In our business and in these times we are asked often, “Why is the price of gasoline so high?”
In our business and in these times we are asked often, “Why is the price of gasoline so high?”
Scott W. Tinker
2008-09 AAPG President
I was asked this question recently while testifying before seven U.S. senators in an “energy independence” forum in Washington, D.C. My response – “I don’t think gasoline costs too much, nor can the U.S. be energy independent in the next quarter century” – was not particularly well received.
I went on to try to explain what is required to explore for and produce oil and to refine, transport and deliver it as gasoline for our cars. I compared it to bottled water being sold at $1 or more per pint and Starbucks coffee at $4 a cup (the “Grande” and “Venti” approaches $6, my wife tells me.)
I also presented the data on U.S. oil and natural gas imports – approximately 60 percent and 20 percent, respectively – and how such a significant level of imports made energy independence difficult in the near term.
Still not very satisfactory to those before whom I was testifying.
We did not have time in the short Senate session to explore the underlying drivers of oil price, but I did so two weeks later in longer briefings to the U.S. House of Representatives. We discussed factors that impact oil price such as:
- Demand in Asia squeezing already tight global oil supplies.
- Lack of access to critical resources off U.S. coasts – and the message those moratoria send to world markets.
- The impact of speculation and hedging as a function of the weak U.S. dollar.
- The impact of the struggling U.S. economy.
- The lack of scalable liquid fuel alternatives.
- Weather, global warming and the huge potential cost of reducing CO2 output to the atmosphere.
In addition, I presented the positively correlated relationships between energy consumption and per capita GDP in global economies and between sharp increases in oil price and U.S. recession, which have occurred at least three times in the past four decades.
During these exchanges it became apparent that U.S. and global energy policies, or the lack thereof, had perhaps led us to this energy juncture. It also became clear that America’s favorite whipping boys, so called “Big Oil companies,” which – combined – control less than 10 percent of global oil reserves (sounds sort of “small,” doesn’t it?), do not control the price of oil or gasoline. In fact, this is one of the ten “energy myths” that I discuss in various venues and that are synthesized in a table later in this issue.
I may not be invited back to the hallowed halls of Congress!
Kidding aside, many did say they appreciated the fact-based approach and my willingness to speak candidly, even if what I had to say was unpopular.
These visits to Washington, and the speaking I do around the United States and the world, serve to reinforce in my mind the very strong link between energy and the economy, and the need for good information.
In my initial column in July I discussed several “bridges” in which AAPG can play a lead or supporting role; none is more fundamental than the bridge linking energy and the economy.
Modern economies are powered by reliable, affordable energy; energy is required for economic growth and health. Oil and natural gas satisfy over 60 percent of global energy demand.
This fact – and the massive investment and infrastructure required to transition to other energy alternatives – seems to get lost in some of the well-intentioned, albeit somewhat naive, political discourse today.
The world has been transitioning – very slowly – to non-carbon energies, and as that transition continues over the next many decades we must maintain robust supplies of fossil energy as a stable bridge to the future.
Thus, the work we do as energy corporations and as professional members of AAPG is vital to global economic health.
The next time you meet someone for the first time and are asked, “What do you do?” don’t be shy or embarrassed. Tell them you are in the oil and gas business. Let them know what that really means.
Tear down the walls of misconception. Put a human face on the enterprise that is so critical to our global energy and economic future!
We are the bridge.