Friday, March 23, 2012

Energy Independence from Big Oil Companies

When average Americans think of nationalizing an industry (such as oil companies) they immediately think of socialism and Joseph Stalin of Russia; or they might relate it communism and Chairman Mao of China. So Americans will automatically associate the ideologies of socialism and communism with mass genocide. And the top 1% wants you to continue doing so, using all kinds of scare tactics...such as using psychology to promote fear to get people to vote against their own best interests.

But in truth, America has always had a combination of both socialism and capitalism as our form of economic government. The United States has never had a pure "free market" economy -- we have always subsidized businesses and other efforts that were vital to research, defense, transportation, space exploration, infrastructure, and national security. These things have always been financed by the taxpayers.

In the recent past, one need look no further than to the biggest banks and the auto industry. Americans once bailed out General Motors after our bombers destroyed their factories in Nazi Germany during World War II.

While depending who's running the administration, some call this crony capitalism, but both political parties have been equally involved. That's just how we've always done business in America. Look at the airlines, railroads, and savings & loan industries. Government bailouts and subsidies are nothing new.

The Tea Party's argument about "free markets" is just plain silly. Basically, members of the Tea Party are more like anarchists and advocating for no government at all. And when they say "government doesn't create jobs" and that only the private sector creates jobs, that's just plain nonsense, and is only half the truth. Government has always been America's largest employer. Wal-Mart is America's 2nd largest employer, with 1.4 million employees in the United States and another 2.1 million world-wide.

The defense industry makes up a very large piece of the federal budget, and is a collection of defense contractors in all 50 States with the most powerful lobbyists in Washington D.C. - - while companies like Boeing also makes commercial aircraft, it is not totally subsidized, but Boeing does get tax dollars - - just like the big oil companies do.

Which brings me to the point of this post. Newt Gingrich says we could have gasoline for $2.50 a gallon, and he's right. But not in the way he suggests (such as drilling more and building the Keystone XL Pipeline). China has gasoline for $2.50 a gallon because their oil industry is 100% subsidized. In other words, China's oil companies are all "nationalized". And that's how America could also have cheap energy.

"Oh no!!!! Socialism!!! The end of capitalism, free markets, and our superior exceptional way of life in America as we know it!!! Spreading the wealth around!!! Destroying America!!! Mass genocide!!! AHHHHHHHHHH!!!"

Hold on, before you panic, read on...

Over 100 years ago during the Gilded Age (the era of "robber barons" of "big trust companies"), Americans pushed back on monopolies. Since that time, America saw the greatest expansion of the middle-class ever in human history right after World War II.

Without government intervention and regulation, this country would no longer be a democratic republic, but a plutocracy. In the past 40 years, with corporate "mergers and acquisitions", and because of so much money in the political process (and for lobbyists), we have seen the days of corporate rule creep back on us again (along with the same income disparity and wealth inequality). And when many members of Congress retire, they take jobs from these same corporations.

So if oil companies support political campaigns for members of congress, and then later give them jobs, how we can we trust any politician or oil executive to do what's best for the country and its people?

Let's look at big oil, as just one example, for the sake of argument. Black gold is the blood that runs through the veins of our entire economy, influencing the price of everything we need, from food and heat to transportation and housing.

Less than a year ago on May 12, 2011 the top executives from the five biggest oil companies defended their massive profits, big tax breaks, and billions in oil subsidies in a hearing before the Senate Finance Committee. As could be expected, after the hearing Fox News rushed to big oil's defense, making false claims and comparisons.

At the hearing, ExxonMobil's CEO Rex W. Tillerson had led the defense of oil tax breaks that most Democrats had wanted to repeal. The eventual Senate vote was 52-48, and the vote broke down mostly along party lines. Moderate Republican Senators Olympia Snowe and Susan Collins of Maine split with the rest of the GOP to support the effort to repeal oil subsidies. Faux-Democratic Senators Ben Nelson (D-Neb.), Mary Landrieu (D-La.) and Mark Begich (D-Alaska) had voted against the bill because of their ties to big oil.

The reason? Louisiana has the 2nd most oil refineries after Texas (both Exxon), and Alaska produces the 2nd most oil after Texas (both Exxon) The Keystone XL Pipeline connects the north and south legs in Okalahoma, where Obama just visited to illustrate his support for expedited construction of the southern leg of the pipeline. But the Republicans are still complaining, and accusing Obama of playing politics.

The Republican-controlled House had earlier approved several measures that Republicans said would alleviate gas prices by opening up more public federal lands for oil and gas drilling. Democrats responded by arguing that oil speculation, not federal policies on drilling, is to blame.

At that Senate hearing last year, Exxon's CEO Rex Tillerson had admitted that the price of oil, based purely on supply and demand, should be in the $60 to $70 a barrel range (but even that was much too high). The reason it’s above $100 a barrel, Tillerson explained, is due to the oil majors using futures contracts to lock in current high prices, and speculation that is engineered by the high-frequency trading of quantitative hedge funds.

That was just but one of the many stunning revelations made during the Senate hearing on tax subsidies to the oil industry, which featured the five most powerful oil CEOs from BP, Shell, Chevron, Conoco-Phillips and Exxon-Mobil.

Here are some other juicy disclosures from the hearing:

  • The average cost of producing 1 barrel of oil was a mere $11
  • the average price of the oil in the marketplace was $72, some 6.5 times the cost of getting the oil out of the ground.
  • The profits for the big 5 oil companies was $36 billion in last year’s first quarter. A large part of those profits were used to buyback their stock shares, or pay dividends to shareholders, which are also the oil executives themselves*

* Share "buy-backs" increases the value of executive stock options, and after they are vested and sold, they will only have to pay a 15% capital gains tax (not the top marginal rate of 35%), which is less than Warrenn Buffett's secretary. Executives in all major corporations use this tactic, and sometimes dilute share values to raise cash.

Meanwhile, after the Senate hearing, the top four Senate Democratic leaders as well as Senator Claire McCaskill (D-Mo.) sent a letter to the Federal Trade Commission demanding an investigation into whether U.S. refineries are engaging in price fixing. Just this month, Senators Claire McCaskill and Charles Schumer (D-NY) were pushing for a quick resolution of the federal investigation into whether there is gas price fixing through oil refineries.

The deduction for intangible drilling expenses was given to the oil industry in 1960 when a barrel was worth about $15-17. So, why do they need this favor when oil is $100 a barrel? Good question. The oil execs had looked horrified during that hearing when the senators mentioned cutting off their taxpayer-paid subsidies, so the oil execs threatened that all oil exploration in the U.S. would cease and desist (scare tactics, using psychology to promote fear).

The CEO of Conoco-Phillips even went as far to say that ending their taxpayer subsidies would be "un-America". WTF!?!!?

Now less than a year later, here we are again. According to a recent New York Times article, The United States reduced oil imports from OPEC by more than 20 percent in the last three years, and now the U.S. has become a net exporter of refined petroleum products like gasoline for the first time since the Truman presidency.

Less than a decade ago the natural gas industry feared running out of domestic gas, now they are suddenly dealing with a glut so vast that facilities are applying for licenses to export gas to Europe and Asia.

All cross the country, the oil and gas industry is vastly increasing production, reversing two decades of decline. But President Obama does admit, "We’re not drilling in the National Mall. We’re not drilling in your house."

Americans are pumping significantly less gasoline - - and they are driving fewer miles and replacing older cars with more fuel-efficient vehicles at a greater clip (and with millions of people unemployed, they're no longer making the round trip back and forth to a job).

Simple economics suggests that if the nation is producing more energy and using less, prices should be falling. But crude oil — and gasoline and diesel made from it — are global commodities whose prices are affected by factors around the world.

At over $100 for a barrel of crude, it's no wonder the big oil companies want the Canadian pipeline and more oil leases on federal lands...not for domestic supply-and-demand, but for big profits on the global market. Much of the industry is thrilled at the prospect. As Obama recently said, "The lead in one news story said, 'Gasoline prices are on the rise and Republicans are licking their chops.' "

The Bush administration opened large swaths of the Gulf of Mexico and the waters off Alaska to exploration, granting lease deals that required companies to pay only a tiny share of their profits to the government.

Back in 2005, with the world economy humming — and China, India and other developing nations posting astonishing growth — demand for oil began outpacing the easily accessible supplies.

By 2008, daily global oil consumption surged up nearly 20 percent from the decade before. In July of that year, the price of oil reached its highest level ever since World War II, topping out at $145 a barrel (equivalent to more than $151 a barrel in today’s dollars).

Fracking, technological advances, new imaging and seismic technology, and new drill bits made oil and gas more plentiful and profitable. In the last five years domestic oil companies have sold overseas assets and reinvested in Texas shale fields.

By decade’s end, oil executives say oil could be flowing roughly equaling the total output of Nigeria Falls, but American consumers could still be paying more at the pump.

Besides the American consumers in this oil and natural gas boom, another loser is the environment and wildlife. Water experts say aquifers could run dry if fracking continues expanding, and even oil executives concede they need to reduce water consumption.

But "energy independence" is a myth so long as oil and gas corporations are allowed to continue to exploit America's natural resources for personal financial gain. If the Keystone XL Pipeline only adds to the "world supply" at "market prices" (and what can be sold to other countries), how can it help domestic prices and supply? And how could it ever give the U.S. "energy independence" , or independence from any other energy source, if it is privatized for profit? Consumers will never be "energy independent" from the big oil companies.

That's why I proposed an idea about the Keystone XL Pipeline -- the funding of a massive non-profit public works program to build an oil company that's operated and owned by our government (the people). The American consumers, manufacturers, the airlines, and our defense department (with taxpayer funding) can buy energy AT COST, instead of just stuffing cash into the pockets of a few oil executives.

No, my plan is not socialism or communism. It's not even nationalization. As citizens, we would just be using our own tax dollars to subsidize a government-owned (people-owned) oil company that can compete with the current oil companies for our own domestic energy needs. We wouldn't have to put our oil on the world market for consumption by India or China, or any other competing economy.

According to my own poll (on the top right-hand side of this page) most people agree with my plan. Please read my related posts below (with links to sources) for a wealth of information on this subject.

Headlines in the news regarding the Senate Hearing last year:


  1. Saudi Arabia is the leading protagonist of the OPEC cartel --- and its primary function is to limit the supply of oil to world markets to control, and within the limits of the world's tolerance, to maximize the price of crude oil in the market place. Their production costs veer toward $1.50 per barrel, or possibly less, according to Saudi Oil Minister Al Naimi at the Houston Oil Forum.

  2. Very much approve of your writing about "Energy Independence from Big Oil Companies" ; it’s the same message I have been voicing to my friends. Only thing I might add is that after many years of being subsidized with tax dollars these same subsidized companies have no true allegiance to America and have never paid their fair share of taxes, example GE.