Fossil Fuel

Gas Prices
Gas Price 1970 –> Now

Gas Prices — How high and why?

Gasoline prices follow the price of oil. They lag behind a bit when the price of oil rises and they lag behind a bit more when it falls. But as you can see above, they can still fall very fast, as they did in the last half of 2008.

Iraq Vets Link Oil, Climate Change, and Terrorism

Price Up, Imports Down

Oil Prices and their Dramatic Effect

We are witnessing the second largest drive toward energy independence in our history. The first was in response to the 1973-1985 OPEC crisis, and ...

Federal vs. OPEC Gas Tax:  Which is Bigger?

Energy-Policy-Calculator.gifEnergy Policy Calculator  (Not working)

Convert any kind of energy to any other. E.g. tons of coal to gallons of gasoline.


Fossil News

The Canadian Keystone Pipeline

President Obama has postponed the final decision on the Keystone pipeline, saying his rejection was "not a judgment on the merits of the pipeline, but the arbitrary nature of a deadline that prevented the State Department from gathering the information necessary to approve the project and protect the American people." Although the big question is probably oil spills, the case for the pipeline is based on jobs. Let's take a look.


Keystone Pipe

Energy Independence

“President Obama's decision to reject the Keystone XL crude oil pipeline is as shocking as it is revealing,” declared Mitt Romney, while Newt Gingrich called the decision a “stunningly stupid thing to do. ... it’s as if they were [#governing Mars].” Pretty harsh criticism. So, who would not want to move us toward energy independence?

First remember that this is a Canadian pipeline (with some U.S. investors) that will transport Canadian tar sands sour crude oil to the U.S. for refining. It should be easy to read between the lines that what is meant is that the Canadian tar sands oil will help us become independent of Middle East oil, and the Middle East is currently a little "unstable." And for some it means independence from those Muslims. As hinted in Bob's recent joke note, "Coffee in Heaven," we all know how much Muslims are disliked, right? (43% of Americans admit to feeling at least "a little" prejudice toward Muslims. - Gallup poll, 2010,

Forty percent of Canadian oil comes from tar sands and, currently, 20% of the United States' oil imports come from Canada. The United States currently imports 21% of its oil from the Middle East. - Investopedia

   America’s #1 export in 2011 was refined fuel. Shocked? Don’t be. Despite the staggering price of gas at the pump, the US ships gas, diesel and jet fuel off to developing countries like China. The reason? US consumption of oil has declined since 2006 and North Dakota has a glut of shale oil. Underutilized Midwest refineries refine the shale and export to China [and other countries]. And Big Oil wants to export even more.

   That’s where the Keystone Pipeline XL enters the room. Few Americans understand that Keystone is an export pipeline. It will link Alberta Canada’s tar sands to Gulf Coast refineries where it will be exported to the highest bidder, most likely China and India.

   The TransCanada Corp. folks want you to believe Keystone will benefit you. It will do nothing of the tar sands sort. It will not reduce American dependence on Middle Eastern oil. It will not reduce the price of gas. It will not produce thousands of permanent jobs. - MetroWest Daily News, Jan 29, 2012


   Valero, the top beneficiary of the Keystone XL pipeline, has recently explicitly detailed an export strategy to its investors. The nation's top refiner has locked in at least 20 percent of the pipeline's capacity, and, because its refinery in Port Arthur is within a Foreign Trade Zone, the company will accomplish its export strategy tax free.

   The oil market has changed markedly in the last several years, with U.S. demand decreasing, and U.S. production increasing for the first time in 40 years. Higher fuel economy standards and slow economic growth have led to a decline in U.S. gasoline demand, while technological advances have opened up new sources in the United States. Increasingly, U.S. refiners are turning to export.

   The construction of Keystone XL will not lessen U.S. dependence on foreign oil—rather, it will feed the growing trend of exporting refined products out of the United States, thereby doing nothing to enhance energy security or to stabilize oil prices or gasoline prices at the pump. If completed, it will successfully achieve a long-term objective of Canadian tar sands producers—to gain access to export markets. - Policy Innovations


25 percent of Gulf Coast refinery output is now going to export and Keystone XL will feed this growing trend because the heavy sour oil derived from tar sands is ideal for producing diesel, the product most in demand on the export market.


Keystone XL will help maximize Big Oil’s profits while doing nothing to enhance U.S. energy security.


• There is currently a glut of pipeline capacity from Canada to the U.S. with around 50% currently unused;

• Canadian oil production is not forecast to fill existing pipeline capacity until after 2025;

• This means that Keystone XL would simply be diverting oil to the Gulf Coast that would have supplied the Mid West;

• This will likely raise the price of Canadian oil in the Mid West as Canadian oil moves from surplus to shortage;

• Gulf Coast refiners represent a comparatively limitless market because they are able to export products to anywhere in the world;

• With U.S. gasoline demand in terminal decline, Gulf Coast refiners are maximizing diesel output to serve the export market;

• With 25% of refinery output, and growing, going to export, the Gulf Coast is becoming an international refining center in which U.S. domestic demand is becoming increasingly irrelevant.

- Oil Change International, NRDC


Lower Gas Prices


   As chairman of the House Energy & Commerce Committee, Rep. Fred Upton (R-MI) is among its most ardent and unequivocal supporters. In a July interview with CNBC he stated:

   "According to the Department of Energy, this one project will "essentially eliminate" oil imports from the Middle East. It will create more than 100,000 jobs and strengthen our relationship with a close ally and trading partner. A project like this should be a no-brainer, and there's simply no good reason it has been stuck in the State Department's red tape for nearly three years."

   Rep. Upton also stated that the project would likely help lower gasoline prices and reduce volatility. In that same interview he said:

   "If we take steps today to safely develop our resources for the future, we can quickly and consistently hold down prices. I think the American people understand supply and demand, and they understand if we increase the supply of American-made energy, prices will come down. It's as simple as that.

- US News & World Report


Well, this is probably obviously not true if the tar sands sour crude is destined for export.


TransCanada's tar sands pipeline will actually INCREASE gas prices for Americans—especially farmers—according to TransCanada’s 2008 Permit Application which states “Existing markets for Canadian heavy crude, principally [the U.S. Midwest], are currently oversupplied, resulting in price discounting for Canadian heavy crude oil. Access to the USGC [U.S. Gulf Coast] via the Keystone XL Pipeline is expected to strengthen Canadian crude oil pricing in [the Midwest] by removing this oversupply. The resultant increase in the price of heavy crude is estimated to provide an increase in annual revenue to the Canadian producing industry in 2013 of US $2 billion to US $3.9 billion.”


Independent analysis of these figures found this might increase per-gallon prices by 10-20 cents/gallon in the Midwest. - Cornell University Global Labor Institute


Well, hooey. So it might RAISE gas prices.


[=governing Mars] “President Obama's decision to reject the Keystone XL crude oil pipeline is as shocking as it is revealing,” Mitt Romney, the frontrunner for the GOP nomination, said in a statement. “By declaring that the Keystone pipeline is not in the ‘national interest,’ the president demonstrates a lack of seriousness about bringing down unemployment, restoring economic growth, and achieving energy independence. He seems to have confused the national interest with his own interest in pleasing the environmentalists in his political base.” . . . At a campaign event in Warrensville, S.C., Newt Gingrich called the decision a “stunningly stupid thing to do.” The large crowd gathered to see Gingrich roared. “There’s no better word. These people are so out of touch with reality, it’s as if they were governing Mars.”  —Los Angeles Times,
[=PopNotes] Just hover over green-underline links above to see the "pop" notes.


Gas Prices

Take the Drill-Baby-Drill Challenge: Can You Guess Right?


 You know the story. When Obama took office:

  • Gasoline cost $1.95/gallon and oil, $45

But now (3/2/12)

  • Gasoline costs $3.72/gallon and oil, $125


Incredible. And we understand—because our politicians explained it to us, like so ...

  1. We should've drilled.
  2. But Obama and his EPA stopped us.
  3. So the supply of oil went down.

And, that pushes the price up, and high oil prices cause high gas prices. If we had drilled, supply would be up and the price would be down. Maybe down to $1.00/gal like under Clinton ([#March 1999]).

Free. Many Varieties

So I dare you to guess which Obama scenario on the graph above is correct. Don't cheat. Guess before you click to see the answer. Don't believe it? — See for yourself where the data comes from.

Shocking but true:

  1. We did "drill baby drill" — like never before.
  2. Obama didn't stop us.
    • Just ask the [#upset Sierra Club].
  3. The US supply of oil went up the most since 1970.

Under Obama, drilling has skyrocketed as never before, and the price of gas went from $1.95 to $3.95 (April 1, 2012).  There's a reason.

A Historic Reversal

More surprising facts:

[#PopNotes] Used Above

[=March 1999] Regular gasoline actually got down to $0.90/gallon in early March, but I like round numbers.
[=upset Sierra Club]Sierra Club President, Michael Brune quotes Obama saying "we are drilling all over the place," and headlines his op-ed "Obama’s energy March madness." (March 25, SF Chronicle)  But, Obama was right, and I say this as a member of the Sierra Club.
[=gas price widget]Enter a 2-letter State Abbreviation at the bottom of the widget to find your state's prices. Many variations are available for your website. 
[=PopNotes] Just hover over green-underline links above to see the "pop" notes.


Drill, Baby, Drill !!!

Obama does not get or claim credit for all the drilling. But ...

  1. He sure has let it rip.  (Did they strike oil?)
  2. Amazing as it is, it did not bring gas prices down. Click here for why.


zFact:  This is the biggest oil-drilling surge in 30 years, and likely the [#biggest ever].

  • This is the best oil-industry data — Baker Hughes. ([#exact data])
  • If you see data that shows a much [#lower drilling spike].

See the unprecedented impact of Drill-Obama-Drill. 

[#PopNotes] Used Above

[=PopNotes] Just hover over green-underline links above to see the "pop" notes.
[=biggest ever]The 1981 surge may have involved more rigs, but today's rigs can drill much faster, more flexibly and more accurately. (Before 1987, oil & gas rigs are not separated in the data.)
[=exact data]See North American Rotary Rig Counts, tab 9, "US Oil & Gas Split."
[=lower drilling spike]Look closely and you will find that it includes drilling for natural gas. That has been slowing down because the price of natural gas has plummeted. This graph is for oil drilling, and that's what counts for gasoline. 


Drilling Works

Drill-baby-drill is supposed to work like this:

  1. more drilling means more oil pumped (Right, see graph.)
  2. more oil means lower prices. (Wrong. Here's why.)

As you can see, the huge drilling boom under Obama has caused an unprecedented increase in oil production. Step #1 worked. But ...

zFact:  This is the biggest 3-year increase in oil production since US production peaked in 1970.

If you thought drill-baby-drill would bring down the price of gas (and you probably didn't), you were conned. How did they do that?.


Under Obama, US petroleum production has increased more than in any
three-year period since 1970. 
(Source Table 1.2, DOE's Annual and Monthly Energy Reviews)

Drilling Fails

Drilling is not a bad idea; just don't expect miracles at the pump. In fact, with a lot of drilling, count on pain at the pump. Take a look at these prices!     (Find out why.)


This Is Not an Accident — When Drilling is Up, Price is Up.

The two times (early 1980's and now) when drilling has set records, the price of gas has gone through the roof. When drilling was at it's lowest in 50 years under Clinton, gasoline got down under $1.00/gallon. Sarah Palin probably doesn't know this. Newt probably does. He's smart and a liar. 

zFact:  With a lot of drilling, the price will be high. With little drilling, it will be low.


Drill-Baby Fallacy

click to enlarge
Puzzle: Why is the price of gas up, when drilling is up?
  1. It was $1.00 under Clinton when drilling was lowest.
  2. It was $3.30 when drilling peaked under Bush.
  3. It was $3.90 with drilling sky high under Obama.


What's Wrong with the Drill-Baby-Drill Theory?

Newt's $2.50 gas for China⇒
  1. It's only about US Oil Supply (drilling).
  2. But supply and demand determine the price.

Here's What Happens Instead:

  1. Demand for oil goes up (think, China, India and Japan).
  2. The price of oil goes through the roof.
  3. Big Oil smells profit and starts to drill like crazy.
  4. Drilling keeps the price about a nickle lower than "it would have been."
  5. You get the nickle, Exxon gets $10 billion.

In a nut shell, here's the awful truth:

  • China uses more, and Our gas price goes up.
  • We use less and drill more.
  • Exxon ships the extra gasoline to China! -- See for yourself.

zFact:  US drilling is 10% of half the story. We pump 10%. Demand is the other half.

[#PopNotes] Used Above

[=used in politics]Newt told FoxNews, "I have a $2.50 goal as a maximum price. ... we outline step by step how to do it. I think it is doable."  Doable?!  $2.50 for gas means $1.50 for oil (see the Iron Rule). And $1.50 times 42 gallons/barrel = $63/barrel -- a little over half what it costs now. And Newt will make that the maximum price of oil for the world from now on. Sure thing.
[=PopNotes] Just hover over green-underline links above to see the "pop" notes.


US Gas to China

As the price has risen over the last three years, US exports of gasoline to China, India, Europe and South America have tripled to 20 million gallons per day.


We'd like the gasoline to stay here and drive the price down. That's not gonna happen. No oil company will sell to you for less than China or Europe will pay. That means two things:

  • Gasoline prices (before taxes) are set world wide.
  • If Newt could bring the price down to $2.50 for the US he would also be bringing it down for China and Europe.

His unworkable plan is to bring the price down for the whole world.

Gas Price = Oil + $1

The Iron Law of Gas Prices

Price of Gas  =  (World Price of Oil)  +  $1.00/gal

The price of gasoline (in 2012 dollars) has been [#$1.00 more] per gallon than the price of oil for the last 25 years (see graph below). There were some small deviations, but nothing systematic. There's nothing we can do about this unless we change the [#world oil price] — or we subsidize gasoline like Iran and Venezuela.

The Iron Law of Gas Prices (click to enlarge)
gas price oil prices graph


PopNotes Used Above

[=gas price widget]Enter a 2-letter State Abbreviation at the bottom of the widget to find your state's prices. Many variations are available for your website. 
[=$1.00 more] The $1.00 value is just a lucky coincidence. It covers the cost of refining, delivery and taxes. Three or four years from now, after about 10% more inflation, this will be $1.10 or so.
[=world oil price] The US price or the World price of oil?

This graph uses the world price of oil which is best represented by the Brent (North Sea) price of Oil.

[=bets on the future]All about Speculation:  If your skeptical of this claim, good for you. But then you should check this out. It's the clearest explanation you'll find anywhere.


Gas Price Graph

Data from DOE's weekly survey ([#Sources]).
  • See today's gas prices, use the free widget at the right ⇒.
  • Prices in the graph are corrected for inflation.
  • The 1981 gas-price spike happened during the biggest drilling boom ([#maybe]).
  • More drilling means higher prices. Learn why.
  • We're pumping more oil and selling more gasoline to ... find out who.

PopNotes Used Above

[=Sources] Recent weekly prices (year 2000 and after) for regular gasoline from U.S. Department of Energy (DOE xlnk.gif)
Gas prices 1973-1999 from Bureau of Labor Statistics (BLS xlnk.gif)
Gas price before 1973 (annual) from DOE xlnk.gif
Consumer price index from BLS xlnk.gif - U.S. All items, 1982-84=100 - CUUR0000SA0
[=maybe]They probably added oil rigs faster, but they were not as good as today's. (We're not sure because they didn't count oil and gas separately back then.)


The oil-speculation myth holds that dastardly Wall-Street speculators are buying up our oil cheap, driving the price up, and making tons of money. Then I suppose, they sell high priced oil to you and me. Well, I'm not buying this story. This is lot of nonsense, because, for the most part — 99% — speculators don't buy any oil at all! They just buy oil futures.

zFact 1:  Financial Speculation Is Just Gambling and Has No Impact

What are oil futures? They are bets. Speculators are gamblers. Say you think the price of oil is going to $200 per barrel, and I don't. So we bet. Say we bet on 10 barrels. We agree to bet on a price of $170/bbl. So six months from now, if the price of oil is $200/bbl I will owe you $30 × 10 bbl = $300. And if the price is $120, then you will owe me $50 × 10 bbl = $500, and so on. That's a futures contract. Well, not quite. It's not a standard contract backed by a big commodity exchange, so technically it can only be called a forward contract, but it's the same thing. That's financial speculation.

So does our bet make the price of oil go up?  No.  If one-half the the US bets the other half that the Euro is going to $10 next week, will that make the Euro go up? No.  Betting on the horses doesn't make them run faster.

There is, however, another kind of speculation, but it doesn't happen on Wall Street. And this kind of speculation can have a real effect. Here's how it works.

zFact 2:  Physical Speculation Makes a Little Difference Both Up and Down

If you believe that the price of oil is going to $200 in six months, you could buy a big tank and fill it with $100/bbl oil now. Then in six months you could sell it for $200 — if you turned out to be right. Now, your single tank would not be big enough to make a difference to the oil market, but what if lots of Big Physical Speculators did this? It would affect the price Now. Because buying all that oil Now to put in their tanks would be extra demand for oil Now and more demand always drives up the price. So physical speculation can drive up the price for a while — until the speculators' tanks get full.

But after the physical speculators' tanks are full, they've got to sell to stay in the game, and, of course, the whole point is to sell (at a profit) some time in the future. But selling depresses the price just as buying raises it. So if physical speculation works, the speculators will raise the price when they buy at low prices, and lower the price when they sell at high prices. So if they succeed, they even out the price swings. And if they don't succeed, then they buy high and sell low and go out of business.

On top of that, physical speculators don't own enough storage capacity to have much of an impact. The daily flow of oil on this planet, 86.4 million barrels a day (1000 barrels a second), is just too great.


Newt=Jimmy Carter

Shale oil comes from cooking oil shale — not from fracking shale containing "tight oil," which is ordinary oil that is trapped in shale. Tight oil is what is causing today's oil boom, shale oils is the stuff Jimmy Carter was after and Newt Gingrich is proclaiming to be the wave of the future.

Tight oil comes out of the rock on its own, once the rock is fractured. But shale oil is hydrocarbons that have not been naturally cooked long enough to turn into oil and so we have to finish the cooking process for nature. This requires a lot of energy, and most ways of doing it make a far greater mess of the land than does fracking.

Under Construction

Why Does It Matter?

Newt's second point is "End the ban on oil shale development in the American West." That's the dirty expensive oil Jimmy Carter was after. And yes there's a lot of it. But at $2.50/gallon of gas it's not profitable. The reason Big Oil is after shale oil is because they know the world price of oil is likely to average over $100/barrel. So the real plan is this:

  • Cook the oil out of Western shale.
  • Sell it at World Market prices.
  • Huge profits for Big Oil.

America takes the environmental hit. Big Oil takes the profits, the whole world gets slightly gas prices, and a bigger risk of climate change.  (Yes this will drive the price of oil down a bit, compared to what -- $120?)  So the question we're facing is, will the voters fall for yet another energy scheme from the politicians?

Cheaper Driving

How to Save on Gas—Use Less

Plenty of sites will tell you how to find a cheap gas station, but lets think big. One big-picture approach is the OPIC described on the oil-price page. But a more direct and complementary approach is to make CAFE standards tougher—or maybe not. New research brings good news and bad news. First, better mileage is far cheaper than we knew. Second, that means CAFE standards have been doing squat.

Better mileage is tantalyzing, not just because the price of gas is going crazy again, but think of the big picture. America has a choice. We can spend our money on better cars which are mainly made in America (even Toyotas). Or we can continue spending a few hunderd billion a year on foreign oil, which pollutes our cities and warms the globe. On top of that, the best way to reduce the price of oil is to [#buy less] oil/gasoline for our cars.

But Fuel Efficiency (CAFE) standards have flopped. They were not raised for 30 years and they left open a huge loophole—sell trucks instead of cars. And sell huge cars (SUVs) that qualify as trucks. The result has been a massive switch to low-mpg "trucks" over the last 30 years, because their CAFE standards are weak. Unfurtunately, to qualify as trucks, SUVs need a high front-end approach angle, which means they kill more people when they crash into mere cars ([#blame it on CAFE]). Sure, they now tell us the standards will get tougher. We've been through this before.

But There's Hope

In the June issue of American Economic Review (a top economics journal) there's a new estimate of how much it costs to build higher mileage cars. This is an age-old mystery because the car makers say it costs a lot, and environmentalists say it costs very little, and both are prone to exaggeration. But this article took a new and very [#clever approach] based on a CAFE loophole. The result was terrific. It costs somewhere between $9 and $18 to get one more mile per gallon. And the car companies are not doing that because the loophole is cheaper.

Let's do the math. Say a car gets 25 mpg and goes 125,000 miles. It would use 5,000 gallons. But at 26 mpg, it will use 4% less—that's 200 gallons less. That's about $700. So GM and Toyota could save us $700 on gas by selling us a car that costs, maybe, $15 more. And they are not making these improvements.

Don't Drink the CAFE

The trouble with CAFE standards is that the car companies have all the advantages when they go before the NHTSA. They have all the data on costs and market "problems," and they have the lawyers. I've read the arguments and they are hundreds of pages of technical stuff the NHTSA cannot check. Plus the car companies are experts at cooking up new loopholes.

The trouble is that CAFE is bureaucratic command and control. Environmentalists love that feeling of control, but it's just a feeling. You know this is true when we see that all this "control" has not even got them to spend and extra $9 to $18 a bucks a car.

There's a Better Way

It goes by the awkward moniker of "feebate." It's not a tax, since the government collects no money. But high mileage cars pay a fee and low-mileage cars get a rebate. Given how cheap it is to give us better mileage, a very low feebate of say $50 per mile/gallon would have beaten the socks off 30 years of CAFE.

What can the car companies say — Oh we can't meet that standard for years? That standard will cost way too much? This standard would cause technical problems? All of their excuses are out the window and there is no use for their technical expertise — because there is no standard with a feebate!!

They can build whatever they want. The only pressure, but it's extreme, comes from competition. If the other car company makes 30 mpg cars and they make 20 mpg cars they are forced to, in effect, pay the other car company $250 per car on average. What could they hate more than paying their competitor?!

So car companies don't have to do a thing, but they will. They will do far more than they ever have.

And it's easy to argue for a strong feebate. Better mileage saves a lot of money, so companies that save us that much should be rewarded handsomely — with a stronger feebate.


Now check out how our biggest oil barons skew our politics.



[=1] Sample
[=PopNotes] Just hover over green-underline links above to see the "pop" notes.


Test Page

Testing Done. Gas-Price page updated.

Oil Price

Oil prices are monthly average import prices at the refinery in 2011 dollars. Prices run through May 2011 and annual imports through the year ending May 2011. ([#Sources])

 We are witnessing the second largest drive toward energy independence in our history. The first was in response to the 1973-1985 OPEC crisis, and the second started in 2006 soon after oil prices broke $60/bbl tripple their price seven years ealier.

Currently imports are down 37% below the conservative trend line in the graph. That is not only the result of the Great Recession. Parly it is, but mostly it is the price effect. About 5% out of the 37% is explained by increased production, but most of it is price-induced reduction in oil consumption. Contrary to environmentalists (who love command and control) prices work.

The increase in production, though relatively small is impressive considering the U.S. has been runing out of oil since 1974.

So what drives oil prices?

The key is to realize that the oil market is a world market. This has some amazing consequences:

  • Drill baby drill and the Chinese will thank you.
  • Making ethanol replaces 30% less gasoline than environmentalists think. 
  • Exxon loves OPEC more than you can imagine.
  • Form an OPIC with China to cut gas prices and you'll help the climate. 

Drill baby drill

The world market produces and consumes about 95 million barrels a day. The US, uses about 19 and produces about 7.5 million bbl/day[#1]. In 2010 Alaska produced 0.6 million bbl/day, or about 0.6% of the worlds oil. As you can guess, that does not change the price of oil by much. So if baby drills like crazy in the Gulf and the Alaskan National Wildlife Refuge, the most you could hope for would be about a 1% drop in the world price of oil. So how much is that for gasoline?

Well when oil is $126/bbl, which is $3.00/gallon, gas is about $4.00/gallon. So another Alaska might save us and the other oil addicts about 3¢/gallon. China, the next biggest addict expects to be importing 80% of its gasoline by 2030. Of course Japan, Korea, and Europe import almost 100%. So they will all thank us (or they should) for drilling in our wildlife refuge and our fishing grounds.

More Ethanol  ⇒  Cheaper Oil    The World Uses More Liquid Fuel

Use ethanol and you don't use gasoline. But where does the gasoline go? Do the Saudi's put it back in the ground? Nope. They pump their quotas no matter what. Does BP put it back in the ground? Nope, but they might pump less. But why? Because they notice we are using ethanol and they think, "Oh, so we should pump less oil?" Never. Oil companies with expensive production will pump less if and only if the price of oil falls. And since it's a world market, increasing supply (with ethanol) will drive down the price. But here's where the enviros are wrong. They think the lower price only reduces supply. But remember, it's supply AND demand, that rules the market. A lower price will increase the demand for oil. Because of this ethanol is about 30% less effective than the 100% supply-cut that EPA counts on. And since corn ethanol is not so good to start with, producing it actually increases CO2 emissions, once this global rebound effect is factored in. [#Source].

Exxon Loves OPEC

But you knew that. Every time there's a big oil price spike Exxon makes about an extra $30 billion per year. That buys a lot of love. And it's a free ride. The Saudi's have to cut production to raise the price, but Exxon, does not help at all. So they appear to have clean hands, and it's all gravey. In return, they quitely protect OPEC.

Form an OPIC; Save the Climate !?

Back in 1975 many advocated an Organization of Petroleum Importing Countries. In fact, the U.S. led the formation of the International Energy Agency (IEA), which Henry Kissinger designed specifically to act as a counter-cartel against OPEC. And it did give it a try, but the the Iranian revolution knocked out Iranian supply and sent prices throught the roof. This had the effect IEA intended to have—non-OPEC supply grew, and global oil demand fell. The result was OPEC crushed itself for about 18 years. Surprisingly the demand-side effect was far stronger and much longer lasting. (You can read about that in my book, Carbonomics.)

So what is by far (many times over) the strongest climate policy ever implemented. Of course, it's OPEC. But OPEC hates climate policy! Exactly. They hate other people's climate policies. If they run the climate policy, they collect all the carbon taxes—something like $500 billion a year. But if the world organizes an OPIC, we could make quite a dent in that. But we need to start more modestly, big organizations are tricky to organize. So we make a deal with China. We both tax oil imports. So we use less, so the world price of oil falls. That's win-win. The price only falls if the world uses less and emits less carbon. This brings together environmentalists and everyone who hates paying OPEC's exhorbitant prices. That's one powerful political coalition. Except it's not because environmentalists don't want to talk to those interested in paying OPEC less (to be honest, they are mainly [#confused]).


PopNotes Used Above

[=Sources] Refinery cost are from EIA's MER, Table 9.1 in Energy.  Import are from EIA's MER Table 5.1.
[=Source] "Renewable Fuel and the Global Rebound Effect," by Steven Stoft, a report filed by the Clean Air Task Force, in a complaint againt EPA's Renewable Fuel Standard Program (RFS2)
[=1] EIA Petroleum

[=confused] Environmental Oil Confusion

Enviros think that if we reduce the world price of oil everyone will consume more oil. But that's not true if we all tax oil imports. Then there are two prices: the world price and the after-tax internal price. The low world price saves America billions, while the high internal price makes us (and the Chinese) use less—and using less is what cuts the OPEC price.

But won't the government get all those tax revenues? If the enviros have their way, then, Yes. But, instead, we should refund all the money on an equal per-person basis, as Alaska does ($1000/person per year), or like British Columbia, or like the Climate Scientist James Hansen advocates.



Gas tax

The Organization of Petroleum Exporting Countries (OPEC) cartel — and the world's failure to curb demand in the face of it — produce a "tax" on gasoline that is far greater than U.S. gas taxes.

Oil price forecasts from 2002 — before oil prices began increasing sharply (see graph below) — provide an estimate of the size of the OPEC gas tax. The 2002 forecast by the U.S. Department of Energy predicted oil prices of $28 per barrel in 2008 (accounting for inflation).  Perhaps that would be $35 per barrel, now, in 2011.

With oil selling for about $100 per barrel that's a $65 per barrel OPEC tax on oil, and that translates to, very roughly, a $2.00/gallon OPEC tax on gasoline.

How does this compare with Federal and State gas taxes?

The Federal gas tax is 18.4¢/gallon.  State gas taxes — including sales taxes on gasoline — averaged 27.4¢/gallon as of March 2007 (American Petroleum Institute). Thus, combined Federal and State gas taxes are about 46¢/gallon.

And remember, that state and federal taxes go for building and repairing our roads. What does the OPEC tax go for?

We could fight the OPEC tax

But, it would require an alliance between those who don't like paying OPEC and those more interested in guarding against climate change.

Oil & Climate


March 6, 2010.     Checking the Vets' YouTube Video

Is it true? "Oil goes up a $1—Iran gets another $1.5 billion to use against us."

Not quite. The US DOE xlnk.gif says Iran had net oil export revenues of $55B in 2009, and their average price was $60 (DOE xlnk.gif). So they make only $0.9B not $1.5B extra per year when the price goes up $1/barrel. Did the Vets lie? Not really. They forgot that Iran does not profit from the oil it uses domestically. But with oil up $40/barrel in a bit over a year, that's a lot of money.
Also, Iran doesn't use all that money against us. A lot goes to buy votes to keep Ahmadinejad and Supreme Leader Ayatollah Khamenei in power. That money is used, more or less, against the whole world.

Is it true? "Break our addiction by passing a clean-energy climate plan."

The basic idea is right. Cutting oil use helps the climate. Cutting oil use takes money back from OPEC -- Saudi Arabia, Iran, etc. The crazy part is that the environmentalists hate to admit this. Instead we find James Woolsey, the former director of the Central Intelligence Agency and a staunch backer of the Iraq war, driving a 58-miles-per-gallon Toyota Prius. Why? For the same reason as the Vets give on YouTube.

How does it work?

Not like people think. Iran will sell its oil one place or another. The trick is that, when we use less oil, it actually reduces the world price of oil. That shouldn't be so surprising, because OPEC has be doing the reverse to us, on and off, for 37 years. Right now the Saudis are cutting back their own production by 27 percent. That's much of what's driven the price up from below $40 to about $80/barrel in the last year.

Has cutting oil use ever been tested?

Yes. Between 1980 and 1985 the world cut back, because OPEC drove the price of oil up. But that high price caused the world to conserve, and the Saudis had to cut production ever more deeply. By 1985 they had cut their output down to 25% of what it had been. Even then, price fell by about 1/3. Finally, the Saudis cried uncle and cut the price by one more third. For 18 years the price stayed low, but now OPEC is back and more unified than ever.
Carbonomics: How to Fix the Climate and Charge it to OPEC (Amazon) explains how to do what the Vets suggest—make energy security and clean energy work together. It also predicted the Copenhagen debacle and tells what to do about it.

Right wing nuts:
They are out in force saying: Global warming is a hoax so down with the Vets. Scientists have been studying global warming since 1856. I learned about it in 1965, well before Al Gore was on the scene. The UN report concludes correctly that we still don't know the answer -- it only says there's a 90% chance that more than half the warming since 1950 is man made. But I'm a skeptic. Climate science is tough. Sometimes scientists go off track for a few decades. So let's say it's not 90%, there's only a 50/50 chance the earth is in big trouble.
What should we do? Well the chance you'll have a house fire this year is 1/2 percent. So you do nothing. Right? No. Everyone buys fire insurance. So with a 50% chance of serious damage to the earth -- we buy insurance. And as a fringe benefit we recover some of the money OPEC is picking out of our pockets.
Carbonomics calculates that the present level of proposed climate policies could actually pay for themselves by taking our own money back from OPEC.

Left wing nuts:

They are just as bad. I've read them saying the Vets are just trying to start a war with Iran. What? So we let OPEC pick our pockets because taking our own money back might start a war? Good energy policy would reduce the chance of war and weaken the Iranian tyrants.


Sensible climate policy (not the cost-doesn't-matter type) and sensible oil security policy (not the coal-into-oil type) are both inherently non-partisan issues. It's the opposite of conservative to risk our home planet. It's the opposite of liberal to oppose taking our own money back from mid-east religious tyrants. The polarization we see is the worst side of American politics. There is a middle path that is not a compromise wishy-washy position but rather a smart and powerful answer to the two biggest risks facing our country. No, scientists are not sure of the climate or the terrorists — but that's no reason to sit around waiting to see what happens to us.

P.S. Who's for OPEC?

I suspect, but cannot prove, that the real reason the US has never defended itself against OPEC is because it's an inside job. OPEC has the most powerful lobby in Washington and almost no one sees it. In fact one arm of that lobby, the National Petroleum Council, is actually a part of the Dept. of Energy — but funded almost entirely by the oil industry. The trouble is fundamental. Whenever OPEC raises its price—the world price of oil—all oil companies profit. In fact Big Oil does better than the Saudis because they need not cut back production to raise the price. OPEC does their dirty work. Exxon made roughly $30 billion off the last OPEC price spike. That's enough to buy quite few politicians. Naturally, though they will never say it, big oil companies are OPEC's biggest fans.


Data Links


U.S. Crude Oil Rotary Rigs in Operation (Number of Elements) - EIA
U.S. Gas Prices - EIA
What We Pay for in a Gallon of Regular Gasoline


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