As a college student with a car and a strict budget, I can empathize with all Americans who have to pay seemingly exorbitant prices each time they fill their tanks. While it's natural to try to take out our frustration on something, most people wrongly accuse American oil companies of being greedy, obsessive bottom-liners only looking out for themselves.
Little gets said of what good the oil companies actually do for America. According to Energy Tomorrow, an industry publication sponsored by the American Petroleum Institute, in just one 24-hour period, the oil industry delivers enough energy to heat 80 million homes, and enough gasoline to enable 200 million drivers to get to work and carry out their everyday activities and jobs to over 5.9 million people.
Yet still people ignorantly call for the oil companies to decrease gas prices and even sometimes blame President Bush for allowing the prices to rise so high. These people simply fail to think as knowledgeable members of a free enterprise system where the cost of goods and services is determined by global supply and demand.
The U.S. is the largest single consumer of energy in the world and imports approximately 60 percent of its crude oil at a cost of $50 billion per year, amounting to the largest single element of our trade deficit, according to Gibson Consulting. We are not energy self-sufficient and are not entitled to cheaper oil than the rest of the world just because we are Americans.
Less than 2 percent of the world's oil and natural gas reserves are controlled by U.S. energy companies, according to Energy Tomorrow, and simply put, we must pay the going market price for crude oil, or it will go elsewhere.
Like any other good or service, there are basically two ways to decrease gasoline prices - produce more or use less. It is all about supply and demand. Crude oil is a global commodity and it is transportable anywhere in the world. Consumption by emerging economies like India and China, each with huge populations and improving standards of living, is growing rapidly and global demand for crude oil is outpacing supply. Add this to the weak U.S. dollar, which is the standard for all international sales of crude oil, and you have oil prices exceeding $110 per barrel for the first time in history.
Even at current price levels, the U.S. has the cheapest gasoline of any developed nation in the world. In a study that lists gasoline prices throughout the world, the German Technical Cooperation showed that a gallon of gas ran upward of $7 to $8 per gallon in Europe in 2007. The relatively cheap prices Americans enjoy are due in large part to the great job American oil companies do in finding, producing and efficiently delivering energy to consumers.
So if it is all about supply and demand, what can the U.S. government do to offset the high cost of gasoline? They can establish a comprehensive, proactive energy policy that encourages energy conservation and the development of new energy supplies in this country. To achieve this, Congress must remove the moratorium against drilling offshore on the east and west coasts and in the Arctic National Wildlife Refuge, where potentially billions of barrels are trapped below the surface.
American oil companies have proven they are very capable of operating in an environmentally and socially responsible manner in these pristine areas. For example, The American Petroleum Institute asserts that over one-half of the nation's oil and gas is already produced offshore in the Gulf of Mexico and onshore Alaska, and the work has been done without harming the environment.
Being allowed to drill in these areas would have a positive impact on world oil supplies and prices at the gas pump for American consumers, but perhaps even more importantly, reduce our dependence on foreign oil. Most of the oil we import in this country comes from the Middle East, Russia and Venezuela - not exactly the most stable places in the world. So increasing the supply of oil and gas produced in this country is as much a matter of national security as it is a price of gasoline issue.
Second, Congress must offer tax and other incentives to the petroleum industry to develop alternative and renewable sources of energy, but all the while knowing that this is no panacea. Renewable energy resources such as corn-based ethanol and other bio-fuels sound good, but they are actually more costly and worse for the environment than drilling in the ANWR, as they consume more energy, water and other resources than they save.
Ethanol now makes up approximately 5 percent of the U.S. motor fuel supply, with mandates in place to move that to 15-20 percent over the next five years in accordance with the Energy Independence and Security Act. However, the use of crops for motor fuel has driven up the cost of corn, sugar, soy beans and other foods, creating unintended economic and ethical consequences and instigating the "food for fuel" debate. Solar, wind and nuclear energy are also promising alternative sources of energy, but all are more costly than crude oil and natural gas and will have a limited impact during our lifetimes.
Despite all of this, the cost of gasoline is still dependent upon global economic growth and demand for energy - not on some gluttonous bigwig who sits at the top of a skyscraper all day thinking of ways to deceive you and make your life tougher.
Next time you or one of your professors feels like bashing an oil company, think about that orange juice you just bought at the grocery store. Then think about how much more difficult and expensive it is to produce a barrel of oil from 10,000 ft underwater and refine it into gasoline. When you compare the prices, it does not seem too bad, especially considering that gasoline does not grow on trees.
Earnest is an economics freshman.
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