Saturday, August 09, 2008


Why you are paying $4.00 a gallon for gasoline..

When George W. Bush and Dick Cheney took office in 2001, oil traded near $23 a barrel (it was as low as $11 a barrel in 1998) and gasoline cost about $1.40 a gallon in the U.S. In 2008, as oil zoomed over $140 a barrel and gasoline prices hit $4 a gallon, the pressure on presidential candidates to come out in favor of allowing oil companies to drill in environmentally sensitive areas increased exponentially. John McCain is now seen as the primary proponent of allowing unlimited drilling (“drill here; drill now” is his new mantra) even as he acknowledged that removing restrictions on drilling would have no impact on the cost of oil or gasoline other than a potential “psychological effect.”

The mounting anger of the general population over the high cost of energy has overwhelmed any rational discussion over the actual economic impact of drilling for new oil even though every analyst, including those working for the oil companies, concedes that there is no way that any new production would come online for several years. And energy experts predict that even when every spigot on potential new oil wells is turned wide open in 10 or 15 years, there will be little or no impact on gasoline prices as mounting demand keeps prices up.

While John McCain panders to consumers who want a magic bullet that will bring down gasoline prices by proffering unlimited drilling in environmentally sensitive areas as a panacea, Democrats in general and Barack Obama in particular have shown a disappointing lack of spine and a complete absence of creativity and imagination in dealing with the issue. My suggestion is simple: call the bluff of the oil companies, of Congressional Republicans, and of John McCain, all of whom suggest that drilling for oil is the answer to high energy costs.

Barack Obama should convene a Democratic energy summit like Dick Cheney did in 2001- but this time the consumers will be invited along with oil companies and representatives of alternative energy sources. Unlike Cheney’s secret meetings composed solely of Enron executives and other oil insiders, this one will be open to the public. At the energy summit, Obama should unveil his drilling proposal: every area in the United States will be available for drilling; no areas will be off limits. However, the permits will come with a price: every barrel of oil coming out of the new wells drilled in formerly protected areas will be sold for no more than $50 a barrel, which is still more than twice the price when Bush and Cheney took office. Coupled with that will be a requirement that every oil company which obtains a permit will sign a binding agreement that starting 12 months after the first permit is issued it can not charge more than $2.00 a gallon for gasoline at any company owned gas station for the next 10 years (taking a cue from Chrysler’s $2.99 a gallon limit on gasoline for its new cars), and it will have to enter into binding agreements with every retailer with whom it does business that none of their stations can charge more than $2.00 a gallon for gasoline for a ten year period.

By calling the bluff of Senator McCain and the oil companies, Barack Obama can easily expose the lie that opening up protected areas for oil exploration would impact energy prices. No company will want a permit when it won’t be able to reap the huge windfalls it receives under the current system which has allowed them to earn record profits from oil coming out of existing wells (Exxon’s profits are now over $44 billion a year, four times the $11 billion it earned the year before Bush took office, even though it is pumping less oil each year). No permits will be sold, the environment will be protected, and Democrats will have proved, by taking advantage of the inexorable forces of capitalism so beloved in theory by Republicans, that McCain’s no holds barred drilling proposal is a sham whose only real effect would be to increase gross profits for the oil companies.


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