By Peter Ferrara on 3.21.12 @ 6:08AM
After the Largo Laugh-In, rising gas prices are bound to appear hysterically funny.
Before President Obama chose him to be his Secretary of Anti-Energy, Berkeley Professor Steven Chu said what America needs is the same gas prices as Europe. That is $8 to $10 a gallon. He believes that because he thinks that is good for the environment. Higher gas prices will force people to drive less, and turn to what he sees as enviro-friendly biofuels (like algae) and electric cars, reducing the use of oil, which he thinks is bad for the environment. The much higher gas prices of Europe are necessary to make these more costly alternatives economically competitive, even if they can be technologically produced some day in enough volume to power our modern economy.
Why did President Obama choose Chu for his Energy Secretary? Because Obama agrees with him. Obama told us as much in his 2008 campaign, saying that the only problem with the soaring gas prices of early 2008 was that they were too sudden. The increase should be more gradual so that American pocketbooks can get used to them.
Notice the careful, calculated deception Obama used in answering a question recently asking isn’t it true that he wants higher gas prices. Obama said, “Do you think a President running for reelection wants higher gas prices? Does anybody here think that makes sense?”
But that is not the question of interest to the American people. Chu recently answered that question, telling a Congressional panel that he no longer believes European gas prices would be good for America. But Newt Gingrich responded with the right question the American people are asking, “How many weeks after the election do you think it will take for him to go back to being who he is?” Ditto that for Obama.
When Obama was sworn in, the price of gas was $1.89. Today it’s $3.83. They told us they wanted higher gas prices, and why, and now gas prices have more than doubled. So what do you think the answer is to the question, doesn’t Obama want higher gas prices?
It’s the Supply and Demand,
President Obama produced quite a laugh riot in his speech last week at Prince Georges Community College in Largo, Maryland. The handpicked audience clearly loved it. As Newt Gingrich said in his response two days later, “So now we get to the President, who has just been more fun on this topic for the last 2 weeks.” Obama said:
Every time prices start to go up — especially in an election year — politicians dust off their 3-point plans for $2.00 gas. (Laughter) I guess this year they decided, we’re going to make it $2.50. (Laughter) But they tell the same story. They head down to the gas station…and they start acting like we’ve got a magic wand and we’ll give you cheap gas forever if you just elect us. (Laughter). Every time. Been the same script for 30 years. It’s like a bad rerun. (Laughter). Now here’s the thing. Because we’ve seen it all before, we know better. There is no such thing as a quick fix when it comes to high gas prices. There’s no silver bullet.
Obama explained to the audience supposedly why there is no quick fix, no silver bullet. “America uses more than 20% of the world’s oil. If we drilled every square inch of this country — so we went to your house and we went to the National Mall and we put those rigs up everywhere — we’d still have 2% of the world’s known oil reserves. We’re using 20; we have 2.”
Let me be honest with you, rather than falsely diplomatic. If Obama is not outright lying here, if he doesn’t know how confused and misleading this is, then he is too stupid to be President.
Here’s the problem. “Proven reserves” under the federal government’s definition can only exist where the oil companies are allowed to drill. Where there are no leases, and no permits, and no at least exploratory drilling to prove what is down there, there can be no “proven reserves.”
That is why in 1980 the federal government said America had 30 billion barrels of proven reserves, but between 1980 and 2007, we produced 75 billion barrels of oil. Obama can’t not know this. Therefore, he cannot not be deliberately trying to deceive us.
Gingrich again provided the response to Obama two days later (available online), making two effective transnational debates now where Obama has been whipped like a creamy dessert topping. As Gingrich pointed out, due to the development of new technology in the private sector, America has been enjoying an oil and gas boom in the private sector, Obama to the contrary notwithstanding. The technological breakthrough has been to combine the decades old practice of “fracking” to break up shale rock, with offshore drilling technologies that allow horizontal drilling in every direction from one hole.
That is why, as Gingrich has further explained, rather than the “proven reserves” of about 20 billion barrels that Obama emphasizes, “the number of recoverable barrels of oil estimated to be in the United States, waiting to be produced [is 1.44 trillion]. That’s about the amount of oil the entire world has consumed since the first well was drilled before the Civil War.” And that is why Goldman Sachs predicted last year that the U.S. has the potential to be the world’s largest oil-producing country by 2017.
Steve Moore explained the results in just one state, North Dakota, in the weekend Wall Street Journal for March 10-11:
In 1995, the U.S. Geological Survey estimated 150 million “technically recoverable barrels of oil” from the Bakken Shale [the root of the North Dakota boom]. In April 2008 that number was up to about four billion barrels, and in 2010 geologists… put it at eight billion. This week, given the discovery of a lower shelf of oil, they announced 24 billion barrels. Current technology allows for the extraction of only about 6% of the oil trapped one or two miles below the earth’s surface, so as the technology advances recoverable oil could eventually exceed 500 billion barrels.
Just 24 billion barrels means more oil in just one landlocked state than the proven reserves Obama claims for the whole country, offshore and onshore.
The technological breakthrough has resulted in a parallel, even more advanced boom in natural gas. As Gingrich further explained, in 2000 the federal government estimated that America had only a 7-year supply of natural gas left, and investors were planning to import liquefied natural gas from the Middle East. Today, roughly one short decade later, America is estimated to have 2.744 quadrillion (a 15-digit number) cubic feet of natural gas, more than any other nation in the world by far, a 125 year supply, and investors are planning to export liquefied natural gas to China.
Gingrich notes the estimate of the royalties to the federal government from such oil and gas development at $16 to $18 trillion over the next generation. That is enough, he further notes, to pay off the current entire national debt of $15.5 trillion, without increased taxes.
Gingrich adds that “because [this oil and gas boom has happened] on private land, liberals [meaning Obama and his environmentalist lobby] weren’t able to block us from developing it.” On the public lands that Obama does control, Investor’s Business Daily reported on February 24, “leases on federal lands in the West are down 44%, while permits and new oil well drilling are down 39%.” Moreover, “The Obama Administration recently rescinded 77 oil and gas leases in Utah and stalled oil shale research and development in Utah, Colorado and Wyoming, where the federal government owns most of the world’s oil shale reserves.”
In addition, “After the BP oil spill, President Obama shut down most Gulf of Mexico drilling and there’s been a 57% drop in monthly deepwater permits since 2008.” As a result, “Only 2.2% of federal offshore land is currently being leased for production.” Then, “there are the 10 billion barrels locked up in the Arctic National Wildlife Reserve, which would require drilling in just 2,000 acres out of 19 million.” Finally, “The federal government estimates there are 26.6 billion barrels of recoverable reserves oil and 130 trillion cubic feet of natural gas in the Arctic Ocean’s Outer Continental Shelf but repeated safety reviews and designation of much of the region as critical polar bear habitat has slowed development to a crawl.” Indeed, Shell Oil ultimately withdrew from leases on Alaska’s offshore after investing billions, because the Obama Administration wouldn’t let them develop it.
As a result of all this Obama mismanagement, federal royalty revenues are actually on the way down rather than up. This massive supply constraint is why gas prices are soaring. Moreover, all this just confirms that as long as Obama is President, the above-described enormous oil and gas boom for America will never be allowed. Obama will never allow the development of shale on federal lands. And beware North Dakota and Pennsylvania. In a second Obama term, the EPA will issue safety and global warming regulations to shut down the current fracking booms on private and state lands.
The Silver Bullet
But here is the biggest revelation of all. Because of the boom in natural gas production and supplies we have already enjoyed, over the past 3 years natural gas prices have declined 70%! The same result for oil prices would drive down gas prices below $2.50 a gallon, all the way down to $1.13 a gallon. “That is easy to remember,” Gingrich says, “because that was the price of gas when I was Speaker.”
Moreover, because of the evil “speculators,” just a change in policy now will start to produce a drop in prices today, as the change in future supplies is anticipated in the market.
Even the Obama Administration admits this will work. That is why Vice President Joe Biden, Anti-energy Secretary Chu, and Sen. Chuck Schumer are so desperately calling on Saudi Arabia to increase their oil production. Gingrich in responding to Obama’s Laughfest in Largo read Chu’s exact statement calling for increased Saudi production: “I am very enthusiastic about their willingness to do that, and hopefully it will have downward pressure on prices, which is what we want.”
And when the Administration talks about releasing oil from the Strategic Petroleum Reserve, it similarly admits that increasing supply will reduce prices. When it did so in 2011, it admitted as much as well.
So yes, there is a quick fix, yes there is a silver bullet. We can solve the problem of gas prices today the same way we solved Jimmy Carter’s energy crisis overnight, when we voted Carter out of office, and replaced him with Reagan.
Big Oil Subsidizes Obama
Obama concluded his Largo Laugh-In by raising the question of “whether we should keep giving $4 billion in taxpayer subsidies to the oil industry.” He complained, “The oil industry has been subsidized by you, the taxpayer, for about a hundred years.”
But this is more Obama perversion of the truth. The federal government does not subsidize oil companies. Oil companies subsidize Obama.
As the Wall Street Journal reported on March 14, “the oil industry paid some $35.7 billion in corporate income taxes in 2009…. That alone is about 10% of non-defense discretionary spending.” Yet, “that figure doesn’t count excise taxes, state taxes and rents, royalties, fees and bonus payments.”
As a result, “The Tax Foundation estimates that, between 1981 and 2008, oil and gas companies sent more dollars to Washington and state capitols than they earned in profits for shareholders.” In the case of Exxon Mobile, for example, “for every dollar of net U.S. profits between 2006 and 2010, the company paid $1.45 in taxes. Exxon’s 2010 tax bill was three times larger than its domestic profits.” The American Petroleum Institute “estimates that the average effective tax rate for oil and gas companies is 41.1%,” compared to 26.5% for other manufacturers on the S&P Industrial Index.
The Journal explained, “As for the ‘subsidies’ that Mr. Obama says the oil industry receives, these aren’t direct cash handouts like those that go to the green lobby. They’re deductions from taxes that cover the cost of doing business and earning income to tax in the first place. Most of them are available to other manufacturers” and the others should be.
The Worst Is Yes to Come
But what has Obama so clearly panicked on this issue is that he knows the worst is yet to come. Gas prices have soared during the winter months, when they are always the lowest. It is during the spring and summer months that gas prices always shoot up the most. When that $5 plus gas hits in July, it is going to be one long hot summer for the Obama reelection campaign.
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.
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