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Tuesday, February 28, 2012

Will The Rising Price Of Gas Sink Obama?

"Excessive taxation will carry reason and reflection to every man's door, and particularly in the hour of election." — Thomas Jefferson

"With the average price of a gallon of gasoline rising 40 cents just last week, President Obama attacked Republicans [Thursday], trying to distract voters from his own failed energy policy. 'The American people aren't stupid,' Obama said. 'You know there are no quick fixes to this problem.' Obama has been in office for three years now. There is plenty the federal government can do to lower gas prices in three years. Problem is, everything Obama has done on energy has been designed to increase Americans' pain at the pump. Yes, oil and gas production is up in the United States. But this is happening in spite of Obama, not because of him. It is being driven entirely by increased production on state and private lands, areas where Obama has little power to shut down production. The reality is that Obama's goal has always been higher gas prices. His Energy Secretary Steven Chu famously told The Wall Street Journal in 2008, 'Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.' And when Obama was asked by CNBC's John Harwood that same year if high gas prices actually 'helped' the United States, Obama said, 'I think that I would have preferred a gradual adjustment.' Americans aren't stupid. They remember Obama's words. They know that the only real regret Obama has about high gas prices is that he may get blamed for them at the ballot box." — Washington Examiner's Conn Carroll

President Barack Obama says there is no easy answer to the problem of rising energy prices, dismissing Republican plans to address the problem as little more than gimmicks. “We know there’s no silver bullet that will bring down gas prices or reduce our dependence on foreign oil overnight,” Obama said Saturday in his weekly radio and Internet address. Obama said Republicans have one answer to the oil pinch: Drill. “You know that’s not a plan, especially since we’re already drilling,” Obama said, echoing his remarks earlier in the week. “It’s a bumper sticker.”

Speaking of bumper stickers, remember “Yes We Can”, Mr. President? No one understands the concept better than the oil and gas industry. The main thing holding domestic energy companies back from making a stronger commitment to future domestic supplies is uncertainty. Capital hates uncertainty, avoids it like the plague. Your rhetoric may appease your radical environmental base, but it makes domestic energy producers hold back, fearful that you will punish their success, or that you will change the rules on them in the middle of the game.

Erasing uncertainty is the #1 thing you can do as a national leader if you truly desire to lower gasoline prices. Not only could it change the psychology of energy investing, there is still time for companies to change their 2012 investment plans.

Here is my humble 10-point plan: Things President Obama could (but won’t) do to reduce domestic gasoline prices by November 2012.

1. Commit to a strategic goal of North American energy security. That includes reasonable and responsible domestic drilling. That includes taking the lead on the Keystone XL Pipeline; we could find a way to make it happen while addressing the legitimate environmental concerns of Nebraskans. It includes a commitment to maintaining the Trans-Alaska Pipeline System and opening ANWR.

2. Ditch the anti-industry, anti-capitalist rhetoric. It is not the President’s or the government’s place to decide when an industry’s profitability is “high enough”. High oil company profits fund more drilling; more drilling means more future supply and lower prices. Besides, American oil companies are not owned by a cabal of wealthy executives, but by America’s pension funds, mutual funds and private investment accounts. “They” are “us”.

3. Stop targeting the oil industry for punitive tax treatment. States such as Texas and Louisiana have production tax abatement programs that have successfully encouraged new drilling. If you don’t believe that the threat of increased taxes discourages drilling, just ask Governor Perry or Governor Jindal.

4. Realize that Uncle Sam is in the energy business and is a partner in industry’s success. Oil and gas royalties are the federal government’s #2 source of revenue, after the income tax. Offshore slowdowns hurt not only industry and jobs, but government revenue.

5. Recognize that industry does not need to be led by government; industry needs to be unleashed and encouraged to innovate. The resurgence of the domestic energy sector was rooted in the private sector, not matter how much President Obama and Dr. Chu would like to take credit for it. The growth in North Dakota, Pennsylvania and Texas happened in spite of the federal government, not because of it.

6. Trust that no oil operator wants to be the “next BP”. The BP spill costthe-andy-griffith-show that company something on the order of $40 billion. Industry safety and environmental commitment is motivated more out of self-interest and less out of fear of the government. When it comes to federal regulation, the nation would be better served by Sheriff Taylor, not Barney Fife.

7. Return offshore permitting to the pre-Macondo pace. Your overreaction to the BP Spill has cost on the order of 500,000 barrels per day of domestic oil production from the Gulf of Mexico. The ridiculous “Worst Case Discharge” calculation as a routine part of offshore permitting is engineering malpractice, in my humble opinion. The professional staff of the Bureau of Safety and Environmental Enforcement is capable of reasoned regulation, but they currently operate in fear of their political masters.

8. Declare hydraulic fracturing & well design to be the regulatory domain of the states, not the EPA. Geology and environment vary widely; Pennsylvania is not Louisiana is not North Dakota is not California. It is insanity to think that one broadly-applied set of rules can be applied to regulate industry without suffocating development.

9. Rescind the recently-enacted royalty rate increase for new onshore Federal oil and gas leases. Secretary Salazar’s stated rationale for increasing the government’s take by a whopping 50% – from 12.5% to 18.75% of gross production – was to equate onshore royalties with the offshore royalty rate. That makes no sense. Higher royalties mean less drilling, poorer economics of production and premature abandonment of wells. Besides, an IHS-CERA Study recently showed that the federal government’s total take of offshore cash flows makes the Gulf of Mexico the second-most punitive fiscal regime in the world, after Hugo Chavez’s Venezuela. In keeping with the First Rule of Holes, rolling back the royalty rate increase may be the first thing the government should do if it is serious about reducing energy prices.

10. Encourage development of a nationwide distribution system of natural gas as a transportation fuel. Natural gas is clean, abundant and nearly 100% domestic. Its potential as a transportation fuel has scarcely been tapped.

Bonus #11: Get real about the promise of alternative fuels. Recently you said: “You’ve got a bunch of algae out there; If we can figure out how to make energy out of that, we’ll be doing alright.” Maybe so, but I will stick my neck out and say it ain’t gonna happen, at least not in my lifetime, not on a scale that will impact pump prices.

Let’s face it the industrialized world runs on petroleum. Fuel to power your SUV is not the only use of oil. There is petroleum in almost everything we use today — from aspirin to shoes and from clothing to road paving. Even my trash cans are made with petroleum. We use oil for almost everything.

Say we want to reduce our dependency on oil is nonsense. Yes, in time we may be able to find other viable sources of energy to power or transportation needs, but it won’t happen under government. Everything the government touches turns to crap — just look at Solyndra. As Herman Cain says, “how’s that working for you?”

As for Europe their gas prices are high due to the incredible amount of taxes they heap on the prices of a gallon or litter of gas. These taxes subsidize their “wonderful, cheap” public transportation and some of their social welfare programs. Do we want that? I don’t think so.

The radical environmentalists and progressive masterminds will tout public800px-Acela_old_saybrook_ct_summer2011 transportation. They will tell is to take the train, light rail or bus like the Europeans. This is another fantasy being promoted by uniformed people. Yesterday I was watching Fox News and saw Shepard Smith touting the ACELA Express Train from NYC to Washington, D.C. This is a train that travels a distance of 456 miles and carries 8,800 passengers per day. Wow, a real contribution to our transportation needs, and its operated by AMTRAK — a highly subsidized operation that lost $1.2 billion in 2010 and was deemed a failure by its founder.

Most private transportation companies have been forced to apply real world solutions in these difficult economic times, yet Amtrak rolls on, acting as if they were exempt from the problem.

An independent 2009 study of Amtrak’s operations and revenue offered some startling facts;

Forty-one of Amtrak’s 44 routes lost money in 2008 with losses ranging from nearly $5 to $462 per passenger depending upon the line, according to analysis by Pew’s Subsidyscope.

“The line with the highest per passenger subsidy—the Sunset Limited, which runs from New Orleans to Los Angeles—carried almost 72,000 passengers last year. The California Zephyr, which runs from Chicago to San Francisco, had the second-highest per passenger subsidy of $193 and carried nearly 353,000 passengers in 2008. Pew’s analysis indicates that the average loss per passenger on all 44 of Amtrak’s lines was $32, about four times what the loss would be using Amtrak’s figures: only $8 per passenger. (Amtrak uses a different method for calculating route performance).

The Northeast Corridor has the highest passenger volume of any Amtrak route, carrying nearly 10.9 million people in 2008. The corridor’s high-speed Acela Express made a profit of about $41 per passenger. But the more heavily utilized Northeast Regional, with more than twice as many riders as the Acela, lost almost $5 per passenger.”

According to the Pew report, only 3 of Amtrak’s 44 lines are making any money. That statement alone might inspire the CEO of the failing rail service to consider cuts and changes. Of course, having more than 20,000 union employees (85% of those folks are covered by collective bargaining) makes it difficult to change anything that might cause a job to be lost, or a benefit diminished.

I have written several articles about the folly of high-speed rail and how it is a waste of the taxpayer’s money. With the exception of long-haul freight America is not a train nation. We use roads — local, regional and interstates for our transportation. We have developed our standard of living around these highways. We live in suburbs and rural areas where we need to get around in our cars and SUVs. We do not. Like the Europeans, live in densely packed urban areas. Germany’s 85 million people live in an area smaller that Montana. Also, why should the people in Montana, Wyoming and Utah pay for a losing rail operation to transport people from NYC to Washington, D.C. or San Francisco to Corcoran?

As for alternative energy we are a long way from a real technological breakthrough. Obama wants algae others want solar, wind or broccoli. Ethanol takes more energy to make than it saves and causes an increase in the price of our food. As for electric cars we need coal or oil to generate the electricity to charge the batteries that will run the car for two hundred miles. There is no free lunch in energy. We run on oil and that’s a fact!

Energy policy will be a President Obama’s key vulnerability in November. His goal has always been to encourage alternative fuels by raising conventional energy prices. Alternative energy may poll well, but the average voter who fills his tank with $4+ gas on the way to the ballot box will certainly “Hope for Change”

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