Obama’s “All-Of-The Above” Oil/Energy Policy Misguidedly Leaves Much Off The Table
On March 22 in Cushing, Okla. — a municipality core to the nation’s oil and gas industry, as it represents the cited location for domestic crude oil deliveries and is central to the determination of the ‘WTI’ (West Texas Intermediate) crude oil price quoted on the commodity exchanges — President Obama, while rationalizing his holding back approval of the full Keystone Pipeline project because of environmental concerns, assured his audience that the southern leg of the Keystone route, from Cushing, Okla., to the Gulf Coast, would become “a priority.”
Well thank you, Mr. President. Without the flow-through originating in Alberta, Keystone’s point of origin, you will be helping to increase the price of oil by some $20 a barrel. You see, Cushing is choking with oil — its storage capacity filled to the rafters from the new shale oil wells in North Dakota, Wyoming and on. It has brought the price of U.S. quoted crude oil to a discount of some $20 per barrel compared to that of the quoted price of Brent crude (Brent $125.13/bbl vs WTI 106.87/bbl). With the new pipeline in place, and without the back up of Alberta oil, that difference will all but disappear and we will all be paying higher prices for gasoline.
But isn’t that the objective that your Energy Secretary, Steven Chu, has been mandated to achieve? Earlier this month before a Congressional hearing, Energy Secretary Chu was asked by Rep. Alan Nunnelee (R-Miss.) if the “overall goal is to get our (gasoline) price down.” Chu’s answer, “No, the overall goal is to decrease our dependency on oil.” This coming from the Nobel Laureate who was quoted by the Wall Street Journal in 2008, “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.”
As President Obama stated in his talk, “The price of oil will be set by the global market.” He then went on to instruct us, “and that means every time there’s tensions that rise in the Middle East — which is what’s happening right now — so will the price of gas — the reason that gas prices are high right now is because people are worried about what’s happening in Iran… if something happens there could be trouble and so were going to price oil higher just in case.”
They must be popping champagne corks on the commodity exchange floors all over the world. Here is the President of the United States validating one of the biggest canards used to explain away the extortionist level of oil prices. Not a word about excessive speculation nor even manipulation. The exchanges can now rest easy, as we can now forget about the testimony proffered by Rex Tillerson, Chairman and CEO of the world’s largest publicly traded oil company Exxon Mobil, in Senate hearings this past May, stating that thirty to forty dollars of the $100/barrel oil trading at that time, was due to speculation. And only recently the St. Louis Federal Reserve’s pointed study on the impact of speculation on oil prices, “Speculation in the Oil Market” which with profound intelligence begins its study with the admonishment: “Disentangling the true drivers of oil prices is a critical first step for allocating resources and designing good policy.”
Nor does the president give us any definition of what he means by “world market.” “Markets” normally infers prices set by the market place, that is to say by supply and demand. Yet again he is validating a process that is as far from the norms of a ‘free market-place’ as one could get.
First and foremost the oil market is conditioned by a cartel acting in massive restraint of trade, that were they American companies colluding, they would have been held to account by our Justice Department and Federal Trade Commission years ago. Yet this administration has done virtually nothing to break OPEC’s death grip on the oil markets, not even bringing forth a NOPEC statute that would have withdrawn the sovereign rights exemption from the OPEC national oil companies, permitting our Justice Dept. et al. to institute legal proceedings.
Nor has there been a serious effort to direct our lame oversight agencies such as the Commodity Futures Trading Commission to finally get serious about reining in excessive speculation, both here and in concert with commodity exchanges around the world where transparency of any kind is lacking. Do we know, as an example, whether Russian interests are playing the London crude oil markets, in order to maneuver or manipulate the price of oil? Are they, aren’t they, I don’t know. But the price of oil is critical to the well being of the Russian economy to a degree that has enormous political and social ramifications. Russia, of course, has become a major exporter of crude oil in the rank of Saudi Arabia. Russia is also the major supplier of natural gas to Europe, and here again the price “quoted” for oil is paramount. Russian gas contracts with their European customer base are tied directly to the price of crude, which at today’s Brent crude oil price results in gas prices north of $15 per million BTU. Which leads to another issue or lack thereof in the president’s lecture.
In citing his “all-of-the above” strategy toward “I want us to control our own energy destiny,” he refers to bio-fuels, to solar energy, to wind energy. Glaringly omitted is any reference (as though it was taboo) to our vast newly accessible resources of natural gas, enough to last us more than a hundred years, and we are but at the initial stages of this evolving game changer. With natural gas we have a market made up of producers all within the United States. Any collusion would be immediately slapped down by the anti-trust vigilantes — meaning we really have a ‘market,’ where supply and demand determine price without all the attendant mickey mouse. What does that mean?
In Europe, with its lack of transparency and deeply vested interests the price consumers of natural gas are paying is $15 mmbtu plus. Here in the United States, with plentiful supply and an unencumbered marketplace the price is less than $2.50 mmbtu — an enormous difference! More tellingly yet, the price of crude, competing with natural gas at less than $2.50 mmbtu would have to be priced at less than $20/bbl to deliver the same energy quotient. Not only is ‘our’ (not an unimportant word in this context) natural gas vastly cheaper than crude oil as to the energy it delivers, but also much cleaner burning. What should have been said by our president is that this government is moving heaven and earth to convert our transportation fleet from gasoline and diesel to being powered by compressed natural gas. That all will be done to help Detroit retool, to help car owners either convert or trade-in, to set up an efficient and nationwide distribution system for compressed natural gas. Not only would such a program make us energy independent, but would also collapse the price of oil which at current levels is not only endangering our economy, but given the political antagonism of many of the societies benefiting from high oil prices, our national security as well.