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Congressional finger-pointing won't ease the pain at the pump

Posted: June 15, 2008 2:46 p.m.
Updated: August 16, 2008 5:02 a.m.
 
On Sept. 19, 2001, then-Fed chief Alan Greenspan, former Clinton treasury secretary Bob Rubin, and Bush economic advisor Larry Lindsey met with congressional leadership to detail the economic fallout from the horrific attacks perpetrated eight days earlier.

In "Age of Turbulence," Greenspan recalls of that meeting: "There was great seriousness to the ensuing discussion - no grandstanding." (I remember thinking, This is the way government should work.)

Understandably, the carnage of 9/11 elicited a rare level of congressional sobriety. Sadly, it seems that only such a catastrophic event can elicit Washington's reclusive maturity. And now, while we are caught in an energy labyrinth, Washington has, as is the norm, returned to its ugly grandstanding ways, like a dog returning to its vomit.

Ignoring the fact that gas prices are fundamentally set by global factors, especially for a country that imports roughly 60 percent of its oil, Congress has chastised "Big Oil" for the $4.05-per-gallon national average while parading itself as the arbiter for securing a more perfect union. That grandstanding has served to only promote myth and shroud the facts.

So what really are the facts about the $4.41 that SCV residents pay at the pump? Having established last week that the global market is the first factor determining gas prices, we stay with that market because gasoline's chief ingredient, crude oil, is priced largely by market forces.

Currently, the price of crude represents roughly half the cost at the pump. Saying it differently, market forces determine around half the $4.41 a gallon that we pay.

And for a country that imports a high percentage of its oil with a currency that continues to decline in value against foreign currencies that continue to increase in value, that half portion increases inflation and makes scarce foreign investment.

A disregarded consequence of importing 60 percent of our oil is the higher cost attached to transporting crude over extreme distances. The cost of transporting petroleum drilled and refined in Canada to Southern California impacts the pump more than you imagine. The greater the distance, the more we pay at the pump.

The portion of gas prices tied to refining has ballooned also, even apart from crude prices. As no new refineries have been built in 32 years, aging refineries require costly repair and upgrades for environmental regulations.

Those costs, resulting in a limited supply of refined oil, coupled with our consumption, spawn higher gas prices because U.S. demand has outpaced U.S. supply. That means greater importation.

Also, a sizable chunk of money collected at the pump pays refiners for their expensive work.

Besides costly crude accounting for half of gasoline's price, the high cost of transporting imported oil, and refining costs, there are other important factors that have created the $4.05-a-gallon national average.

State, local, and federal taxes accrue to a sizable portion of the costs that we pay. Another is the lack of investment by U.S. oil companies in alternative fuels, advanced technologies and new drilling sites. That lack of investment drove up importation demands and deepened U.S. dependence on oil as its primary source of energy.

As potential alternative fuels wait to be further funded, and as we wait the necessary decades for those potentials to become efficient common fuels, we must reduce our dependence on costly foreign oil by restructuring environmental standards so that the Outer Continental Shelf, particularly in Alaska and the Pacific, can be safely drilled.

That will not solve the problem, but it is a beginning. New refineries must also be built. Refineries are expensive and environmentally hazardous; yet reducing foreign dependence necessary involves new U.S.
refineries.

It is a beginning. Even these accommodations are but short-term answers. Without crude prices plunging below $80 a barrel, without long-term supply far outweighing demand, or without a deep prolonged reach into the Strategic Petroleum Reserve, relief at the pump may only be a matter for conversation.

But as our real crisis moment is yet to come, all things remaining the same, such long-term dents become nonpartisan necessities.

Andre Hollings is a Santa Clarita resident. His column reflects his own views, not necessarily those of The Signal.

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