USA Gasoline Price Skyrockets in Accordance with Democrat Energy Policy

 The USA average gasoline price from June 2020 to June 2022 is charted below:

For the last 6 months of 2020, the price of gasoline averaged about $2.20/gal.  The outcome of the 2020 election put the Democrats solidly in control of US energy policy.   The Democrats were really going to be able to pursue their long-stated goal of seeking the death of the American oil and gas industry, since they controlled the Presidency and both houses of the Congress.  The oil and gas industry had no choice but to respond with drastic investment caution as the Democrats canceled the Keystone XL Pipeline once again, canceled oil and gas leases, and put huge tracts of US land with great deposits of oil and gas off limits for development.  Over time, it also became clear that the government was canceling many other environmental permits actually needed to produce oil from existing oil leases and that it was generally preventing the building of new oil and gas pipelines.

Keeping oil and gas production in the US at a constant level requires a constant investment of effort and money.  This is even more true now that so much of our production is due to fracking.  The inevitable result of the Democrat anti-carbon fuel policies was that the US oil and gas industry was not willing to invest enough money to increase production enough to keep gasoline prices low.  The Democrats made it too hard to do so and any investment the oil and gas industry made was subject to later annihilation as the Democrats pursued their stated goal to kill the oil and gas industry.

The Democrats and the Federal Reserve also proceeded to flood the economy with new money.  The Treasury Department money presses printed money day and night, without pause.  The employees manning the presses and verifying the paper and ink ingredients were virtually flogged to print record amounts of new money.  Congress passed major spending bills and the Federal Reserve pursued its own money supply expansion policies.  The result was that the measure of the money supply called M2 increased rapidly from June 2021 to January 2022.  This generated a general price increase in almost all goods and services.  Oil and gas products could not be an exception.

Biden and the Democrats keep claiming these factors are not the cause of the gas price increases.  They say they were caused by increased demand as the economy recovered from Covid-19 and by Putin.  The economy was recovering, but the oil and gas industry had been readily able to supply an economy of equal size prior to the Covid-19 contraction.  Despite the Democrats, the oil and gas industry has steadily increased the number of active oil rigs since the minimum in the July to September 2020 period.  But, the number presently employed is still not as many as were employed prior to the Covid-19 downturn.  Democrat policies make banks and other lenders unwilling to lend money to the oil and gas industry and their own investors have reason to exercise extra caution in pursuing only the most lucrative projects with supporting infrastructure already in place.

As for Putin and the Russian invasion of Ukraine, that effect is responsible for the spike on the gas price curve, but note that there appears to be a rapid price increase before and after that spike that seems to be based at least mostly on other factors in play prior to the Russian invasion.

The increase in gasoline and diesel fuel prices are deleterious for our entire economy.  Add these to the high price increases in almost all goods and services, and many Americans are struggling to get by.  Americans with low incomes are hurting the most.  The Democrats say they care, but they do not care the least little bit.  They are determined to pursue their expensive oil and gas price policies with an aim to murder the oil and gas industry, no matter how many Americans are hurt.

After all, they claim it is because carbon dioxide emissions by man are an existential threat to the planet.  I have demolished that argument many times on this blog.  Others have also shown the catastrophic man-made global warming hypothesis to have failed in its scientific predictions.  On the basis of the scientific method, this Democrat argument holds no water, but they cling to it as though it is a religion.  It is a truth that people have chosen to annihilate millions of others due to their differing religions or lack thereof, so it is hardly surprising that Democrats of the catastrophic man-made global warming religion are very willing to do great harm to the standard of living of many, many of their fellow countrymen and of many in the developing world who desperately need the advantages of affordable oil and gas.

Those who hunger for ever-increasing power are willing to use that power brutally.  The Democrats are demonstrating that general truism by driving up the cost of our goods and services while leaving our incomes behind the curve.  This is just one more instance showing the foolishness of those many Americans deceived into believing the Democrats were the "kind" party.  Constant expressions of caring about others are a sign that someone is trying very hard to pull the wool over the eyes of the naïve.  This has been the one thing that Democrats have been very accomplished at doing.  Dealing with reality is another thing entirely.

The Obama Opposition to Pipeline Construction Lowers Our Future Standard of Living

Obama has delayed and opposed the Keystone XL Pipeline section proposed to bring Canadian "oil" from Alberta to Nebraska, where it will be picked up by existing pipelines.  Obama claims that having more oil available in North America is hardly important, since oil is a world market commodity whose price is set in the world market.  He claims that the Keystone XL Pipeline is “not even a nominal benefit for U.S. consumers.”

The Keystone XL pipeline will allow large amounts of Canadian "oil" (really largely bitumen) to reach our many Gulf Coast oil refineries which are expert in refining hard-to-refine oils such as the almost vanishing supply of Venezuela.  The despotic regime there has almost totally destroyed the Venezuelan oil fields and extraction industry.  One of the good results of the Keystone XL Pipeline is to replenish the supply of crude oil for these refineries.  Another is that the pipeline will also pick up oil from the Bakken oil shale formation in North Dakota and Montana.  This in turn might fuel the investment in new oil refineries in Nebraska or nearby states.  It might then give rise to further industrial manufacture of petroleum products in that area of the country.

The Obama administration and those of states with Democrat governors and legislatures are generally negative with respect to the building of other pipelines as well.  For instance, proposed pipelines to serve the gigantic Marcellus Shale Oil and Gas Formation of Pennsylvania, Ohio, West Virginia, Kentucky, and No-Fracking New York have been delayed by government actions.  The result has been that natural gas prices have locally become particularly depressed because the natural gas produced cannot be taken to more lucrative markets in other areas of the US.  This is not optimal market behavior.

While it is true that the price of oil is mostly set by world markets, it is not true that the effects of where oil is found, how it is delivered to refineries, where the refineries are located, and how the refined hydrocarbon products are moved from the refinery to market are insignificant to American consumers or manufacturers.  There are deleterious consequences when government prevents the private sector from optimizing the efficient delivery of petroleum products to American consumers.

Let us consider the product whose price affects all Americans and with which most of us have a considerable experience -- regular gasoline.  If the entire infrastructure I described in the previous paragraph had no effect on the cost of regular gasoline, then after we subtract the sum of the federal and state gasoline taxes from the average cost of a gallon of regular gasoline in each state, the remaining cost would be the same.  Yes, the cost has a component with is related to the cost of the oil, but even that cost has costs of delivery to the refinery built into it.  The cost of operating the refinery is another variable.  Then the cost of transporting the refined product to the market in each state in the US is still another variable.  There are still more retail costs.

So, let us examine how much variation in the cost of the pre-tax regular gasoline there is.  I am using the average state prices from AAA of the early morning hours of 25 December 2014.  The state taxes are those of April 2014 generally.  I have used the rolling month by month tax for Indiana for the month of December 2014.  Upon subtracting the state and federal tax from the current average sale price of gasoline in each state, one finds that the lowest price on delivery for gasoline is in the state of Missouri.  Kansas and Ohio are almost as inexpensive.  Oklahoma produces much oil, has refineries, and has many pipelines, so it is not a surprise that it is the next least expensive.  Kentucky is next, then Alabama, then Texas, Minnesota, Michigan, Iowa, and then Indiana and Illinois.  Texas with its rich supply of oil, its many refineries, and its ports is closely tied to the world markets.  One might expect that it would be the lowest cost state, but the world market activity there may actually pull up the cost to Texas consumers.  Yet, if so, the upward effect of the world market is small since Texas gasoline at the pump is actually only slightly more expensive than in Missouri.  Much bigger effects are found for Hawaii and Alaska, both of which have consumers far from refineries and no pipelines to deliver refined products.

Each extra cent added to the cost of regular gasoline causes $1.4 billion more in the economy to be spent on gasoline and diverted from other uses.  The 2013 US GDP was $16,768.1 billion, so $1.4 billion/$16.768.1 billion = 0.0000835 or 0.00835%.  Each extra dollar in gasoline cost is then equal to a cost to the economy of 0.835% of GDP.  We can now measure the cost of gasoline in each state relative to the cheapest state of Missouri as a fraction of the GDP, if that state were representative of the entire GDP.  In other words, the cost of gasoline effectively shifts the nature of the economy of that state in a manner equivalent to its being a part of an economy with such a change in the growth rate of the GDP each year.  The number in the last column of the table below is the effective percentage by which each state's GDP is lowered relative to that of the lowest cost state of Missouri.

Hawaii and Alaska have such high costs for gasoline delivery that those states have an effective lowering of their GDPs of 1.048% and 1.014%, respectively.  Not surprisingly, Vermont, being a low population density and somewhat remote state, not to mention a very green state, has very expensive gasoline causing a 0.524% reduction in its GDP.  New York is next worst with a 0.441% reduction of GDP.  Some of New York's diminished GDP is due to its opposition to fracking to take advantage of the Marcellus Shale or Utica Shale formation in western New York.  Some is likely due to a reticence to build adequate pipelines or to host oil refineries.  Some is due to the dominance of New York City, which is easily supplied with petroleum products by sea, but still has high costs such as for fuel storage and gas stations due to a very high population density and for an exceedingly high cost government.

Now given the new Obama normal of a real GDP growth rate of about 2% a year and a population increase of about 0.9% a year, we have a dismal real per capita GDP rate of growth of about 1.1% a year.  A generation is traditionally taken to be about 22 years, but with American women waiting much longer to have children, an American generation is now about 31 years.  If a state has among the best-served oil and gasoline product infrastructure and market systems, let us say it is better than the present national average in its effective GDP growth rate by about 0.15%.  Those served more poorly, such as New York State and New England, have growth rates depressed by about 0.15%.

What is the difference for the real per capita standard of living improvement over a generation of 31 years?  The better oil and gasoline market system states have a growth rate of about 1.25% per year, while those with the less well-functioning market systems grow at a rate of about 0.95%, ignoring other factors affecting growth rates.  The better served gasoline markets experience an increased standard of living of 47.0% over a generation, while the more poorly served states would have an increased standard of living of 34.1%.  This difference is not insignificant for people who have children, for people who live 2 to 3 generations long, or simply for people of a benevolent nature.

This is just the effect of gasoline prices as well and does not consider the many other products of oil.  Other products from oil include lubricants, diesel fuel, heating oil, aviation fuel, greases, asphalts, paraffin, and cutting oils.  Resins made from products refined from oil are used to make plastics, paint, sealants, adhesives, and composite materials.  The lowered prices of these products have already had an impact on reviving manufacturing in the USA.

What is more, the same viewpoint that opposes the use of oil, the building of pipelines, the building of refineries, and other facilities and infrastructure that make the petroleum products markets highly efficient, causes many inefficiencies in other industries and commercial endeavors which also lower our standard of living, especially over generations of time.

Ethanol Mandate to Add Twenty to Thirty-Five Cents Per Gallon in 2014 to Gas Cost

The 20-21 July 2013 Wall Street Journal notes that the ever-increasing ethanol requirement would now force refiners to exceed the 10% ethanol content in gasoline over which consumers will not go.  Consequently, the refiners are forced to buy Renewable Energy Credits at great expense.  These are called RINs.  This is increasing the cost of gasoline by about 10 cents a gallon.  Because the mandate requirement goes up each year and the cost of RINs is skyrocketing, the cost per gallon in 2014 due to the ethanol mandate is expected to be between 20 and 35 cents a gallon!

Obama's wish to see gasoline prices skyrocket is being promoted by his administration by limiting oil production on federal land and off-shore, by limiting oil refinery capacity, by limiting pipeline construction, and with the ethanol mandate.  His White House energy adviser, Heather Zichal, is still making the false claim that ethanol use reduces climate change!  This is just one of many ways in which Obama's ideas and supporters are very old-fashioned.  Add this to the old-timers list of Marxism, peak-oil, environmental doom, and a longing for a ruling aristocracy dedicated to caring for the incompetent peasant masses, while enjoying the honors and wealth of their ruling positions.

As I have pointed out many times, ethanol use neither decreases pollution nor increases the energy supply, contrary to the claims made in 2007 when the ethanol mandate was put into effect.  The ethanol mandate would be repealed if Congress were at all interested in the best interest of the People.  That Congress has left this mandate in effect is proof-positive of the venality of Congress.  That they cannot be bothered to repeal such an unnecessary expense for Americans informs us of how little they actually do represent us.

Economic Stagnation, Unsustainable Debt, Lawless Government Chosen

The majority of voters rejected the American Principle of limited, constitutional government whose purpose is the protection of our sovereign individual right to life, liberty, property, the ownership of our own bodies, minds, and labor, and the pursuit of personal happiness. Socialism and anti-human extreme environmentalism coupled with crony mercantilism and constant, blatant lying were chosen by the majority of voters within the boundaries of America.

I cannot say how unbelievably disappointed I am in half of the people of this country.  I cannot even think of them as Americans due to their failure to value the American Principle.  I cannot understand how so many could so radically embrace organized thievery, thinly veiled as redistribution in the interest of materialistic equality.

The voters have chosen four more years of such violations of economic rights that economic stagnation is assured.  We are assured four more years of very high unemployment and decreased full-time employment thanks to ObamaCare and a weak economy.  We are assured of the further destruction of whole industries, such as the coal, oil, and natural gas industries.  We can count on continued high gasoline prices.  We are assured of a government controlled medical system characterized by fleeing doctors, deteriorating medical service and expertise, aging medical equipment, lengthening waits for critical medical care, and of course much increased costs.  Government-run schools will become still greater propaganda factories deceiving the minds of our children and college students with tall tales of how government control will solve most any problem.  They will serve blue collar union teachers and not the children who will be deprived of real knowledge about American history and civics.  The cost of this hollow education will continue to skyrocket.  America's producers will be vilified for another four years and then taxed heavily, not to fill the gap between government spending and tax revenue, but to penalize the productive for being so productive.

Most voters say they want smaller government, but most voted for Obama.  This is a total disconnect.

Most voters say they want less national debt, but they chose the debt champion of all Presidents.

The voters also chose to return a Democrat Senate so they could continue the Obama-Reid regime record of no budget for a total of 8 years, in violation of law.

They chose Obama and a Democrat Senate so they would continue to have the unpopular ObamaCare, really ObamaUncaringTax, shoved down their throats by rationing bureaucrats and IRS thugs. 

Most voters cared not a wink about the cover-up of the New Black Panthers, Fast and Furious, and Benghazi.  Most care nothing that Obama flushed tens of billions of dollars down the toilet of hollow green energy companies with no possible market run by his campaign bundlers to fill their pockets in a race to the company bankruptcy.  Most voters did not mind the constant misrepresentations of the truth, the constant lies, and the fallacious arguments.  They embraced their celebrity con man.

This con man and the Democrat Senate will not address the fact that the U.S. government spending on ObamaCare, Medicaid, Medicare, Social Security, Food Stamps, and the interest on the debt are unsustainable.  We are hurtling down the road hacked out by Greece.  Collapse of the government is coming.  The only hope to avoid that was to free the economy and allow growth in it that exceeded that of the government.  Most voters never understood this simple fact.  Thanks to Obama and the Democrat Socialist Party and their most unworthy, unthinking supporters, collapsed government is our future.

Why Obama Did Not Answer Romney's Oil Drilling Permits on Federal Land Question

When Obama claimed that oil production was up due to his policies, Romney pointed out that the Obama administration has been approving many fewer permits than Bush had.  Obama evaded a direct response to the number of oil drilling permits he was approving.  He was really doing a most obvious bit of squirming to avoid answering the issue.  Romney correctly pointed out that oil production was up only because it had gone up greatly on private land while going down on federal land and offshore. 

Update of Chart originally posted, since the original chart not only was not plotted with a zero baseline, but also had proportionality problems with the length of the bars.  In other words, it was incompetently plotted.  This chart, provided by Dr. Francisco Santiago, is accurate:

[The original bad plot of the permit situation from a CFACT report is shown below:

Note that the baseline in this graph is not zero.]

The failure of the Obama administration to approve more oil drilling permits will cause increasing decreases in oil production from federal lands for some time after permits approved rises under Romney.  It will take awhile for production to catch up with an increase in permits, so this problem will be with us for awhile.  This was a missed opportunity to provide Americans lower gasoline prices, which we know is contrary to the Obama policy that high gasoline prices are desired.

Deficit Pushes Senate to End Ethanol Thieving of Taxpayers

The monumental deficit has pushed the Senate to repeal the $5 billion of tax credits and subsidies per year for corn growers, ethanol refiners, and gasoline blenders.  A tariff of $0.54 per gallon on imported ethanol would also be eliminated.  38 Democrats, 2 independents, and 33 Republicans voted to end these pointless subsidies which had wrongly been sold as a path to cleaner skies, energy independence, and a means to reduce CO2 emissions.  I have long pointed at these subsidies, along with the mandate for ethanol production still required by the insane Renewable Fuel Standard law, as a clear sign of Congressional and Presidential perfidy and a determination to rob the taxpayers blind for naked political power.  For more than 30 years, the attitude was clearly let the General Welfare be damned as the votes of special interest groups were bought. 

The repeal bill was sponsored by Senators Tom Coburn of Oklahoma and Dianne Feinstein of California.  14 Republicans and 13 Democrats opposed the 73-27 vote repeal action.  Obama and his Sec. of Agriculture, Tom Vilsack, still oppose the end of these deleterious subsidies, claiming they are needed to reach Obama's imagined plan to reduce oil imports by one-third by 2025. The House has not yet voted on ending these ethanol subsidies and will reject the Senate bill because tax bills are constitutionally required to be initiated in the House of Representatives.  Fortunately, the ethanol subsidies will expire at the end of this year unless the House and Senate renew them.  This Senate vote makes it unlikely that it will renew this special interest travesty.

The ethanol subsidy is a $0.45/gallon of ethanol tax credit given against the excise tax of $0.184 per gallon of gasoline paid by gasoline blenders such as Valero and Marathon Oil.  This allows the blenders to pay more for corn ethanol made by such companies as Archer-Daniels-Midland and to compete for corn used as food or as livestock feed. 

The overall effect of a repeal of the subsidies upon food and feed prices will be minimal, since the mandate for ethanol use in fuel by the Renewable Fuel Standard law passed by the last Democrat Congress requires 12.6 billion gallons of ethanol use in fuel this year and up to 15 billion gallons in 2015.  By 2022, 36 billion gallons of so-called renewable fuel must be blended into gasoline, though only 15 billion gallons of that can be conventional corn-derived ethanol.  The remainder is somehow magically supposed to come from other low-carbon biofuels, such as switchgrass, which as yet produce a negligible 3 to 4 million gallons a year of ethanol or fuel in expensive pilot plants.

This mandate and the subsidies have caused the price of corn to be over $7/bushel all spring, which is twice the price of a year ago.  The subsidy and the high price of oil has caused blenders to use a billion gallons more corn ethanol than they were required to use.  This put still more pressure on corn, corn products, and meat products.  On Friday, buyers bought corn in the Toledo, Ohio grain trading hub at $7.35 per bushel.  A desperate turkey grower even offered $8.37/bushel of corn and got few offers of corn at that price.  Corn supplies are expected to be at a 15-year low in late August.  This may force some makers of corn-derived ethanol to shut down their plants.

The impact of ethanol from corn on the market and on some states can be judged from the graphic below from the 17 June Wall Street Journal:

Note that the food, seed, and industrial use of corn has grown very little since 2000 and the use in feed and residual use has shrunk since 2005 due to the increased cost of corn brought on by the huge increase in ethanol production since about 1998.  Iowa, the first major event for presidential candidates produces 21% of all U.S. ethanol, which is more than twice the production of any other state.  It is no accident that so much of the Iowa corn production is bought for the purpose of ethanol production.  The subsidy takers know how to put the political pressure on.  About 5 billion bushels of corn, or 40% of all corn production, is used to produce ethanol.  The great growth in corn production that has resulted has displaced other food crops and led to price increases severe enough that the World Bank and other international institutions have called for an end to corn ethanol subsidies.

The end effect due to the continuing ethanol in fuel mandate will be continued very high corn prices.  The income tax taxpayer will be relieved of a burden, but that burden will be shifted to the consumer.  It is better that the burden be on the consumer, which is a much broader base of people than the minority who pay federal income taxes.  It would be better yet if we removed the renewable fuel mandate and simply allowed the free market to figure out which fuel resources will be used.  Obama's centrally-planned economy will be a disaster just as all prior central planning has historically led to catastrophe.  The last place a catastrophe will come from will be man-made global warming due to CO2 emissions.

The Battle Over Ethanol Limits in Gasoline

Congress has mandated that renewable fuels must provide 36 billion gallons to be blended into the domestic fuel supply by 2022.  This means principally that ethanol must be blended into gasoline to meet this requirement.  The ethanol trade group Growth Energy, headed up by General Wesley Clark, says this goal cannot be met unless the present EPA limit of 10% ethanol in gasoline is increased to 15%.  The EPA just announced that it has increased the 10% blend limit to 15% for cars and light trucks of model year 2007 and later.

The EPA is waiting for additional research on cars and light trucks of the 2001 to 2006 model years, before deciding whether to increase the ethanol blend limit up to 15% for those models.  Live stock ranchers, auto makers, oil refiners, and many environmental groups oppose an increase in the blend limit.  Live stock ranchers do not want their feed costs to go up as more and more corn is converted into ethanol.  Auto makers are concerned about lower performance from engines and damage caused by higher ethanol blends.  Many of their warranties are voided by the use of 15% ethanol blends, called E-15.  Oil refiners simply do not like having to make still more blends of gasoline.  The many blends cause their production costs to go up, which means they must charge their customers more.  Environmentalists are concerned that engines degraded by ethanol will emit more pollution.

There is concern about people being confused at the gas pumps by the additional blends of gasoline.  But this brings up the interesting issue of even if the EPA allows 15% ethanol blends, who would want to use them?  They will be more expensive per mile driven and cars and light trucks using them will suffer some performance loss.  The answer is probably that some states will start requiring their use through some means or other.  Will that be by subsidizing the high ethanol blends or will they actually mandate that people with newer vehicles must use the higher blends, despite their higher costs and performance degradation? 

There are strong lobbyists, such as the ethanol refiners and corn farmers who are conniving to get their states to make such requirements.  This will not be good for most Americans.  This is just one more example of factions and special interests taking advantage of most Americans for their own financial gain by using the force of government to remove themselves from the free market into a protected, crony status.  As I have often noted, the only way to prevent such crony and faction based rip-offs is to limit the power and scope of all of our governments: federal, state, and local.  Questions are being asked about why this announcement was made just prior to the mid-term elections, but the increased use of ethanol is popular in many rural areas of the Midwest.  Pleasing those special interests prior to the election is the reason for the timing.

Reviewing the Cash for Clunkers Folly

Jeff Jacoby, a Boston Globe columnist, wrote a very interesting assessment of the Cash for Clunkers Program, or the Car Allowance Rebate System officially, in a column called 'Clunkers,' a classic government folly.  The Cash for Clunkers program was indeed a classic case of government simple-mindedness with consequent harm done to many Americans.

This Obama - Democrat program paid American consumers up to $4,500 for an old car that had low gas per mile ratings when they bought a new one with better gas mileage.  The "clunker" had to be in drivable condition and it was to be destroyed.  The engine was chemically destroyed and the car was  shredded or crushed.  This program cost taxpayers nearly $3 billion.

Let us examine the consequences of the Cash for Clunkers program:

• Because mostly just the timing of car sales were affected, of the 700,000 cars sold during the clunkers sale frenzy, only 125,000 are believed to be sales that otherwise would not have happened.  Each of these additional car sales therefore cost taxpayers $24,000!
• Researchers at the University of California - Davis figured that the reductions by the program of CO2 emissions cost $237 per ton.  Carbon emissions credits cost only about $20/ton.
• The reduction in the emissions of CO2 is less than that Americans emit in one hour.  At least the plants that would have loved that extra CO2 were not seriously deprived of their food.
• The reduction in gasoline use is equal to that Americans use in 4 hours.
• During this recession, many people cannot afford new cars.  Unfortunately, the number of older, used cars on the market was decreased remarkably.  With more demand for less expensive cars and less used car supply, the cost of the average 3-year-old car is up more than 10% since last summer to nearly $20,000.  Some popular models are up more, with the Cadillac Escalade up 36% since last July to $35,000.
• A great deal of American wealth was destroyed.

Jeff Jacoby concludes his commentary with this:

When all is said and done, Cash for Clunkers was a deplorable exercise in budgetary wastefulness, asset destruction, environmental irrelevance, and economic idiocy.  Other than that, it was a screaming success.

I wonder how many people who traded in a clunker for a new car and new car payments have regretted that decision as this recession goes on and on and on?  In some cases, the traded in clunker would have been worth more than $4500 by now, even if it was not then.  It is also worth noting that $3 billion spread over the 139,919,000 people employed in August 2010 means the average cost to each employed worker of the program is $21.44.  Paying that much for a destructive program makes me a bit angry.  I could have spent that money on paying down my debts or on one or two good books.  Of course, this foolhardy program is replicated by thousands of other foolhardy government programs, which have caused the federal budget deficits to soar since the Democrats took over control of Congress, and even more so since they usurped the presidency.  Thanks for taking that $21.44 multiplied many thousands of times away from me Obama and you socialist Democrats!  Payback time is coming neigh! If only we could force you guys to pay back all the deficit money you obligated the rest of us for.

Coal Liquefaction

An interesting commentary on coal liquefaction by E. Ralph Hostetter appeared in the 31 August 2008 Washington Times. Coal can be converted into liquid gasoline and diesel fuel using hot water under pressure to form a mixture of hydrogen gas and carbon monoxide. In the presence of heat, pressure, and a suitable catalyst, such as iron, this mixture will form long hydrocarbon chains.

The United States mines more than 1 billion tons of coal a year. We have 275 billion tons of recoverable coal, 1/4th of the world's estimated coal reserves. American Clean Coal Fuels in Illinois is developing a 30,000 barrel per day biomass and coal-to-liquid operation. Baard Energy is building a 53,000 barrels per day coal and biomass to liquid facility on the Ohio River. Rentech is building a facility in Natchez, Mississippi to produce 29,000 barrels per day. DKRW is constructing a 20,000 barrel per day plant in Medicine Bow, Wyoming. The U. S. Dept. of Energy is predicting 3.7 million barrels per day of liquid from coal by 2030. About 1.25 barrels of oil can be formed from each ton of coal. If the U. S. mined another 1 billion tons of coal a day and converted it into liquid fuels, we could reduce crude oil imports by 15% and decrease import costs by $100 billion per year.

Gasoline Taxes by State

The Democrats in Congress love to complain about the huge profits being made by the oil companies, who are making a profit of about 8% on their total revenues. This is not a particularly good rate of return for oil company investors. Many industries provide a better profit margin. But Barack Obama calls these windfall profits and wants to confiscate them and turn them over to people with low incomes to help pay for their home heating costs.

Now oil companies revenues come largely from the sale of oil, gasoline, and some organic chemical products, such as those that go into making plastics, waxes, paints and other products. If we assume that they make about the same profit on a gallon of gasoline as they do on all of their other products, then they make a profit of about $0.32 per gallon when gasoline is selling for $4.00 at the pump. In comparison, the sum of gasoline taxes taken by local, state, and federal government in July 2008 is shown by state in this map.

Some states and the federal government have a tax which is a fixed dollar amount per gallon of gasoline. Some states set the rate as a percentage of the cost of the gasoline sold at the pump or have a combination of fixed amount and percentage tax rates. Because Americans used less gasoline in the first half of this year, those states with fixed amount rates are crying in pain because they are raking in less gasoline taxes, so some of them have actually increased the gas tax this year! Those who tax as a percentage of the price are very happy with the gasoline tax money swamping them. Well, of course they are up to the task of spending any tax revenues and then some on top of that!

In July, in California governments raked in $0.749 per gallon of gasoline sold at the pump. Connecticut was nipping at CA's heels at $0.708/gal. total taxes. Let us make a list of the tax take by all levels of government by state for the most expensive states:

California $0.749
Connecticut $0.708
Illinois $0.666
New York $0.623
Michigan $0.607
Indiana $0.569
Washington $0.559
Florida $0.516
Wisconsin $0.513
Hawaii $0.51
Nevada $0.51
Pennsylvania $0.507
West Virginia $0.506
Rhode Island $0.494
North Carolina $0.486

Other state tax takings of interest to some friends and family are:

Ohio $0.464
Kansas $0.434
Minnesota $0.424
Maryland $0.419
Colorado $0.404
Texas $0.384
Oklahoma $0.354

Only South Carolina at $0.352, Wyoming at $0.324, and Alaska at $0.264 have lower gas tax rates than Oklahoma. Only in Alaska is the government gasoline tax taking less than the estimated $0.32/gal. of profit for the oil companies.

So, if you live in a state with a gasoline tax stated as a percentage of the gasoline price, you would have a much better claim for relief from the high cost of gasoline against your state than you would against the oil companies.

In any case, if we have a shortage of gasoline and that is causing the high gasoline prices we are paying, taking profits away from the oil companies will only encourage them to forget drilling for more oil and forget refining oil into gasoline, and perhaps encourage them to invest their money instead into photovoltaics and wind farms, while seeking government subsidies for those operations. Of course, these subsidies will be paid by you for many, many years. But, neither photovoltaics nor wind farms are going to power your car now or in the next few years, so any so-called windfall profits tax on oil companies will only drive the price of gasoline up more. This is exactly what Barack Obama and the Democrats want. They want gasoline to cost more and they want to try to reduce oil and gasoline use while forcing the oil companies to invest more into the development of alternative energy.

The net result for you will be more expensive fuel costs all around and higher taxes to pay for more subsidies. What a bargain. Oh well, you can feel good that you are doing your part to stop man-made global warming! Ah....., but there is no evidence that that is a problem, while there is clear evidence that high energy costs are a huge problem. What a bargain those Democrats are offering you! But, they can sell half the people Brooklyn Bridge, so we have to hand it to them that they are effective salesmen. Demagoguery is their specialty.

Senator Opposes Drilling With Gas $10 at Pump

Senator Mitch McConnell, Minority Leader, Republican, Kentucky offered an amendment which would allow more drilling for oil. His amendment was rejected by Senator Ken Salazar, Democrat of Colorado. Mitch McConnell responded with a modified amendment which would be triggered on that date when gasoline at the pump reached $4.50/gal. Ken Salazar objected to the amendment to allow drilling. Back and forth it goes with Mitch offering new amendment versions at $5.00, at $7.50, and finally at $10.00/gal. as Ken objects to each attempt to allow oil drilling. The exchange is available here on YouTube.

Some Democrats actually want gasoline to cost $10.00/gal. It will satisfy their radical environmental desires to see mankind suffer an immobile life. Others will be happy to see the lights go out. Still others will be happy to stand by as people die from hypothermia in their homes. After all, people are the problem.

An Evaluation of What Americans Think About Energy

As we saw in the last post, most Americans are angry about high energy prices. They should be. However, the important thing is for them to understand who they should be angry at. They could be angry at the inefficient national oil companies in most of the oil-exporting countries, but there is little they can do about that. The most constructive anger is anger directed at Congress for setting up obstacles to oil and gas production in the United States. They have prevented the drilling for oil in ANWR for 13 years, thereby making at least 10 billion barrels of oil unavailable to us now. Off-shore Alaskan waters near AMWR hold at least another 19 billion barrels of oil. Until further development of these fields is undertaken, we will probably underestimate the amount of oil in them. There are thought to be a conservative 90 billion barrels of oil on the continental shelf that Congress has put off-limits.

Meanwhile, those in Congress who oppose drilling say that the oil companies already have leases they are not producing oil from. True, leases are often bought before anyone is sure whether they have oil on them or not. If they do, the leasing company has to figure out whether there is a way to retrieve it profitably after a big investment is made to get at it. With oil prices as high as they are now, much oil which could not be recovered at $30/barrel prices can be economically produced, but the investments are huge and one also has to know that the price of oil will not again be $30/barrell one year from now. In addition, there are huge costs in satisfying the EPA about pollution protections and the process can take many years to work through. Congress could expedite the time to production by speeding up the EPA approval process.

One might say there is some price gouging by OPEC on oil, but then we set them up to be able to do it by minimizing our own drilling for oil. We chose to make them the only major source for oil in the world market. The best plan is to pursue as much oil drilling, gas production, and alternative fuel production as possible in the U.S. and the remainder of the world. We can also do better in insulating our homes, installing more energy-efficient furnaces and refrigerators, making engines more fuel efficient, and pursuing many other wise personal choices in light of the present high cost of energy. Such choices will either bring the prices of fuel down or at least keep them from continuing to grow. It is interesting to note that Americans have been putting engines into their cars which have much higher horsepower ratings in recent years and that this uses more additional gasoline even than the SUVs on the road. There are many reasons why Americans should be a bit angry at themselves as well as at Congress!

The criticism that the federal government is not doing enough is more heavily leveled at the President than it should be. It is primarily Congress that has not done enough. But Congress' role is to get off the backs of those who want to produce energy. It should not be for them to pick winners and losers. They should not be subsidizing solar and wind, while restricting coal, oil, and gas. This would be especially foolish given that solar and wind are likely to remain secondary sources of energy for decades yet. They are too seasonal and irratic in their output within a given day or week to be counted upon for large portions of our energy needs. At the present time, their total output is minuscle compared to coal, oil, and gas, or even compared to nuclear, despite no new nuclear power plant having been built in the U.S. in 30 years. Wind, solar, and geothermal power will all add to our total available power generation capacity over the next few decades, but they are very unlikely to overtake coal, oil, and natural gas.

The idea of the 5-year moratorium on coal-fired power plants is a great one if you want to live with random, rolling black-outs of power. That will surely happen unless instead we have a massive effort to build nuclear power plants. I expect it will happen unless we build many of both coal and nuclear power plants. The population is growing and people are buying more and more plasma TVs, which use four times as much power as a conventional TV did. Curiously, these same people are convinced that the U.S. should lead an effort to reduce the use of energy to prevent a catastrophic global warming which is not even occurring.

So, are those who want improved home-efficiency standards going to impose the added initial cost upon new home buyers only or are they going to have government inspectors inspect every home in America and condemn it unless it is brought up to some new energy-efficiency code within a short period of time? What on earth are they thinking here? Will grandmothers be thrown out of their homes and into the streets? Will children live with their parents until they are 30 years old as they try to scrounge up the added money to qualify for the down-payment on a much more expensive home? New business start-ups will be hit by higher first and last month rent payments due to the added insulation costs, though in time they will save money on their energy bills. Commercial building companies will have some larger construction costs and insulation upgrade costs on older commercial buildings.

Finally, I love the 56% of Americans who believe that steps taken to curb global warming will create new jobs and investment. Of course they will! But,....the big question is will they produce as many new jobs as they will destroy? Will they create more new investment and wealth than they will destroy? The answer is that they will not create as much as they will destroy, because government action is only required when one intends to destroy rather than create. The people acting as individuals are the path to efficient creation. Government is the path to destruction. The usual inducements to making money will create whatever energy is needed, if the destructive power of government does not climb upon the backs of the individuals who would create that wealth of power. Subsidies from government are always inclined to become the boondoggles such as the ethanol subsidies have become. Decades of government sponsored research into alternative energy sources has done little to produce significant power capacity using alternative energy.

There is no forseeable path to energy independence for America. Our best policy is to pursue many sources of energy both by type and by source. We need to develop more oil and gas fields within the United States and wherever else in world there is oil or gas to be found. We need to start building nuclear power plants again and to continue to build coal-fired power plants, using suitable stack cleaning processes, but not worrying too much about CO2 production, because it does not much matter. Wherever wind, geothermal, tidal, and solar power production make economic sense, then the free market should be allowed to install such power plants, even though they will amount to only minor contributors to our total power needs. Meanwhile, people do tend to under-insulate their attics, to buy bigger car engines than they have a need for, to brake late rather than take their foot off the gas earlier, and forget to turn out lights they are not using. There are many ways to conserve expensive energy, but these are best left to the free market, rather than some government coercive programs.

Alan Reynolds: Get Ready for the Oil-Price Drop

Alan Reynolds, senior fellow of the Cato Institute, wrote an article called "Get Ready for the Oil-Price Drop" which is very interesting reading. It was published in the New York Post on 6 June 2008. He points out that the United States is using no more oil now than it did in 2004, which one would hardly guess given all the accusations that Americans addiction to oil is causing the high oil prices or is causing the imminent death of the planet. In addition, he points out that passenger cars are not the primary user of oil, so politicians and socialists trying to make us feel guilty about driving to work are giving evidence that they do not understand how oil is used.

Only 44% of oil becomes gasoline and much of that is used by industry, not just individuals who are being enjoined to walk a mile to a bus stop and wait 15 minutes for it to show up, if it does, then switch to a second bus, then get on a Metro train, and then walk the remaining several blocks to their place of work. Two-thirds of US petroleum use is for transportation, but half of it fuels commercial trucks, trains, airplanes, and ships. Most crude oil is used to produce diesel fuel, heavy oil for industry, aviation fuel, asphalt, home heating oil, propane, wax, plastics, detergents, drugs, and fabrics.

Since such a large fraction of oil is used for industrial production and the delivery of goods and services, the price of oil is very cyclical. That is, its price increases with economic activity and falls when economic activity slackens. Historically, the price of oil fell 44% in the Nov 2000 to Nov 2001 recession, 48% from Oct 1990 to Jan 1992, and 71% from July 1980 to July 1986. Because fuel costs have a huge impact on business profit and loss, when the price of fuel goes up greatly, then production will decrease shortly afterward. In nine out of 10 postwar recessions, the recession began shortly after the price of oil rose greatly. This time around, US manufacturing was proven very resistant to production decreases due to the high price of oil and has been one of the reasons for the sustained oil price increases.

In the US and Britain, industrial production is nearly flat, being only 0.2% higher than it was a year ago. But, in many other countries, production dropped over that period. Japan is down 0.7%, Austria 1.1%, Italy and Denmark 2.5%, Canada 2.9%, Greece 5.4%, Singapore 5.7%, and Spain 13.3%. In April, industrial production in India and China fell. This worldwide production decrease is going to bring down the cost of oil substantially.

Well, maybe it was a good thing it has recently been high. It made it impossible for the Democrats and some very foolish Republican allies to pass the incredibly wrongheaded Warner-Lieberman Energy Security Act which was to tax our use of fuels heavily and grab control of much of our lives. Of course, I also like seeing the US proving to be one of the countries most resistant to industrial output decreases in the world. Those of us who work hard to make the US so productive have much to be proud of. We also give the socialists and the earth goddess worshipers so much to complain about with our use of resources! Let us continue to give them much to be unhappy and bitter about! Heck, they would not know what to do with themselves if they could not complain about those of us who create and produce. They need us, as do all the human parasites. But why should we allow these angry leaches to suck our blood? Why don't we use this high gasoline price episode to keep up a drumbeat campaign for increased oil production in the US and in Iraq?

Oil Executives Finally Faced Down Democrats

Usually, American oil company executives when called before Congressional committees for the ritual browbeating by Democrats whenever oil and gasoline prices shoot up, take the beating that is dished out fairly meekly. Perhaps with gasoline prices as high as they are now, they were afraid the Democrats would not stop at a tongue-lashing and would actually take draconian action against the oil companies. Usually, the Democrats take their cheaply earned points with the public and do nothing more about it, because they know that any action they take will be a disaster. That's right, they are self-aware demagogues! They usually know better than to put their pet popular theories to the test. They know they will fail. After all, they are bright enough to get elected. They are bright enough to fool most of the people most of the time.

On 21 May 2008, Chairman Pat Leahy of the Senate Judiciary Committee called a number of oil company executives before the committee for a grilling. This time, these oil company executives did the grilling with their testimony.

John Lowe, Executive Vice President of Conoco Philips Company said: "We can only compete directly for 7 percent of the world's available reserves while about 75 percent is completely controlled by national oil companies and is not accessible."

Stephen Simon, Senior Vice President of Exxon Mobil Corporation: "Exxon Mobil is the largest U. S. oil and gas company, but we account for only 2 percent of global energy production, only 3 percent of global oil production, only 6 percent of global refining capacity, and only 1 percent of global petroleum reserves. With respect to petroleum reserves, we rank 14th."

"Of the 2 million barrels per day Exxon Mobil refined in 2007 here in the United States, 90 percent were purchased from others."

Now, the Democrats want Americans to believe that these small-time companies in the world oil and gas market are manipulating the world-wide cost of oil, which in 2007 accounted for 58% of the cost of gasoline sold in the United States. They are accused of price gouging by the Democrats. But, as they pointed out, only 4% of the price of gasoline goes to oil company profits, while government taxes average 15%. If a 4% profit is gouging than government is beating them in the gouging arena by a factor of 3.75!

John Hofmeister, President of Shell Oil Company, told the committee that for 30 years companies have been prohibited from exploring and developing oil and gas resources in the United States. The Department of the Interior says 62% of all on-shore federal lands are off limits to oil and gas developments and restrictions apply to 92% of all federal lands. Outer continental shelf moratoriums apply to the Atlantic Ocean, the Pacific Ocean, and the eastern Gulf of Mexico. There are also congressional bans on on-shore oil and gas activities in specific areas of the Rockies and Alaska and bans on even doing an analysis of the resource potential for oil and gas in the Atlantic, Pacific, and eastern Gulf of Mexico.

Do you suppose the bans on analysis of the reserves that may be present in these restricted locations in the U. S. are motivated by fear that Americans would be angry at Congress for the high price of gasoline if they knew how much oil Congress was making unavailable?

Hofmeister continues: The Argonne National Laboratory reported in 2004 that 40 specific federal policy areas halt, limit, delay, or restrict natural gas projects. He offered to make a copy available for the report on the day's proceedings. "As a result, U. S. production has declined so much that nearly 60% of daily consumption comes from foreign sources."

Senator Orrin Hatch, Republican, pointed out that large proven reserves of oil exist in Utah, Colorado, and Wyoming. He noted that experts say there are between 800 billion and 2 trillion barrels of oil that can be recovered there for much less than $100 per barrel. He noted that just last week, the Democrats stopped an effort to recover shale oil in Colorado.

Clearly, the Democrats really want oil to become very expensive, so that oil and gasoline consumption will drop. Partly this is for the nonsensical idea that we need to reduce carbon dioxide to prevent global warming. This is a case where Democrats have enough understanding of supply and demand to know that if they cut off the oil supply, the price of gasoline will rise. Partly, it is just that the Democrat elite think there is something romantic about a primitive lifestyle, even though few of them are prepared to live that primitive lifestyle themselves. But, they think it would be better if the rest of us did.

How is it that Americans have managed to send so many strange people to Congress to rule us all with their wrongheaded ideas?

Price of Corn Shoots Upward -- Ethanol Will Too!

In my 24 March 2008 post Corn for Real Food or Energy Myth?, I demonstrated how every argument for the use of corn to make ethanol was wrong. In some cases, it has long been clear that these arguments were at least dubious and more recently it has become clear that the entire policy is idiotic. On Friday, 4 April 2008, the futures price for corn to be delivered in May on the most actively traded contract hit $6 per bushel. Corn prices have risen nearly 30% already this year due to reduced stockpiles and an huge increase in demand for ethanol and livestock feed. Prices have shot up 89% in the last 18 months!

Recall from the earlier post that distillers can produce 2.7 gallons of ethanol from one bushel of corn. Presently, the cost of one gallon of ethanol is $2.50, so the 2.7 gallons produced from one bushel of corn are worth $6.75. This means that the cost of production in converting a bushel of corn into 2.7 gallons of ethanol and delivering it to the refiners, must be significantly below $0.75. This is really putting a squeeze on the ethanol refiners, so the cost of ethanol will likely have to go up. This will further increase our gasoline prices at the pump.

Just this last week, the oil industry was running ads, as the Democrats in Congress once again called them before committees to justify their profits, claiming that prices were going up due to the cost of a barrel of oil and the uncertain situation in the Middle East and in some other oil-producing countries, such as Venezuela and increased world-wide demand. This is true, but it was noteworthy that they did not complain about the effects of gasoline taxes, the requirement to use ethanol in gasoline blends, the many restrictions on their drilling for oil, and restrictions on using oil shale lands, most of which is on Federal land. Clearly, they were too afraid of the politicians who were challenging their profits. They told Congress their profits are in line with those of other industries. Democrats love to call them before Congress and grandstand that the oil companies are gouging the American public, but every rational examination of the situation always shows that they are not the guilty party. But the fools in Congress who are guilty use this means to divert attention from their hands in the cookie jar.

One of the interesting factors driving futures prices upward is that the U.S. Department of Agriculture has projected that farmers are only going to plant 86 million acres of corn this year, which is an 8% drop from last year, when the area planted in corn was the highest it has been since 1944. This is rather puzzling given the increase in corn prices! One would expect the expected high demand and the resulting high prices to drive farmers to plant more acreage in corn. Why is this not expected to happen?

One reason is that soybean prices have also gone up in the last year since much of the increased acreage planted in corn was due to a decrease in acreage planted in soybeans. Another factor is that the cost of planting corn is going up. Apparently one of the reasons for this is that corn seed is going up in cost, which caused the price of Monsanto Company stock to go up last week greatly. They are the biggest seed producer. Still another factor is one predicted in the March article, the need for crop rotation, which was too much ignored last year. When it is ignored, more fertilizer has to be used and that means more expense or there is a decrease in corn yields. When more fertilizer is used, there are more pollution run-off problems and this results in problems for farmers also. Heavy rains are forecast to continue in the Delta and southern Corn Belt regions far enough into April that planting delays will tend to drive farmers to plant more soybeans and less corn, since soybeans do better in wet conditions and with late planting than does corn. Fertilizer supplies are also low and since soybeans do not need nitrogen fertilizer as corn does, this gives an incentive to switch acreage to soybeans.

Meanwhile, the government requirement for ethanol use in gasoline blends is not going to diminish, so the ethanol cost will be driven sharply upward as the supply of corn diminishes and food and livestock demand remains. In fact, hog prices have been so low that farmers have been holding them back from the market in hopes of better prices. Meanwhile, these larger numbers of hogs have to be fed. Cattle stocks are also running high.

So, analysts are expecting the new corn crop prices to fluctuate between $6.20 and $6.55 per bushel, further driving the costs of corn products, beef, pork, and chicken upward. Ethanol will also increase in cost and there will be probable increases in the subsidies for ethanol so that ethanol production and use in gasoline blends will increase as Congress has determined it will. So as taxpayers, food consumers, and as users of transportation your costs are going to go up, up, and up some more. Tell your local politicians how grateful you are for their wise policies with respect to ethanol, energy in general, the environment, global warming, and taxation!