbons: deal with it, liberals
Taken in Clio, Michigan on June 6, 2008. I keep worrying the day will come when this will seem like a dirt-cheap price to pay for gasoline.
By Richard Zowie
Normally I don’t write about oil and gas issues since David Blackmon, who writes “Now Wait a Minute” for the Bee-Picayune and has worked extensively in the energy industry, knows the industry very well and does a far greater job of explaining it than I ever could. But in light of the proposed Waxman-Markey Bill possibly becoming law, I thought I’d yield my two cents.
On paper, the bill seems to have good intentions as it calls for the use of cleaner forms of energy. But at what price? My concern is it’s based on unrealistic expectations, faulty data and could drive fuel prices to unaffordable levels and make it even tougher for those whose jobs require driving long distances (like my brother-in-law Jason, an Ohio truck driver) to earn a living. Then there are people like me, whose jobs often require one-way commutes of 20 miles or more.
The last week of June, while looking at my freelance photography archives, I saw photos I took last summer of a new convenience store outside of Flint, Michigan. Taken June 6, 2008, the price sign read: $3.95 for regular unleaded, $4.05 for silver and $4.15 for ultimate.
Just a few months earlier in the spring last year, gas prices escalated up to an ungodly $4.35 a gallon. Twenty dollars at $4.35 a gallon gives you just over 4.5 gallons of gasoline. There were times when I wondered if I’d have enough gas to drive back to town with my paycheck, cash it and make it to the gas station. People sold their SUVs and trucking companies strained to make ends meet with much of their profits going into the rising cost of diesel.
Later in 2008, we received a refreshing reprieve as gas and oil prices plummeted with the economic struggles. At one point, we were paying as low as $1.35 up here for gas. Twenty dollars at $1.35 a gallon buys 14.8 gallons of gasoline.
The prices have been creeping up again, and a few weeks ago in Detroit, regular unleaded gas sold for $3.00 per gallon. Yesterday (June 30, my and my wife’s 12th wedding anniversary, of all days), I paid $2.55 for regular unleaded in Millington, Michigan. Millington is about 75 miles north of Detroit.
I wonder how long that will last if this bill becomes law.
Some, such as one particular lunatic fringe I know of, claim the gas prices magically fell to cheap levels at election time when then-President George W. Bush called his oil industry buddies and told them to charge lower prices. If that’s the case, why are they coming back down again now with President Barack Obama in office?
If only it were really that easy. Clearly, Mr. L.F. knows nothing about the energy business.
Of course, the gas prices have nothing to do with all the untapped oil and gas we have in our own country, both off-shore and in potential mother lode deposits in Utah, Wyoming, Colorado and Alaska. They remain untapped due to government bureaucracy. Bush and then John McCain were accused of kowtowing to Big Oil, but the current leaders in charge are content to kowtow to Big Environment. If only Big Environment’s sole focus was conservation; unfortunately, their other focus is political power at the expense of common sense.
During the 2008 campaign, Obama ran a commercial opposing drilling off-shore (among other places), saying it would take about seven years to get it to market. Even if the time frame is accurate, it’s all the more reason to start drilling now. Back in 1995, I remember one person who’d spent 30 years in the oil and gas exploration industry telling me about how much potential oil there is in Alaska. That was 14 years ago—twice as long as the time frame Obama gave. If we had started drilling then, we could possibly be at least completely independent of Middle Eastern oil by now. Who knows, maybe today’s gas prices might even be a fraction of what they are now.
I suppose seven years from now in 2016, the Obama Administration will still tell us it’ll take seven years to get oil products to market, and the cost of the government’s bureaucratic, lethargic energy policy will mean paying $25 per gallon (in 2009 dollars) for gasoline. Perhaps the sage Vice President Joe Biden will simply tell Americans to quit driving to help reduce gasoline prices. Or perhaps Congressman Barney Frank will tell American banks to ease restrictions so Americans can purchase–on credit–alternate fuel cars that they really can’t afford.
Goodbye, home foreclosures. Hello, automobile repossessions.
And, of course, today’s gas prices have nothing to do with our being at the mercy of whether OPEC chooses to increase or cut output. Nor does it have anything to do with China and India’s rising demands for gasoline.
Sometimes, I wonder if our government leaders realize just how expensive the business of oil and gas exploration can be. One person griped to me how there are countless oil and gas wells in Texas that aren’t being tapped. I told them they’re forgetting a simple economic equation: if it will cost an oil businessperson more to extract the product from the ground than what they’ll make off the product at market, then it makes no sense to extract it.
To illustrate, consider this scenario. Let’s say, inspired by The Pantry in Beeville, I decide to start selling breakfast tacos up here in Michigan. (The Pantry’s breakfast tacos are one Texas food item I miss every day). I find that it costs me $2 in ingredients and other expenses to produce a single breakfast taco. I also find that nobody in my area’s willing to pay more than a dollar for my breakfast tacos.
This means, as delicious as my breakfast tacos might be, I’m losing a dollar on every one I sell. Does it sensible to make and sell them?
Of course not, unless I can find out how to make them for only fifty cents per taco. The point of business is to make money, and if you lose too much money too often, you won’t have a business anymore.
Unprofitable wells aside, the energy business can be an extremely tricky investment in other ways. There are the geophysical readings that tell you there’s potentially a nice deposit of oil or gas in a certain spot. You then go out and get the land lease, file and pay for the permits through the Texas Railroad Commission, lease the equipment, pay the crews and then drill. Once the hole is drilled, you find there’s either nothing there or not enough to make a profit or recover what you’ve invested.
What about all that money you invested into leasing, permits and drilling? Goodbye, Adiós, Auf Wiedersehen, and Do Svidanya. Maybe you can write it off on your taxes as a work-related loss.
Yes, I’m aware of hydrogen fuel cells, hybrids, electric cars and the cars that run on cooking oil. I think vehicles with clean emissions are a wonderful idea, and I know the day will come when the internal combustion engine will be confined to museum displays. But is it really reasonable to expect or even speculate that alternate-energy cars in the next 10 or 20 years will become commonplace and affordable?
In the meanwhile, we need a solution to today and the near future’s energy problems. I’m afraid the current administration would rather treat energy like a popularity contest than really get to the bottom of the problem.
I’d better get used to riding a bicycle.
Richard Zowie grew up in Beeville and works in Michigan as a writer. His blog’s at www.fromatozowie.wordpress.com, and his e-mail address is firstname.lastname@example.org.