Viewpoint: Gas Prices and the Great
GOP Lie
To hear the Republican presidential candidates tell
it, President Obama is doing all he can — shy of
changing the price signs at your local Mobil station
— to raise the cost of gasoline. Last week Mitt
Romney told Fox News that Obama "has done everything
in his power to make it harder for us to get oil and
natural gas in this country, driving up the price of
those commodities in the case of gasoline." Rick
Santorum last month warned that gas — now at $3.84 a
gallon on average — would hit $5 a gallon under
Obama, and that the President "has done everything
possible to shut down energy production." Newt
Gingrich — he of the promised $2.50-a-gallon gas —
has called on Obama to fire Energy Secretary Steven
Chu over comments he made years ago about the need
for American gas prices to be higher. "If he
doesn't," Gingrich said, "then the American people
will know the President is still committed to his
radical ideology, which wants to artificially raise
the cost of energy."
I'm not positive, but I suspect that for Obama —
like most Presidents — any ideology, radical or
otherwise, takes a backseat come campaign season to
the primary objective: getting re-elected. And no
President who wants to remain President is going to
be happy with gas prices that are scraping $4 a
gallon, which is why over the past couple of weeks
just about the only thing Obama seems to want to
talk about is energy prices — and everything his
government is doing to reduce them. Hence the
unusual spectacle of seeing a Democratic President —
and one who came into office on fire for clean
energy — boasting that domestic oil production had
risen for three straight years under his
Administration. "When gas prices go up, it hurts
everybody," Obama said in a speech last month. "High
gas prices are like a tax straight out of your
paycheck."
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It's that same de facto tax that explains why
politicians rush to blame each other when gas starts
getting expensive. But is Obama really "fully
responsible for what the American public is paying
for gasoline," as the Republican Senator John
Barrasso said last week?
The short answer is no — and pretty much so is the
long answer. First things first: the price of
gasoline is overwhelmingly dictated by the global
price of crude oil. It's true that local conditions
in individual countries can make a difference. Some
East Coast refineries have shut down operations, for
example, because they are locked into long-term
sales contracts with distributors, making it
impossible for them to pass on the higher price
they're paying for oil, and thus cutting into their
profit margins. This has further raised the price of
gasoline, especially in big cities like Boston and
Washington. (If you think you've got it bad, it
costs $4.14 a gallon to fill up where I work in
midtown Manhattan.) That's a problem that comes from
the oil industry and needs to be resolved by the oil
industry, not the President, and it's likely a
temporary one anyway as refiners adjust to higher
prices and reroute gasoline from the Gulf Coast.
No, gas is expensive because oil is expensive — and
oil is expensive for reasons that the U.S. did not
cause and can't unilaterally fix. American oil
consumption is actually down from its peak of 20.8
million barrels a day in 2005 to a little under 19
million barrels a day last year. A lot of that is
the lingering economic malaise, which depresses
business and consumption and therefore driving;
unemployed people, in other words, don't commute.
Americans drove just under 8.1 billion miles in
2010, less than the 8.26 billion we drove in 2006.
(MORE: 5 Ways to Score Cheaper
Gas)
Obama certainly doesn't want to take responsibility
for the recession, but he may well want to claim
some credit for another factor behind declining oil
demand: more efficient vehicles. Ten years ago, cars
and trucks averaged 24.7 m.p.g. By 2011, that figure
rose to 29.6 m.p.g. — and new deals brokered by the
Obama Administration with the automakers to raise
fuel-efficiency standards to as high as 55 m.p.g. by
2025 could take an even bigger bite out of demand
while also giving American drivers more resilience
against high gas prices. After all, doubling the
fuel efficiency of your vehicle is equivalent to
cutting the price of gas in half.
That would be smart to do because it's quite
possible that — barring another major global
economic slowdown — oil will remain relatively
expensive for the foreseeable future. Right now much
of the recent price spike is due to tensions with
Iran, a major oil producer. War with Iran is a real
possibility, albeit an uncertain one, and if the
missiles were to fly, we could easily see a price
spike of $50 a barrel or more. So traders and major
oil consumers are stockpiling crude now as a hedge
against that very situation, which in turn drives
the price up now by artificially inflating demand. I
can't see how that's an incumbent President's fault.
What's more, it's the Republicans themselves who are
leaning on Obama to take a harder line against Iran,
a move that would likely only raise the possibility
of war and the attendant crude catastrophe.
Over the long term, however, the real driver of
high oil prices is rapidly increasing demand from
the developing world, especially India and China.
Global oil consumption is expected to increase by
800,000 barrels a day to 89.9 million barrels a day
by 2012 — and Asia is consuming 700,000 barrels
worth of that increase. As Chinese and Indian
consumers start buying and driving cars in large
numbers, their share of global crude demand will
only increase, and the oil industry will be
hard-pressed to keep up. That means high prices
could become the norm as long as we remain dependent
on oil for the vast share of transportation fuels.
"The era of cheap oil is over," says Fatih Birol,
the chief economist at the International Energy
Agency.
(MORE: Stumped at the Pump)
The final — and perhaps phoniest — knock on the
President from the conservative wing is that he has
thrown up huge roadblocks to domestic oil
development. "It's very clear that this President
does not want carbon-based energy flowing through
the country," Romney told Fox recently, in a fairly
typical example of the common refrain.
But if that really is the case, Obama is doing a
poor job of executing that secret policy. Domestic
oil production has steadily increased from about
5.18 million barrels a day in 2005 to more than 5.5
million barrels a day last year. That's largely
thanks to a major increase in unconventional shale
oil produced in Texas and North Dakota, which now
produces more oil than the entire OPEC nation of
Ecuador. There are more oil rigs now working in the
U.S. than the rest of the world combined. Oil
companies seem to be doing just fine — ExxonMobil
made $9.4 billion in the past quarter. Critics note
that much of the unconventional oil boom is
happening on state or private land, and therefore is
mostly outside the purview of the federal
government, but it's hard to see how that is Obama's
fault either. The U.S. is in the middle of an
oil-and-natural-gas energy boom, even with a clean
energy-loving Democrat in the White House.
Could Obama be doing more to improve domestic oil
production? Sure. Stopping the Keystone XL pipeline,
however temporarily, reduces the amount of oil that
can be brought in from a friendly neighbor, though
the pipeline would have little impact on gas prices
in the short term. Oil production from federal
offshore waters has fallen under Obama, but you do
remember a little thing called the Deepwater Horizon
oil spill? (The oil industry would prefer you
didn't.) The temporary moratorium on deepwater
drilling and new safety rules slowed the pace of oil
production in the Gulf, but it's hard to argue in
the wake of the biggest oil spill in American
history that they were unnecessary. Obama could
speed the leasing of federal land to oil and gas
companies, though the industry is already sitting on
7,000 approved onshore drilling permits that have
been unused, along with millions of acres under
lease in the Gulf that haven't been explored yet. If
they want to drill, they should drill.
Here's the reality: even if the President opened up
every coastline and every available square mile of
the country to drilling — which the American public
would almost certainly never allow — U.S. oil
production would still just be a small part in the
overall bucket of global oil demand. And we would
still pay that expensive global price. No President
has much control over gas prices, Democrat or
Republican. That was true under Richard Nixon in
1974, and true under Jimmy Carter in 1979; it was
true under George W. Bush in 2005, and it's true
under Obama now. The best we can do is to work to
become more energy efficient, while supporting
responsible domestic oil development along with
alternatives. The President has a three-legged
energy stool: increasing production, expanding
renewables and raising efficiency. His Republican
opponents are just falling down.
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