Tuesday, July 29, 2008

Energy Rhetoric vs. Reality

Energy Rhetoric vs. Reality
Policymakers are talking a lot about energy and energy policy. Some of the debate is thoughtful. But much of it displays a lack of understanding of energy markets and the factors that influence price. Many of the proposals offered fail to address the critical question we face: How do we meet growing energy demand both in America and around the world?

API has compiled some of the most frequently heard claims and proposals, along with the realities that need to be considered when evaluating them.

Policymakers are talking a lot about energy and energy policy. What follows are some of the most frequently heard claims and proposals emanating from the campaign trail, along with realities that need to be considered when evaluating these claims.

RHETORIC: Oil Companies are to blame for the high price of gasoline.

REALITY: There are many factors affecting the price of gasoline.

More than 80 cents of every dollar spent at the pump goes to the price of crude and taxes. The price of crude oil is set on global markets, not by oil companies, and it accounts for more than 70 cents of every dollar of gasoline price. And the government takes nearly twice as much in taxes (13 cents) as the industry makes in profit (fewer than 8 cents).
While gasoline prices have increased dramatically this year, the price of crude oil has increased by $1.21 per gallon in 2008, compared with the price of gasoline, which is up 80 cents per gallon.
Demand is strong in both mature economies and the developing world, especially in China, India and the Middle East. The market impact of tight supplies has been exacerbated by political instability, resource mismanagement and weather. Finally, the decline in the value of the dollar against other currencies has put American consumers at a disadvantage.

RHETORIC: Oil and natural gas companies are demanding greater access to America’s resources even though they own leases on millions of acres of federal lands that are already open to drilling. They would rather sit on these idle leases and make record profits than increase production. If they’re not willing to produce on these idle leases, they should hand them over to someone who will.

REALITY: Just because a lease is not producing oil or natural gas doesn’t mean it’s idle. Companies are actively exploring and developing the majority of their leases, but the entire process takes years and requires many steps, including securing government permits, analyzing seismic data and installing the machinery needed for drilling and production. Many leases prove not to contain enough oil and natural gas to be commercially viable, and companies can’t produce oil and natural gas where it does not exist. Over the past five years, American companies have paid billions to obtain federal leases, and if they don’t develop leases within a certain period of time, they return them to the federal government, forfeiting all investments.

No comments: