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6/13 "Which way out of rising gasoline costs?" - http://USATODAY.com: http://www.csua.org/u/lr0 "Here's a look at how seven proposals could cut prices - and the drawbacks to following such plans:" \_ It is all Bill Clinton's fault: http://newsbusters.org/node/6858 \_ What isn't? |
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| www.csua.org/u/lr0 -> www.usatoday.com/money/industries/energy/2008-06-12-gasolineprices_N.htm?se=yahoorefer Print | By Richard Wolf and Paul Davidson, USA TODAY Question: What's your advice to the average American who is hurting now, facing the prospect of $4 a gallon gasoline? The sticker shock has Washington buzzing about possible government solutions. Some officials want to drill for more domestic oil and build refineries. Others want to regulate the oil industry and financial markets. Everyone wants to develop alternate fuels -- but which ones? USA TODAY asked more than two dozen energy specialists what could cut the price of gas. The consensus: A mix of measures could boost supply and cut demand over several decades. But with oil closing near $137 a barrel Thursday, don't look for lower prices anytime soon. In the past, Congress has addressed supply-and-demand questions. Faced with oil shortages in the 1970s, it voted to finish the Trans Alaska pipeline, mandate fuel economy standards for cars and trucks, and set the nation's speed limit at 55 miles per hour -- a limit that was lifted in 1995. In 2005, Congress required using ethanol in fuel, a mandate it tightened last year when it increased fuel economy standards. This year, lawmakers have agreed on a short-term action to trim prices: They've stopped putting 70,000 barrels of oil a day into a national reserve of emergency supplies. That will cut the price about 35 cents a gallon, according to Energy Department calculations. Perhaps the quickest way to cut prices further would be to prop up the dollar by raising interest rates. Because oil is priced in dollars, producers raise prices when the dollar is weak to maintain profits. But the Federal Reserve, which has cut short-term interest rates seven times since September, would be hard-pressed to reverse course and raise them in an anemic economy. Another way would be to flood the market with oil from the Strategic Petroleum Reserve. Lucian Pugliaresi, president of the oil company-funded Energy Policy Research Foundation, says a drawdown of 200 million barrels over nine months and aggressive new drilling would work. It could cut about 37 cents a gallon, using US Energy Information Administration methodology, not accounting for market responses. But Bush and congressional leaders oppose tapping emergency supplies unless there's a dire shortage of oil. So the debate over gas solutions ranges from more drilling to less driving. Presumptive Democratic nominee Barack Obama wants a 10-year, $150 billion government program to develop new energy sources. His Republican rival, John McCain, wants to restrict carbon dioxide emissions and let market forces do the rest. Both oppose drilling in Alaska, but McCain would open up some coastal areas if states agreed. McCain favors but Obama opposes a suspension of the federal gas tax. Here's a look at how seven proposals could cut prices -- and the drawbacks to following such plans: Oil refineries can't keep pace with demand No new refinery has been built in the United States in the past 32 years. Capacity at existing refineries has increased about 1% a year, failing to keep pace with demand, says Aaron Brady, a Cambridge Energy Research Associates analyst. Until recently, the tight supplies and surging demand allowed refiners, such as major oil companies, to charge a premium of about $9 a barrel of oil, or 21 cents per gallon of gasoline, Brady says. This year, however, high crude oil prices and lower US demand have forced refiners to live with razor-thin margins. That means if crude prices fall, some of the drop could be offset by higher profits for refiners. The good news: Refiners worldwide are sharply expanding capacity. Oil consortium Motiva plans to double capacity at its Port Arthur, Texas, facility by 2010, creating the largest US refinery. Most of the new equipment is designed to process heavy crude oil, which is more abundant and cheaper than light, sweet crude but more expensive to refine. The bad news: Refining makes up just 10% of the price of gas, so boosting capacity won't help much. "Adding refining capacity is not going to have a significant impact on the price of gasoline," says Kevin Lindemer of financial analysts Global Insight. And much of that refining infrastructure will take three to five years to build, says analyst Robert Linden of Pace Global Energy Services. Even so, it should help stabilize gasoline prices if crude oil costs fall or a hurricane shuts down Gulf Coast refineries, Brady says. By Paul Davidson Drilling more helps -- a little More than 100 billion barrels of oil could be available off the coasts of the United States and under the Alaskan tundra -- enough to satisfy US consumption for more than 13 years. The question is: Are the environmental costs worth the economic benefits? Those benefits would be minimal at the gas pump and would take at least five years to begin being realized. The US Energy Information Administration estimates that drilling in the Arctic National Wildlife Refuge would trim only 1 to 35 cents per gallon by 2027 if oil is selling at half the price it is now. If prices stay high, the impact would be twice that amount. "That's not an excuse to not do it," says John Felmy, chief economist at the American Petroleum Institute. President Bush urged more domestic drilling as he left this week for Europe. He said it would "give this country a chance to help us through this difficult period by finding more supplies of crude oil, which will take the pressure off the price of gasoline." Some analysts say the Arctic refuge is prime land to be drilled because of existing pipelines. Bruce Bullock, a former oil company executive who is director of the Maguire Energy Institute at Southern Methodist University, calls it "low-hanging fruit." The shelf -- off the Pacific, Atlantic and Gulf coasts -- contains about 86 billion barrels of oil. But 85% of it is off-limits to drilling, and a House subcommittee voted Wednesday to keep it that way. There's even oil in the sedimentary rocks of the Rockies, near the intersection of Utah, Colorado and Wyoming. Extracting it, however, would mean overcoming technological barriers and dealing with carbon dioxide pollution. Republicans such as Senate Minority Leader Mitch McConnell favor legislation that would lease coastal and Alaskan oil fields. They say the benefits would come sooner by making oil futures less attractive to investors. But David Friedman of the Union of Concerned Scientists, a research and environmental advocacy group, says the USA has just 3% of the world's oil reserves, and the reduction in gas prices from such a plan wouldn't amount to much: "One to three cents per gallon is the definition of a drop in the bucket." By Richard Wolf Different fuels key to future One surefire way to cut fuel costs is to find a substitute for gasoline. President Bush signed legislation this year mandating that ethanol comprise 21 billion gallons -- or 15% -- of motor fuel by 2015, and 36 billion gallons by 2022. Today, two-thirds of gasoline sold in the USA contains about 10% ethanol, saving consumers about 10 cents per gallon of gasoline, says Matt Hartwig of the Renewable Fuels Association. The higher mandate by 2015 could boost the per-gallon savings to 20 cents, he says. By 2012, US automakers plan to roll out large numbers of flexible-fuel vehicles that can handle blends with up to 85% ethanol. Yet at such high levels, corn-based ethanol costs 30 cents a gallon more than regular unleaded gas because of its lower mileage, AAA says. The answer: cheaper cellulosic ethanol, now being developed, made from switch grass, wood chips and municipal solid waste. Such ethanol, if widely used, could bring back $2-per-gallon gasoline, says David Friedman of the Union of Concerned Scientists. "Turning waste into fuel is really the holy grail," says John Felmy, chief economist for the American Petroleum Institute. Cellulosic ethanol is at least several years away because breaking down the waste materials into sugar-based fuel is challenging. The Toyota Prius costs $2,000 more than a comparable compact car but gets 45 miles per gallon. At $4 a gallon for gas, the Prius saves about $700 a year in fuel costs vs. a similar car, assuming 1... |
| newsbusters.org/node/6858 If a Senate study concluded that legislation signed by President George W Bush and supported by Halliburton was partially responsible for today's high oil and gas prices, do you think you would have heard about it? However, the president that signed the law in question was William Jefferson Clinton, and the company that strongly lobbied for its passage was Enron. Yet, mysteriously, this study was almost completely ignored. report detailing how speculation on various commodities exchanges around the world is impacting energy prices. Six weeks later, virtually no media coverage has been given to this bipartisan, 60-page study that should have been of great interest to Americans with gasoline over three dollars a gallon. Even more curious than the lack of media attention to this report was its continued reference to Enron, a regular target of the press in the past five years. Commodity Futures Modernization Act of 2000, approved by Congress and signed into law by former President Clinton on December 21, 2000. Modernization Sweeps The Nation First, some background: in 1936, President Franklin Delano Roosevelt signed into law the Commodity Exchange Act, which was designed to create greater government oversight of commodities markets after the collapse of grain prices in 1933. This Act has been regularly amended by Congress as these markets have grown and evolved, and was set for reauthorization on September 30, 2000. CFMA not only extended this 70-year old Act, but also detailed new regulatory authorities for the Commodity Futures Trading Commission, the government agency responsible for overseeing all futures trading in the United States. At the same time, various exemptions were either created or renewed that reduced CFTC's jurisdiction over certain transactions. In particular, according to this Senate report: The trading of energy commodities by large firms on OTC electronic exchanges was exempted from CFTC oversight by a provision inserted at the behest of Enron and other large energy traders into the Commodity Futures Modernization Act of 2000 in the waning hours of the 106th Congress. One reason why most major media outlets might have ignored this report was the connection to President Clinton. After all, it makes it more difficult to blame today's energy prices on President Bush if the public is aware that the loophole in question was enacted while he was still Governor of Texas. Imagine how much attention this report would have gotten if the company that had lobbied for this loophole was Halliburton, and the legislation had been signed into law by George W Bush. allows bilateral transactions of certain exempt commodities, including energy derivatives, by eligible participants. With the exception of metal commodities, these futures may also be traded on an electronic trading facility. summary of CFMA from the Library of Congress also supported the Senate's contentions: (Sec. States that a board of trade designated as a contract market or derivatives transaction execution facility may establish and operate an electronic trading facility. One Step Forward, Two Steps Back The key here is that CFMA allowed for the creation of electronic futures exchanges that would not be governed by the CFTC, and determined that energy futures and derivatives could be traded on such exchanges. In the view of this Senate report, this precipitated a tremendous expansion in the demand for energy related contracts - and the potential for manipulation by large investors around the world - that has likely increased the price of oil by as much as $25 per barrel. This is important, because despite conventional wisdom, existing supply-demand ratios in oil and oil-related products in no way justify current prices. As the Senate report accurately stated: While global demand for oil has been increasing - led by the rapid industrialization of China, growth in India, and a continued increase in appetite for refined petroleum products, particularly gasoline, in the United States - global oil supplies have increased by an even greater amount. Today, US oil inventories are at an eight-year high, and OECD oil inventories are at a 20-year high. The report also gave an accurate historical reference to current oil supply levels: As a result, over the past two years crude oil inventories have been steadily growing, resulting in US crude oil inventories that are now higher than at any time in the previous eight years. The last time crude oil inventories were this high, in May 1998 - at about 347 million barrels - the price of crude oil was about $15 per barrel. By contrast, the price of crude oil is now about $70 per barrel. The large influx of speculative investment into oil futures has led to a situation where we have high crude oil prices despite high levels of oil in inventory. Similarly contrary to the recent hysteria surrounding this issue, supply is expected to grow faster than demand for the foreseeable future: In its monthly report for March 2006, the International Energy Agency(IEA), stated, "Additions to OPEC and non-OPEC capacity are forecast to keep global supply trends broadly in line with global demand in 2007 and 2008." The US Department of Energy's Energy Information Administration (EIA) recently forecast that in the next few years global surplus production capacity will continue to grow to between 3 and 5 million barrels per day by 2010, thereby "substantially thickening the surplus capacity cushion." Bad Medicine Worsens The Malady Yet, despite this "thickening surplus capacity," oil prices have still exploded, and increasing investor activity has certainly been a catalyst. It is the trading that occurs away from CFTC-regulated exchanges that is exacerbating the problem, for such facilities have no position limits on their contracts, or Large Trader Reports required of its participants. Without getting overly complex, on every commodities exchange in America, futures and options contracts carry a finite limit as to how many an investor may hold. This is specifically designed to prevent anyone from cornering the market on a particular commodity, much as what the Hunt brothers did with silver in 1980. Unfortunately, electronic exchanges do not have position limits on their contracts. This allows large investors and billion-dollar hedge funds to acquire a number of energy contracts significantly greater than what they could purchase on conventional exchanges, thereby creating an added demand on oil and oil-related products that, frankly, the system can't handle. Furthermore, these electronic exchanges require no Large Trader Reports from its participants. This means that there is no routine auditing of larger transactions that occur. The Senate report quoted CFTC Chairman Reuben Jeffrey specifically about this issue. "The Commission's Large Trader information system is one of the cornerstones of our surveillance program and enables detection of concentrated and coordinated positions that might be used by one or more traders to attempt manipulation." The absence of such reporting on electronic exchanges makes it easy for large speculators to carry positions significantly greater than what decades of commodities regulations in America have deemed appropriate for the best interest of consumers. Moreover, it allows investors to hide their true position in a particular commodity from regulators. Bigger Isn't Always Better Adding insult to injury, this condition was further exacerbated in January of this year when the CFTC decided to allow the largest electronic energy exchange, the Intercontinental Exchange (ICE), to use its terminals to trade US crude oil futures. Three months later, this was amended to also allow ICE trading of US gasoline and heating oil contracts. As such, investors from all over the world can trade US energy contracts without any oversight by an American regulatory body. As the Senate indicated, this situation is rather dire: As an increasing number of US energy trades occurs on unregulated, OTC electronic exchanges or through foreign exchanges, the CFTC's large trading reporting system becomes less and less accurate, the trading data become... |
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