Friday, Jul 19, 2024

High Gas Prices An Election Issue

The recent rise in gas prices at the pump across the country past the $4 a gallon level, and predictions by industry experts that they will reach $5 a gallon during the summer's peak driving season, has become a threat to President Obama's re-election. The high prices reversed a recent rise in his job approval ratings following reports indicating that the US economy is generating jobs and growing at a healthier rate than before. Obama's says that his anti-drilling policies are not responsible for the rise in gas prices. But that claim is rejected by industry and media analysts, who accuse him of seriously misleading the American public on domestic energy issues.

For the past month, Obama has been making at least one speech a week defending his energy policy in battleground states such as Florida, Virginia and North Carolina. He has offered various excuses for the sharp increase in gas prices, ranging from threats by Iran to halt the flow of oil from the Persian Gulf, to production disruptions at major oil fields and refineries, and increased demand for oil from fast growing economies like China.

 Last week, in a meeting with visiting British Prime Minister David Cameron, Obama discussed the option of opening the strategic oil reserves of the two countries, but then rejected the idea, publicly claiming that “there is no quick fix” for current high gasoline prices. But energy experts claim Obama’s energy policies, which discourage more domestic production of oil from offshore fields and federal lands, will inevitably lead to higher gas prices in the future.


There is also an element of hypocrisy in Obama’s denial of responsibility for the price of gas at the pump. When Obama was a presidential candidate in 2008, he criticized then-President George W. Bush for the rise in gas prices at that time to an average of $3.70 a gallon. Now that he is being held to that same standard, he is complaining.




The American public has rejected Obama’s excuses, and is now holding him responsible for prices that have risen to an average of $3.88 per gallon, up by 53 cents since the beginning of 2012, and by 6% in February alone. The highest prices are now found in the Los Angeles area, averaging about $4.40 per gallon, and are averaging more than $4 a gallon in New York, Connecticut, Illinois, California, Alaska and Hawaii. Industry experts say that the recent closings of several refineries in the Northeast will create a gasoline shortage in the region this summer which will push the price well past $5 a gallon.


The increase in gas prices is also reflected in rising prices for used, fuel-efficient cars, which are as much as 20% higher than they were last year.


The refineries are shutting down for two reasons. First, there are not enough pipelines to move the cheap high-grade crude oil that is now being produced in the middle of the US to the East Coast. Instead, East Coast refiners are being forced to pay more for the same grade of oil to be imported from overseas. Second, the refineries are very old, and cannot convert their production to take advantage of the cheaper, lower-grades of crude that is available to them.


The scheduled closings of the Northeast refineries will reduce the region’s production of gasoline from an average of 580,000 barrels a day in 2011, to 350,000 barrels a day in 2013, creating a net shortage of 240,000 barrels daily. Regional gasoline distributors will have to struggle to bring in enough gasoline from more expensive foreign refiners. While those supplies are available, they may not arrive in time to satisfy the increased demand for gas during the summer. The resulting shortages at the pump would then drive gas prices in the region even higher.




Obama’s energy policies and environmental policies are hardly the only reason US refineries can no longer keep up with demand. But they have made it even more difficult for all segments of the domestic oil and gas industry while driving up the cost of gas at the pump.


Refineries have been under attack by liberal environmentalists like Obama for decades. A crazy quilt patchwork of federal environmental regulations has helped make it almost impossible for oil refiners to make a profit in their domestic operations, or to update their facilities. Environmental objections have prevented the opening of any new oil refineries in this country since 1976.


Illustrating the problem, a proposed new oil refinery for Yuma, Arizona which was originally scheduled to start production in 2009 still hasn’t started construction because it had to wait for seven years to get the necessary permits from the EPA. The new Yuma refinery would cost $3 billion, process 150,000 barrels of crude oil per day, and create 600 new jobs, but due to the determined opposition of environmentalists, its future is still in limbo.


However, there is less opposition so far to plans to build a small 20,000 barrel-per day refinery to meet rising demand for diesel fuel in one of the new oil-producing areas of the country, the Bakken field in North Dakota. Crude oil production there has tripled over the past three years due to new horizontal drilling and fracking technology, but the area does not have adequate pipelines to bring that oil to major US refineries. Instead, it must be moved by trucks and railroads, both of which require diesel fuel, and which is now in short supply in the area.


Another problem is EPA regulations which require refiners to custom tailor different blends of gasoline for 18 separate markets across the country. The need to constantly switch blends reduces refinery operating efficiency, resulting in even higher gasoline prices. The same is true for the EPA requirement that refiners switch from summer to winter blends of gasoline and back again each year.




Since taking office, Obama’s energy policies have called for even stricter EPA regulations on the production of oil and gasoline, and higher taxes on US gas and oil companies. These will continue to drive up the cost of gas and reduce the financial incentive for these companies to find and develop new domestic gas and oil deposits.


GOP presidential frontrunner Mitt Romney has called upon Obama to fire the three people in his administration who are promoting policies which drive up the cost of gasoline. These include his Energy Secretary Steven Chu, who said in 2008 that he wanted to see US gasoline prices increased to the same level of that in Europe, $8 or $9 per gallon.


Romney also called for the removal of Interior Secretary Ken Salazar for saying that he would not give new drilling permits for the outer continental shelf or the Gulf of Mexico to oil companies, even if US gasoline prices reached $10 per gallon.


He also criticized EPA administrator Lisa Jackson for trying to make an end run around Congress’ rejection of Obama’s proposed cap and trade tax on energy, by crafting new EPA regulations that would accomplish the same thing.


Romney’s main point is that Obama’s officials have only been carrying out one of his administration’s main long-term policy objectives, forcing US consumers to abandon their gasoline driven cars by driving up the cost of gasoline to unaffordable levels.




The price of gas at the pump was first raised as a serious campaign issue in the presidential campaign by Newt Gingrich. He has been promising voters that as president he would bring gas prices back down to $2.50 a gallon, while generating millions of new, high-paying jobs for American workers. At the same time he has ridiculed Obama’s impractical new “green energy” schemes, such as turning algae into motor fuel, as an expensive waste of taxpayer money.


Speaking at an energy summit in Biloxi Mississippi last week, Gingrich said, “we were thinking about sending volunteers to gas stations this summer with bottles of algae. The biggest issue this fall is going to be drilling versus algae. It’s going to be $2.50 a gallon versus $10 dollars a gallon. It’s going to be, ‘Which future do you want for your children?’ “


Rick Santorum blasted the president’s decision to kill the construction the Keystone XL oil pipeline needed to bring North American-produced crude oil to the refineries on the Gulf Coast. Santorum said that the US needs, “a policy that doesn’t say no to the development of energy. We have a president who is 100 percent against anything that will create more energy independence, that would create an opportunity for us to not just grow our energy reserves . . . but to create the jobs that come along with it.”




Obama claims to be following an “all of the above” policy for developing US energy resources, including the production of more fossil fuels, nuclear energy as well as clean, renewable sources of energy. In fact, the lion’s share of federal energy funds during his administration have gone into impractical “green energy” schemes, such as building electrically driven cars like the highly touted Chevrolet Volt. Although the Volt, which Obama has personally endorsed, was announced with great fanfare by the new General Motors not long after it was taken over by the federal government, consumers don’t want it. Despite a hefty government subsidy for Volt buyers, General Motors announced last month that the factory producing the Volt will be idled because there is too much of a backlog of unsold cars building up in Chevy’s inventory.


Another example of this administration’s energy folly was its support for Solyndra, a failed solar panel maker which was run by one of Obama’s campaign contributors. Solyndra’s solar panels were never commercially competitive with those being made in China. But thanks to its owner’s connections inside the Obama administration, Solyndra was given $535 million in federal loan guarantees, despite clear signs that the company was in serious financial trouble. Taxpayers lost all that money when the company went bankrupt last September.




Obama has recently been boasting that overall US oil and natural gas production have gone up since he took office. While true, that rise is almost entirely due to drilling and exploration on privately owned land where federal drilling permits are not required and pro-drilling policies put in place in 2007 by the Bush administration. Oil industry experts predict that the new restrictions which Obama has placed on domestic oil drilling will result in a sharp reduction in US oil production in coming years, especially in offshore fields.


It is true that in early 2010, Obama did propose to open some new offshore areas to oil drilling, but he quickly reversed that policy after the BP oil spill in the Gulf of Mexico. Since that time, US oil exploration under federal jurisdiction has been reduced to a snail’s pace.


According to the Wall Street Journal, in the Gulf of Mexico, the government is now issuing an average of only three deep-water drilling permits a month compared to the historical average of seven. It is approving less than 5 shallow-water drilling permits a month compared to an average of 14.7. It now takes 3 times longer to get a drilling plan approved than it used to. So far this year the administration has approved only 23% of all submitted oil drilling plans, compared to a historic average of 73.4%.


Obama has also blocked the construction of the Keystone XL pipeline, which is needed to move the oil now being produced in Canada and North Dakota to Gulf Coast refineries, and eliminating the need for those refineries to keep buying oil from Hugo Chavez,.the anti-American Venezuelan dictator. Ultimately the pipeline is likely to be built, but Obama’s action will mean a delay of years before US consumers can reap the benefits from new oil fields in North Dakota and Canada.




The Washington Post has taken Obama to task for repeatedly making the misleading statement that the US cannot drill its way to energy independence because it has only 2% of the world’s proven oil reserves, while using 20% of its energy. As the Post and oil industry experts have pointed out, Obama’s reference to “proven oil reserves” is misleading because it does not accurately reflect the extent of this country’s newly discovered and still untapped oil reserves.


“Proven reserves,” has a very strict definition. The oil must have been discovered, confirmed and economically recoverable, with at least 90 percent certainty. The level of reserves, varies depending on the price of oil, since a higher price often makes recovering oil from the more expensive oil wells economically viable. In fact, the US has much larger real energy reserves than Obama’s 2% figure would indicate. If all of the newly discovered US oil and gas resources were to be fully developed, this country could someday become the world’s leading exporter of energy.


According to congressional testimony by Richard Newell, who heads Obama’s Energy Information Administration, “the domestic crude oil and natural gas industry has undergone a technological revolution that has revitalized the resource base in the onshore lower 48 states. . . The use of horizontal drilling in conjunction with hydraulic fracturing has greatly expanded the ability of producers to profitably produce crude oil and natural gas.”


That is why Washington Post fact checkers have called Obama’s misleading claims about limited US energy resources technically “true, but false.”




Obama denies that he ever openly advocated an increase in the cost of gasoline at the pump in the US in order to make his green energy proposals more commercially competitive.


However, in a 2008 interview, CNBC reporter John Harwood, asked Obama directly whether he was in favor of the higher gas prices that were in effect at that time. He did not deny it, but instead gave this very carefully worded political answer. “I think that I would have preferred a gradual adjustment. The fact that this is such a shock to American pocketbooks is not a good thing. But if we take some steps to help people make the adjustment, first of all by putting more money into their pockets, but also by encouraging the market to adapt to these new circumstances more quickly, particularly US automakers, then I think, ultimately, we can come out of this stronger and have a more efficient energy policy than we do right now.”


Clearly, Obama was saying that he favors higher gas prices as long as the price rise is a gradual one. A key element in Obama’s push for high prices for all fossil-based fuel was his cap and trade proposal which would have slapped a huge new federal tax, on the all fossil-based energy used by businesses.




Obama has argued that there is no “silver bullet” with which he could provide US drivers with immediate relief from high gas prices. At the same time, Obama’s supporters have been touting a newly issued report by six federal agencies which claims that administration policies are responsible for the reduction in this country’s dependence on foreign oil, from 57% of domestic usage in 2008 to 45% today. But according to oil industry experts, that reduction is due to recent increase in US oil and natural gas production due primarily to private investment and advances in drilling technology. For Obama to claim the political credit for that increase while at the same time proposing to further raise federal taxes on oil and gas companies is hypocritical.


However, the Romney campaign is willing to give Obama credit for one factor in the reduction in oil imports, the slowdown in business and consumer energy demand due to the downturn in the American economy. “At least that [economic slowdown] is something that he [Obama] can take responsibility for,” a Romney spokesman said.




Last week, Obama conducted eight separate interviews with local TV news reporters in 8 battleground states. He specifically rejected the claim by GOP candidates that more energy-friendly federal policies could drive the price of gas down to around $2.00 a gallon.


“Nobody believes that,” Obama said. “They know that’s just politics. Anybody who says we can get gas down to two bucks a gallon just isn’t telling the truth.”


However, that is not what the American people think. A Gallup poll found that most Americans are convinced that Obama and Congress could do more to reduce gasoline prices, if they wanted to. A Washington Post-ABC News poll released last week also found that two-thirds of Americans now disapprove of Obama’s handling of gas prices, with just 26 percent approving.


The bad news for Obama from that poll is not limited to gasoline prices. Despite the encouraging February report showing a gain of 227,000 jobs in the US economy, the Washington Post-ABC News survey found that 59 percent of Americans disapprove of his handling of the US economy, up 9 point from a similar poll last month. Obama’s job approval ratings, which briefly rose to touch 50 percent last month, have now fallen back again into negative territory..


Obama has lost support among two voter groups which are crucial to his reelection prospects. Among independents, 57 percent now disapprove of his job performance. He is in even deeper trouble with white people without college degrees. Only 28 percent of them approve of his job performance, while 66 percent disapprove, more than a 2-1 margin.


The sticker shock for consumers at the pump is only part of Obama’s political problem. If the price of gas does surpass $5 a gallon this summer, it would wipe out the stimulus effect of Obama’s payroll tax cut, and significantly slow the current uptick in the US economy just a few months before the November election.




Obama scoffs at the suggestion by Republicans that the cost of gasoline at the pump could be reduced to $2.50 a gallon or less if the federal government were to adopt more drilling-friendly policies. But the truth is that such a goal might have already been reached if Obama had gotten behind a plan proposed in 2008 by Texas oil billionaire T. Boone Pickens to convert 8 million gasoline and diesel-burning commercial trucks on US roads today to cheap, American-produced compressed natural gas (CNG). Pickens claims that such a conversion would cut US oil consumption by 3 million barrels of oil a day, or about 15% of the total, and sharply reduce costly oil imports. If that same program were to be extended to private vehicles, based on the current price of natural gas, the cost of fuel to CNG-converted car owners would then be reduced to the equivalent of about $2 for a gallon of gas.




President Obama, however, has largely ignored the possibilities of converting trucks and cars to CNG, which is a far more practical idea than his efforts to force consumers to buy electric cars. He has also ignored the implications of new drilling technologies which, if fully exploited, could dramatically increase domestic oil production and sharply reduce the cost of gasoline at the pump.


Instead, Obama’s liberal policies intended to reduce the use all fossil fuels is hampering efforts to end the US dependence on foreign oil, and hobbling the growth of the economy.


Do you really want to see Barack Obama’s vision for America’s energy future? Forget the algae and the bankrupt federally-subsidized solar energy companies. Look instead at the price you are now paying for gasoline at the pump — and then double it.


The Associated Press and the Washington Post contributed to this story.




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