On the surface, all the rhetoric and chest thumping over high gas prices seems logical. What better target for media hungry politicians than big business, particularly the oil industry? Blame them for $3.50 gallon gas prices. Charge them with "profiteering" and threatening industry leaders with hefty fines and penalties.
It is a cosmic alignment as the throng of presidential candidates posture for the 2008 elections. Load up the congressional big guns and train them on industry executives on live television. It is Hollywood 101!
Sen. Charles Schumer (D-NY), chairman of the Joint Economic Committee, proclaims he wants to break up the big oil companies, somehow rationalizing that smaller companies would be more competitive and therefore lower prices at the pump.
That's interesting, because the Federal Trade Commission (FTC) finds there are more than 60 refining companies in America today. Independent refiners, not the big eight oil companies, produce a quarter of our gas. Since 1990, the number of independent refiners grew from 8 percent of production to 25 percent today.
Sen. Hillary Clinton (D-NY) wants to levy a "windfall profits" tax on oil companies. Freshman Sen. Bob Casey (D-PA) is more specific. He says excess oil company profits occur when oil sells for more than $50 a barrel, despite the fact that crude oil on world markets shot past fifty bucks a barrel long ago and often fetches more than $70.
Washington Sen. Maria Cantwell (D) and Sen. Bryon Dorgan (D-ND) call for "price gouging" legislation with fines and penalties, even though workable definitions for both terms remain as elusive today as they were in the 1970s. They want to launch yet another investigation into gasoline pricing, even though several FTC inquiries continue to show it is market forces, not industry chicanery, that is responsible for high prices at the pump.
Others claim that the oil industry is holding back gasoline and diesel supplies waiting for higher prices. If that were true, why would U.S. refineries be producing a record 371.7 million gallons of gasoline a day? Even with that increase in domestic production, America must still import 12 percent of its gasoline.
There is no mystery. Recently reduced supplies from international sources triggered the price spike. Some European refineries shut down for spring maintenance. There were refinery problems in Nigeria and Venezuela and an 18-day French port-worker strike in March constricted shipments. All this sent the Chinese, Americans and other buyers scrambling to find supplies, forcing them to pay top dollar for motor fuels.
If Congress wants to do more than grandstand on this issue, it needs to delve deeper into our nation's energy policy. The real issue is not price gouging, it is supply and demand. The increasing global demand for oil is running smack into limited supplies.
Our elected officials cannot ignore reality. The emerging economies of China and India, representing more than a third of the world's people, suck up energy in record quantities. Our economy is also booming and we need more energy. Fuel shortages are growing more acute. With the demand for oil projected to grow by 30 percent, Congress must set aside the political posturing and develop a sound energy strategy.
That strategy should include both alternative fuels and new energy supplies. Over the last five years, according to the American Petroleum Institute, in North America alone, the oil industry invested more than $100 billion of its profits in emerging renewable energy technologies. That's more than two and a half times the amount invested by the federal government and all other U.S. companies combined.
That's part of the solution. We also need new supplies. Despite modern technology and techniques that protect the environment, Congress refuses to allow exploration in Alaska and other promising places in our country. Strangely, only when Chinese oil rigs started showing up in the Gulf of Mexico did Congress open new offshore leases last year.
When demand outpaces supplies, prices go up. If Congress truly wants to lower gas prices, they need to act to increase energy supplies.
Don C. Brunell is president of the Association of Washington Business.