Oil price spike with no peak in sight

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http://www.washtimes.com/commentary/commentary-2000811181649.htm A fair use quotation:

Oil price spike with no peak in sight

S. Fred Singer

Are you somewhat upset about gas at $2 a gallon and looking forward to lower prices? Well, just remember that the Kyoto Protocol (to combat a hypothetical global warming), avidly promoted by the Clinton-Gore administration, would raise prices even higher ? on a permanent basis.

As disclosed by The Washington Times, an internal memo of the Energy Department blamed much of the June price run-up in the Midwest on the rigid regulations of the EPA. Supplies of gasoline became tight because of the EPA requirement for the Chicago market, starting on June 1, for "reformulated" gasoline (blended with ethanol distilled from corn). Refiners ended up with having to supply different formulations for fuels for different areas to meet EPA rules. With no flexibility to swap supplies and with refineries operating at peak capacity, just one pipeline breakdown or one refinery fire would then cause supply shortfalls and price spikes.

EPA seems to have learned nothing from this experience and still insists on oxygenated gasoline. This despite of the fact the National Academy sees little need for it and states that any improvement in air quality would be minor. Vehicles with fuel injection (which has been in use since 1983) instead of carburetors don't need it. Yet after its ill-fated venture in forcing MTBE on the refining industry and on motorists (and creating water pollution and unspecified health hazards), EPA now insists on expanding the use of ethanol (from the distillation of corn) as an oxygenate; this creates another set of logistics and pollution problems ? never mind the cost to drivers.

It doesn't help that prices for crude oil increased sharply last spring, to about $30 a barrel (42 gallons) from a low of about $10 last year. While Al Gore's elitist acolytes are yearning for higher prices that are designed to reduce oil consumption and emission of carbon dioxide, homeowners in New England and commuters everywhere are not happy about the additional cost ? to say the least. It is even making the stock market nervous, since higher energy prices cause inflation by raising also the cost of food and manufactured goods. Fortunately, U.S. electricity production (except in the Northeast) is based mostly on coal and nuclear energy, and not much affected by what happens to oil prices.

Reactions to the price increase have ranged from the pitiful to the ridiculous. Politicians, of course, are grandstanding. Ever the populist, Al Gore accused "Big Oil" (the perpetual villain) of "price gouging." Energy Secretary Bill Richardson, while still bucking for the VP slot on the Gore ticket (and before the embarrassing DOE memo became known), tried to jawbone the sheiks and emirs of OPEC into increasing production. At the same time, the anti-nuclear Union of Concerned Scientists blamed the high prices not on OPEC but on gas- guzzling SUVs "owned by rich Americans." But after the mathematicians of the "Confused Scientists" neatly displayed SUV ownership by state, we noticed that SUV numbers in Mississippi exceed those of the state of Connecticut. We never knew there were so many rich people in Mississippi.

The sudden price jump for gasoline and oil products has also sparked congressional calls for opening the oil-rich Arctic National Wildlife Refuge, a major U.S. oil province. The White House has threatened a veto, even though only a minute fraction of this vast area would be affected. In essence, the current administration, catering to Green interests, has sided with foreign producers by also banning further oil development off the East and West Coasts. But with citizens remaining angry about high prices (as truckers driving their rigs to Washington recently demonstrated) and with oil imports at 56 percent of total consumption, Clinton-Gore may have second thoughts. After all, it is an election year.

Yet just last October, Al Gore vowed that, if elected, he would issue executive orders revoking the 180 or so federal oil leases offshore from California and Florida, for which oil companies had already paid the government billions of dollars. If you are really concerned about the environment, take note that such an initiative would lead to increased reliance on imported oil, which of course, would have to be shipped in tankers. It is really a no-brainer: Would you rather bring in oil from overseas in accident-prone tankers or through much safer pipelines from the United States continental shelf? And that's not even counting the security and trade-balance implications.

Higher prices will return to more reasonable levels by the end of the summer as OPEC finds it profitable to increase production and as the requirement disappears for reformulated gasoline. But the experience should give us pause to think very carefully about policies needed to safeguard the U.S. consumer and producer from costly price swings. Let us hear about this from the presidential candidates when they debate energy and environmental issues.

-- (perry@ofuzzy1.com), August 13, 2000

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