Our airline and trucking industries are collapsing as a result of  skyrocketing gas prices.  Our president went to Saudi Arabia and begged them to produce more oil…Saudi’s response?  Tell you what Mr. Bush, we will THINK about producing more oil if you sell us nuclear technology and materials.  President Bush and Condoleeza Rice’s response…sounds good, lets do it.  Okay, so we are selling nuclear technology and power plants to Saudi Arabia in exchange for a mere promise from Saudi Arabia to THINK about producing more oil.  When asked if he thinks that this deal will compromise U.S. security, Bush responded that he trusts the King of Saudi Arabia.  I am by no means a foreign policy expert but that leaves this writer a little uneasy.  There is a consensus among those who are experts in this area that any domestic drilling will not produce a drop of oil for at least ten years.  However, listening to Bush, McCain, and the republican party, you would think that domestic off-shore drilling is the panacea for our energy crisis.  So their answer to our “oil addiction” is to drill more oil to feed our habit?  Hmmm………the crack addict strategy…….works for me!  Even Ruper Murdoch’s conservative Wall Street Journal agrees that if domestic drilling were to take place, the American people would not see any oil for seven to ten years. This seems to be a last minute grab from the two oil men before they leave office.  Oil companies or republicans never seem to mention that U.S. oil companies already have over 400 oil leases that allows them to drill domestically and are only drilling on 20% of those leases.  So, although 68 million acres are already leased to the oil companies for domestic drilling, they are not drilling.  Reason claims said oil companies…..a lack of the necessary equipment or not enough acres to make drilling profitable.  Yea right!  It seems that they and the republican party have decided to obtain and hoard as many leases as possible while the gettin is good, i.e., before the oil men administration leaves office.  McCain has also decided to flip-flop and jump on the bandwagon by changing his position regarding off-shore drilling.  Originally, McCain’s position was no off-shore drilling domestically.  Interesting tidbit….Wall Street values oil companies based on their reserves.  The more reserves the oil company claims that it has, the greater the value of said oil company.

Off-Shore Drilling

The moratorium on off-shore drilling was put in place two decades ago in an effort to preserve the environment (routine leaks, spills, pollution from rigs, affect on climate change when burning the end product, tar bogs on the beach) and to prevent damage to oceanlife that off-shore drilling would cause.  Further, residents of coastal communities do not want to see parts of their coastline industrialized nor do they want view eyesore oil riggs from their coastlines.  Also, business and residential communities of such coastlines do not want the on-shore development of support facilities and refineries that come along with off-shore drilling.  For these communities, the coastlines are huge economic engines that drive business to their localities.  Side point: Even if the ban is lifted, there is a shortage of ships available to oil companies to do the off-shore drilling.  Back to my main point.  The U.S. is the third largest producer of oil in the world. We cannot produce enough oil to meet our huge demand.  Better solution, drive down demand in the U.S. and become much more fuel-efficient and energy independent.  We cannot produce enough oil domestically to meet our demand.  Fuel efficiency will have a much greater effect on our dependence than any negligible effect achieved by increased domestic drilling.  Even though McCain has been quoted to say that domestic oil “resources will take years to develop,”  he is now pushing for us to become more fuel dependent by agreeing with Bush in his proposal to increase off-shore drilling.  Funny thing, Jeb Bush is Against lifting the ban. However, current Florida governor and vice presidential hopeful Charlie Crist supports lifting the ban.  Another interesting tidbit is that John McCain has received $800, 000 in campaign donations from the oil and gas industry.  Though Sen. McCain is advocating otherwise, less drilling and renewable energy such as wind and solar seems to be the quickest and more preferable methods. After all, experts confirm that it will take 20 or 30 years before consumers will actually see cheaper gas as a result of domestic off-shore drilling.  Sen. Barack Obama supports maintaining the ban.   

Will not make a difference in gas Prices 

Claiming otherwise is political pandering.  Selling more domestic drilling leases to oil companies will not make a difference in the price of gas. This is a world market and individual fields do not have a big influence on how the price of oil is set. Further, the U.S. has only 2% of the worlds proven oil reserves yet we consume 21% of global oil demand.  We import 60 percent of our oil.  We will never be able to drill enough oil to make us energy independent simply with domestic off-shore drilling.  Fuel efficiency and alternative forms of energy are our best options.  Off-shore drilling is a red herring that will not come anywhere near solving our current energy crisis

Speculators  (Enron loophole)

Speculators have also been cited as the reason for high gas prices by way of the Enron loophole.  The Enron loophole, proposed by then Sen. Phil Gramm(TX) now McCain’s Chief  Financial advisor, is a provision in the Commodities Futures Modernization Act that exempts electronic trading of energy (oil) from oversight of the Commodities Futures Trading Commission.  In 2000, Gramm and former CEO of Enron, Kenneth Lay, convinced Congress that the energy market would be much more “efficient” without federal oversight.   Actually, Gramm slipped the Enron, backed and drafted, provision into the CFM Act.  Also, at the time, Wendy Gramm, Phil Gramm’s wife, was on the board of directors of Enron.  Nothing like keeping it in the family.  The Enron provision allows for energy trading in unregulated markets, also referred to as “dark markets.” American investors and hedge funds can purchase an unlimited number of energy contracts on foreign exchanges.  This practice artificially inflates oil demand.  Because of the lack of federal oversight with respect to foreign exchanges, traders are able to avoid the ”position limits” set by the Commodities Futures Trade Commission for American markets resulting in ”price distortion and supply squeezes.”  Trading in such unregulated markets have soared in the last three years.  Speculation appears to be playing a significant role in driving up the price of oil.  Oil is being used as a hedge against the dollar.  As the dollar falls foreign investors buy oil using dollars because it is perceived as discounted.  This then increases the demand for oil in the energy market.  Further, to purchase stocks on margin in regulated markets, investors must put down at least 50 percent of their own money.  However, in the unregulated energy (oil) market, investors need only put down seven percent of their own money and hedge funds need only put down 1 percent or less. This allows speculators/investors to take huge bets with tiny amounts of money.  Raising the margins for such speculators would make this type of trading less profitable by decreasing the demand for energy contracts.  Some say that the Enron loophole can account for as much as $80 of the $140 cost of  a barrel of oil.  Such speculation has also been estimated to account for as much as 60 percent of the price for a gallon of gasoline.  Lack of policing by the government allows traders to manipulate, if not outright control, the market.  Legislators took a small step towards reform in the farm bill legislation but they need to go much further and close this loophole altogether.  McCain opposed the farm bill and defended the Enron loophole.  The Arizona senator claimed to oppose the bill because he did not want to reward lobbyists.  However, a McCain aide speaking on the condition of anonymity, acknowledged that McCain opposed the bill after being advised by Gramm to resist it because of the regulatory language affecting the energy futures market.  Speak to you congressman about closing this loophole and increasing margin requirements.

Supply and Demand 

Many claim that the increased demand for oil by developing countries China and India is the reason for the high oil prices.  “World demand for oil is projected to increase 37% over 2006 levels by 2030, according to the US-based Energy Information Administration’s (EIA) annual report.” India and China are becoming big oil consumers as a result of urbanization, development, and pursuit of higher living standards.  China’s oil consumption doubled from 1996 -2006. It also imported over 50 percent of its oil in 2005.  India’s oil imports are expected to triple by 2020.  The increase demand for cars and trucks in India and China will be the primary cause of 75 percent increase of oil consumption.  This number will only increase as more and more countries develop.  The price of oil has risen 400 percent in the last six years. Yet the demand for crude oil has has only risen a little over nine percent in the last six years.  In 2002, the price of oil per barrel was $20.  Last week a barrel of oil reached an all time high of $142 a barrel.  Though oil production has outpaced demand 9.87 to 9.38, the price of oil has increased spectacularly.  The way market forces usually work is when supply is less than demand, the price of oil increases.  When supply is greater than demand, the price of oil should go down.  Deductive reasoning dictate that because oil production exceeded oil demand and the price of oil still increased 400 percent within the last six years, China and India are probably not the reason for the meteoric rise in oil prices.

Gas Tax Holiday

A gimmick.  Nough said.

What We can Do

America needs to become more energy independent.  What can we the consumers do?  We can do our part.  We are already parking our cars, driving less, and moving more towards mass transit.  Driving 60 mph will eliminate 2 million barrels of oil a day and will significantly affect our demand thereby impacting the price of gasoline in the U.S.  We do not need politicians to tell us this.  These are things that we can do as consumers.  What can Washington, DC do with pressure from us the consumers?  Renewable energy and heightened fuel economy standards can have a substantial impact.  Fuel economy standards were only recently increased after being frozen since the Reagan era.   Congress is finally telling Detroit that its cars must be much more fuel efficient.  For goodness sake…..cars in Japan get 50 miles per gallon of gas.  Trucks in Japan get 40 mile per gallon of gas.  Ninety percent of the new cars sold in Brazil this year will be flexible-fuel vehicles operating on a mixture of sugar based ethanol and gas.  Why are we so far behind this trend?  Complacency.  America is fully capable of jumping on this bandwagon but has not had the incentive up until this point…..well circumstances have changed dramatically and the US is forced to move toward the gasoline alternative direction.  With respect to Detroit making these large fuel-inefficient vehicles, Detroit posits that its predicament of having to pay pensions and high healthcare cost necessitate that they make larger cars because the profit margin on such cars is much greater than that on small vehicles.  Now however, the demand for compact, fuel efficient cars is imperative and Detroit needs to adjust its business model.  Many suspect that we need $8 dollar a gallon gas to incentivise Americans to use less gas.  I don’t think so.  As previously mentioned, we have already begun to take big steps in this direction by driving less and moving to mass transit as our primary mode of transportation.  Mass transit ridership is up15 percent in some metropolitan cities.  The demand for hybrid cars is enormous, so much so that the length of time that a hybrid car stays on the sales lot after delivery from the manufacturer is 17 hours.  Mercedes Benz, maker of the SmartForTwo, says it will stop producing  gasoline cars altogether in 7 years.  The company is now testing their SmartForTwo as an Electric Vehicle in LA using lithium batteries.  Nissan plans to roll out its electric car in significant quantities to the American market by 2010 and mass market the electric vehicle by 2012.  The cars release zero emissions.  We sent a man to the moon for goodness sake, I do not buy the excuse that it is impossible to become less oil dependent.  Denmark and Israel have already moved in this direction.  Denmark especially are using wind energy to power their electric cars.  One mid-size two mega watt windmill can supply the energy needed for 3000 cars.  700 mid-size two mega watt windmills can power two million passenger cars.  Given that our reliance on foreign oil undermines our national security and defense capabilities, a move in this direction makes sense.   We have the science and technology to go all electric today.  We just need the car companies to begin the process.  If you think about the evolution of mail from letters (snail mail), to fax, to email; the evolution of the electric car is on the same path.  First we have the gas vehicle, then we have the hybrid, the next logical step is an all electric vehicle.  Electric cars are inevitable, call your congressman and express your backing of putting in place incentives to Detroit and other car companies to begin producing them in large quantities. 

Attorney barred in the District of Columbia and California currently looking for opportunities in the private and government sectors.  Specializes in ediscovery/litigation efficiency project management but can do straight litigation or litigation management.  Feel free to contact me with opportunities at progress@progresspolitics.com.