Hurricanes, Gas Prices, and Market Economics
Hurricanes Katrina and Rita have devastated the Gulf Coast region and now Hurricane Wilma is threatening Florida. Cities have been wiped off the face of the earth in Texas, Louisiana, and Mississippi, while New Orleans is experiencing the worst natural disaster on American soil in decades. Behind the devastation and tragedy lies another story that effects all of us: gas prices. Hurricane season has wrecked havoc on prices at the pump nationwide. As prices approach, and in some places exceed, $3 a gallon, Americans are looking for someone to blame. Many blame the big-oil companies, while others believe that the individual gas stations are price gouging and reaping extraordinary profits.
These criticisms are misguided at best and idiotic at worst because they ignore simple supply and demand economics. Think about it, how many gas stations do you pass on the way to work or to the grocery store. Five? Ten? Do you honestly think that one gas station owner could get away with charging $3 a gallon if it only costs him $1 a gallon to bring the product to market? Of course not, because the guy across the street would buy the $1 a gallon gasoline from the same suppliers and charge $2 a gallon. At that point every customer would stop at the second gas station and the first station wouldn't sell any gas and would be forced to bring his price down to $2 a gallon. It's simple supply and demand capitalism. So what's the problem? Why does gasoline cost so much and why did Hurricanes Katrina and Rita result in a huge price spike in gasoline prices?
What the hurricanes did was expose America's oil supply problem. We as a country can't seem to get enough gasoline to the people that need it and the problem is two-fold. First, America does not have enough oil refining capacity and second we aren't allowing ourselves to bring enough oil to market. The crude oil that comes from the ground cannot be converted into gasoline without refining it. Unfortunately, American companies have not built a major new refinery for decades because of government regulations. Companies have to jump through so many hoops to build a refinery that the vast majority of the time it simply becomes too much trouble. As a result, America's refining capacity has simply not kept up with our energy needs. Since a large part of the country's refining capacity is located in Gulf Region, the hurricanes shut down a large portion of America's already limited refining capacity and not enough gasoline is entering the marketplace. It doesn't matter how much oil you have if you can't refine it and turn into gasoline. The solution is simple. Eliminate the vast network of government requirements necessary to build a refinery and make it profitable again to turn oil into gasoline. When more suppliers enter the market, more gasoline will be available and, through simple supply and demand economics, gas prices at the pump will go down.
The second problem, not bringing enough oil to market, is also easy to solve. Drill for more of it. Again government regulations, supported by environmentalists, have prevented businesses from looking and drilling for oil in large areas of the country. Both the Atlantic and Pacific coasts are off limits, as are the deep energy reserves off the coast of Florida. But perhaps the biggest area where oil is readily found in America is in Alaska within the Artic National Wildlife Reserve (ANWR). The US Geological Survey (USGS) figures the amount of "technically recoverable" crude oil is at least 5.7 billion barrels and could be up to 16 billion barrels. Since the United States consumes about 20.4 millions barrels of oil per day these Alaskan oil reserves could greatly increase the amount of domestic supply and, over the long-run, bring prices down significantly. These billions of barrels of oil are found on just 2,000 acres of land in Northern Alaska. To put that into perspective the state of Rhode Island is 66,600 acres. Nowhere in North America is so much oil concentrated in such a small area.
The another form of energy that Americans rely heavily upon is natural gas. Natural gas is primarily used to heat homes. In the winter, as electric bills rise throughout the country, citizens will be demanding to know why. Once again the problem is that not enough natural gas is being delivered to market. The environmental lobby in the United States has helped maintain a federal moratorium that puts 85% of known American natural gas reserves off limits. The Gulf of Mexico alone is sitting on 232 trillion cubic feet of natural gas. Alaska another 122 trillion cubic feet. Again, with U.S. yearly consumption at 22 trillion cubic feet a year, these reserves would greatly increase the supply of natural gas available in the marketplace and therefore greatly decrease the price of heating one's home.
For years conservatives in Congress have tried to provide free market solutions to this country's energy problems, such as opening up the small 2,000 acres of wilderness in ANWR, but have been prevented from doing so by environmentalists and their Democrat allies in Congress. Government regulations and bureaucratic red tape have not allowed American companies to expand this country's energy output to keep pace with the country's growing energy needs. Drilling rigs and oil equipment have become much more environmentally friendly in the past decade, but the government has simply made it difficult and, sometimes completely unprofitable, to bring more energy to market. Even nuclear energy plants have gotten exponentially safer and more efficient, but a new plant has not been built on American soil in almost three decades. Why? Unsurprisingly, federal government regulations are so onerous that its takes ten years worth of due diligence and approval for a company to even begin to build a nuclear power plant. It's unfortunate that the price of gasoline is making it harder for Americans to make ends meet. But it's even more unfortunate that the government is preventing the simple laws of supply and demand to solve the problem because they work every time they are tried.
Any comments or questions can be received at whyyouareaconservative@gmail.com
~ The Conservative Guy
These criticisms are misguided at best and idiotic at worst because they ignore simple supply and demand economics. Think about it, how many gas stations do you pass on the way to work or to the grocery store. Five? Ten? Do you honestly think that one gas station owner could get away with charging $3 a gallon if it only costs him $1 a gallon to bring the product to market? Of course not, because the guy across the street would buy the $1 a gallon gasoline from the same suppliers and charge $2 a gallon. At that point every customer would stop at the second gas station and the first station wouldn't sell any gas and would be forced to bring his price down to $2 a gallon. It's simple supply and demand capitalism. So what's the problem? Why does gasoline cost so much and why did Hurricanes Katrina and Rita result in a huge price spike in gasoline prices?
What the hurricanes did was expose America's oil supply problem. We as a country can't seem to get enough gasoline to the people that need it and the problem is two-fold. First, America does not have enough oil refining capacity and second we aren't allowing ourselves to bring enough oil to market. The crude oil that comes from the ground cannot be converted into gasoline without refining it. Unfortunately, American companies have not built a major new refinery for decades because of government regulations. Companies have to jump through so many hoops to build a refinery that the vast majority of the time it simply becomes too much trouble. As a result, America's refining capacity has simply not kept up with our energy needs. Since a large part of the country's refining capacity is located in Gulf Region, the hurricanes shut down a large portion of America's already limited refining capacity and not enough gasoline is entering the marketplace. It doesn't matter how much oil you have if you can't refine it and turn into gasoline. The solution is simple. Eliminate the vast network of government requirements necessary to build a refinery and make it profitable again to turn oil into gasoline. When more suppliers enter the market, more gasoline will be available and, through simple supply and demand economics, gas prices at the pump will go down.
The second problem, not bringing enough oil to market, is also easy to solve. Drill for more of it. Again government regulations, supported by environmentalists, have prevented businesses from looking and drilling for oil in large areas of the country. Both the Atlantic and Pacific coasts are off limits, as are the deep energy reserves off the coast of Florida. But perhaps the biggest area where oil is readily found in America is in Alaska within the Artic National Wildlife Reserve (ANWR). The US Geological Survey (USGS) figures the amount of "technically recoverable" crude oil is at least 5.7 billion barrels and could be up to 16 billion barrels. Since the United States consumes about 20.4 millions barrels of oil per day these Alaskan oil reserves could greatly increase the amount of domestic supply and, over the long-run, bring prices down significantly. These billions of barrels of oil are found on just 2,000 acres of land in Northern Alaska. To put that into perspective the state of Rhode Island is 66,600 acres. Nowhere in North America is so much oil concentrated in such a small area.
The another form of energy that Americans rely heavily upon is natural gas. Natural gas is primarily used to heat homes. In the winter, as electric bills rise throughout the country, citizens will be demanding to know why. Once again the problem is that not enough natural gas is being delivered to market. The environmental lobby in the United States has helped maintain a federal moratorium that puts 85% of known American natural gas reserves off limits. The Gulf of Mexico alone is sitting on 232 trillion cubic feet of natural gas. Alaska another 122 trillion cubic feet. Again, with U.S. yearly consumption at 22 trillion cubic feet a year, these reserves would greatly increase the supply of natural gas available in the marketplace and therefore greatly decrease the price of heating one's home.
For years conservatives in Congress have tried to provide free market solutions to this country's energy problems, such as opening up the small 2,000 acres of wilderness in ANWR, but have been prevented from doing so by environmentalists and their Democrat allies in Congress. Government regulations and bureaucratic red tape have not allowed American companies to expand this country's energy output to keep pace with the country's growing energy needs. Drilling rigs and oil equipment have become much more environmentally friendly in the past decade, but the government has simply made it difficult and, sometimes completely unprofitable, to bring more energy to market. Even nuclear energy plants have gotten exponentially safer and more efficient, but a new plant has not been built on American soil in almost three decades. Why? Unsurprisingly, federal government regulations are so onerous that its takes ten years worth of due diligence and approval for a company to even begin to build a nuclear power plant. It's unfortunate that the price of gasoline is making it harder for Americans to make ends meet. But it's even more unfortunate that the government is preventing the simple laws of supply and demand to solve the problem because they work every time they are tried.
Any comments or questions can be received at whyyouareaconservative@gmail.com
~ The Conservative Guy
posted by The Conservative Guy at
10:52 PM
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