Planning for the Oncoming Petro Boom

Once again, it seems, cheap oil has allowed things to return to “normal.”  By “normal” of course I mean the U.S. not having a comprehensive energy policy.  Sure, the worldwide financial crisis has dampened demand and thus lowered prices but the oil cartel OPEC is doing all they can to get the price of oil to increase to at least $60.00-$80.00 per barrel.  Will they succeed?

When oil prices spiked in April of 2008 at just shy of $150.00 per barrel there were calls by Congress for the heads of the “Big Oil” CEOs and show trials took place, the Democrats made it seem like they were actually doing something, and everybody read about how Americans couldn’t afford to fill up their big SUVs and trucks with gas to get to work.  Now that oil is somewhere at or below $40.00 per barrel our fearless leaders in Washington have moved on to other matters.  But what did they really accomplish?  The answer, predictably, is not very much.

Former President George W. Bush signed a symbolic Executive Order lifting the moratorium drilling for oil and natural gas on the Outer Continental Shelf (which, by the way, happened right before oil prices began to fall) and that was that.  The then candidate Barack Obama touted ethanol as a way to decrease our foreign oil imports.  The unintended consequences of this type of advocacy (which, to be fair began before Obama ran for president)  sent corn and feed prices through the roof as farmers switched crops to sell this politically popular stuff for more money than they were making before.  This price increase also raised food prices including beef (they eat the feed that now was being refined), and the cost of turning crops into fuel remains very high.  Why not simply decrease demand and increase supply?

Any politician, no matter to which party they belong, is not interested in reducing demand the old fashion way – by making it more expensive through taxes unless we’re talking cigarettes and booze.  Instead, the current tactic is to allow states like California to set their own emissions rules which, by extension, will force automakers to produce more fuel efficient engines that can meet the tough new standards.  The reason that is commonly cited by Democrats for allowing such a policy is the scary spectre of “Global Warming.”

The Democrats, beholden to the Global Warming crowd, have taken a page from the playbook of the Europeans in their attempt to regulate CO2 emissions.  Automobile manufacturers like Porsche, BMW, and Mercedes-Benz would be hardest hit as they produce the most V8 and V12 engines.  Although this initiative has been postponed and softened in Europe the Greenies are still at it.  The result if passed is that car manufacturers would probably be forced to stop producing powerful engines because they could not meet the tougher requirements.  All of this is being done to “save the planet” although this reason is still suspect.

The Obama Administration, however, is going to try for the same goal as some in Europe attempted but the results will be far more dangerous for the U.S. automotive industry.  Under the current plan, 19 U.S. states would be allowed to set their own emissions standards for passenger vehicles.  U.S. consumers would likely see some vehicles that are legal to be sold in one state but illegal to be sold in another.  What I dislike about this initiative is that it is dishonest… the goal may be a lofty one (to increase fuel economy) but instead of just increasing the taxes (which would be political suicide) the Democrats instead take the stealthy backdoor approach by claiming that “Global Warming” is the real reason.

With oil, what goes down must go up.

So what about increasing the suppply side?  Obama talked a big game when he was running for office and when gas prices were sky high when he said he was not opposed to allowing for offshore drilling but now appears to be dragging his feet by setting up “fact-finding initiatives” to study the issue.  His administration sure didn’t delay in pushing to get the $700 billion plus pork-laden bill passed by Congress but on the question of U.S. national interest there must be more studying (which I predict will last for years).

One thing is for sure, oil will not stay at the price where it is now forever and the time to begin oil exploration is now as it will take several years for any new discoveries to come online, at which point oil will be more expensive.

It is still too early in President Obama’s tenure to know what he will do and I think it only fair to give him the benefit of the doubt concerning oil exploration but his enthusiasm for “green energy” like solar and wind seems to be more immediate than what will much more quickly produce results… and that is oil exploration.  The only thing that forced the Democrats to confront reality was the anger of voters at $4.00 per gallon gas… now that prices are half that will they go back to their old ways?  In Washington, D.C. the “old ways” are usually the “new ways” too.

Waiting for the inevitable rise in oil costs is foolish as it will happen and, this time, the Democrats will have no excuses as they control two out of the three branches of government.  They will probably try and blame George W. Bush for their mistakes but that will only wash for so long.  Pretty soon, they will actually have to do something.

What will they do..?